- Strategic Resilience Proactive Guide Companies Facing Short Seller Attacks
Strategic Resilience: A Proactive Guide for Companies Facing Short Seller Attacks
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4月 02, 2024
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In a highly volatile market, short seller attacks remain a significant threat to publicly traded companies. Although they are becoming less common, declining from more than 200 in 2015 to around 100 such attacks in 2022, the impact of these attacks has arguably increased, particularly for larger, more established organizations. The basic construct of a campaign, however, remains the same: Publish a short thesis on a company — be it in a report, post or blog — to encourage its shareholders to sell their stock, which creates downward pressure on the price. With the intent to profit from the destruction of value, anything and everything is fair game, including putting the credibility of the company and management into question.
Short seller attacks are nearly impossible to predict, and organizations are often afforded limited time to assess the situation and respond accordingly. But by adopting a strategic approach, proactively assessing a stock’s vulnerabilities and developing a response playbook, CEOs, boards of directors and management teams can strengthen their organization’s resilience when confronted with this type of crisis.
What to Do Before a Short Attack
Identify Risk Areas
Ahead of an attack, management and board members must familiarize themselves with the bear case for their company’s stock by identifying vulnerabilities and understanding investor sentiment. Analysts and bearish investors can provide a third-party perspective on key vulnerabilities, while the broader investor base can indicate support level should such vulnerabilities be used in a campaign. Once such vulnerabilities and any misperceptions in the market have been identified, companies should take steps to proactively address them.
Short sellers often leverage an organization’s own disclosures and data as ammunition for making their bearish arguments. Conversely, when organizations lack fulsome disclosures, short sellers will fill in the gaps by constructing their own narratives. Identifying missing or potentially damaging information allows companies to proactively develop responses to address short sellers' concerns and prevent them from gaining traction in the market.
Cultivate Retail Investors
Many companies fail to consider their retail shareholders and the role they can play in determining the outcome of a short seller attack. Retail investors are a large, but diverse category of shareholders that account for around 20% of U.S. trading volume. When considering their proxy voting history and the overwhelming support they’ve demonstrated for management and boards, companies have a powerful potential ally on their side if properly engaged. Companies should become familiar with their retail investors — learn how they source information, what channels they traffic in and whose opinion they follow — and develop a bespoke engagement strategy with these investors. Properly harnessing the power of the retail base can prove necessary in a short attack, and beneficial in a steady state.
Develop a Response Playbook
Most importantly, organizations must develop a response playbook. This should include a response team consisting of management, investor relations, external advisors and board members who will convene to determine the company’s strategy in case of an attack. To prepare for all possible scenarios, organizations should develop multiple strategies and related response plans, each tailored to address different vulnerabilities.
What to Do During a Short Attack
Assess the Attack’s Credibility
Companies can calibrate their response based on the credibility of the attack by examining the short seller’s track record and previous campaigns. If the credibility of the short seller or their thesis is questionable, or if there is overwhelming support for management among investors, companies may want to adopt a wait-and-see approach, responding only as needed. Alternatively, if the short thesis aligns with the company’s bear case or any concerns previously raised by investors, then it’s crucial to be proactive and quickly mitigate any damage with a detailed, facts-based response.
Communicate in a Clear and Targeted Way
Communication is vital to the survival of a company during a credible short attack. A formal response to these types of attacks must be drafted to address specific questions, issues or topics raised in the short thesis. This response must be supported with as much evidence and data available to protect the organization’s reputation, reassure investors and showcase management’s ability to take concerns seriously. Continuously engaging with shareholders during this time will help ensure that they have a direct line to management and that their feedback is important.
The Takeaway: You Can’t Control the Markets — But You Can Control Your Response
Shareholders will ultimately determine the outcome of a short attack by how they “vote with their feet.” But how the company defends itself in a campaign can have a lasting impact on a company’s credibility and reputation. A forward-thinking and well-executed response strategy can help mitigate the downside of both. Although companies cannot control the markets, they can control their own response to an attack — and in turn, win the support and loyalty of their investors.
The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.
FTI Consulting, Inc., including its subsidiaries and affiliates, is a consulting firm and is not a certified public accounting firm or a law firm.
FTI Consulting is an independent global business advisory firm dedicated to helping organizations manage change, mitigate risk and resolve disputes: financial, legal, operational, political & regulatory, reputational and transactional. FTI Consulting professionals, located in all major business centers throughout the world, work closely with clients to anticipate, illuminate and overcome complex business challenges and opportunities. ©2024 FTI Consulting, Inc. All rights reserved. fticonsulting.com
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4月 02, 2024
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