2018 promises to be a year in which corporate culture will likely become an even more important focal point for investors and activists.
There’s no denying that social media has drastically altered the dynamic for public companies. Today, shareholders are increasingly calling upon corporations to take public stances on various social (and sometimes political) issues, some of which may be wholly unrelated to the corporation’s purpose. In a climate where shareholders are increasingly judging corporations based on non-traditional criteria, public companies can no longer spout platitudes about corporate governance and social values without risking being singled out. More than ever, members of today’s interconnected and increasingly progressive and tech-centric society are capable and ready to pressure companies to address rapidly evolving external events that fall outside the scope of a company’s stated business. At the same time, in some instances, investor pressure may instead force companies to become activists who influence and drive change to the corporate cultures of other public entities.
What does all this mean for companies considering M&A transactions?
In the context of any proposed M&A transaction, the resurgence of shareholder activism focused on non-traditional criteria makes it important to understand and consider a target company’s corporate culture. In other words, it is necessary to not only examine a target company’s existing corporate culture, but also think about how shareholder activism campaigns might necessitate the need to change or evolve the target company’s existing corporate culture post-closing –an event that could introduce added compliance costs that undermine the value of undertaking the transaction. While sociopolitical activism may not always manifest itself in the form of a proxy contest, today’s digital platforms allow well-organized groups to exert sufficient pressure to drive change in a company’s corporate culture. Companies that are contemplating public M&A transactions would be ill advised to ignore (or treat lightly) corporate culture in their pre-transaction analyses.
The author would like to thank Blanchart Arun, Articling Student, for his assistance in preparing this legal update.
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