Values

From Offense to Defense: Shareholder Activism Attorney Patrick Gadson Reflects on Switching Sides in Activist Campaigns

When New York Chair of V&E’s Shareholder Activism practice, Patrick Gadson, is defending clients from activist investors, he knows how the other side thinks.

That’s because, until recently, Gadson himself was on the other side. Just a couple of years ago, the New York attorney worked at a storied shareholder activism law firm, where he managed countless high-adrenaline activist campaigns, representing hedge funds large and small.

“I was looking at about 75 activist situations a year,” Gadson recalled. “It was really learning by drinking out of a fire hose.”

“Trying to get clients to understand what is driving the emotions of the activists can be very helpful in terms of getting clients to work constructively with an activist, where they otherwise would probably just say, ‘I don’t like this guy.'”

A Columbia Law School graduate, Gadson began his career handling M&A deals at a large New York City law firm before deciding to focus on activism and moving on to the activist firm. He was intrigued by shareholder activism after researching the legendary corporate raiding stories of the 1980s as well as contemporary activist campaigns.

“Shareholder activism today is the closest thing to 1980s-style corporate raiding,” Gadson said. “It was the kind of stuff that got my blood flowing, and made me want to be a corporate lawyer in the first place.”

But as exciting as the activist campaigns were, Gadson ultimately found himself drawn to defense work. In 2017, Gadson joined V&E’s shareholder activism practice, which is home to roughly 30 attorneys. Today, he is the head of shareholder activism at V&E’s New York office, where he prides himself on providing clients a preview of what activist investors have in store.

Gadson does so by conducting exhaustive research on each client. Then, drawing upon his own understanding of activist investors, he identifies points of vulnerability that activists may seize on, predicts what sort of changes they will demand, and determines what measures clients can take to protect themselves.

“I review clients’ financials, analyst reports and earnings call transcripts,” he explained, “and I tell them, ‘Here’s what the activist is going to ask for. He’s going to want you to do A, B and C.’”

Sometimes, he added, clients are skeptical. “But then they come back and say, ‘You know, he said exactly what you said he was going to say.’”

Gadson maintains that his own experience and insights are only part of what’s driven his successes in crafting strategies to defend against activist campaigns and proxy fights. Teamwork, he said, has been equally important. Gadson relishes collaborating both with his V&E colleagues and professionals in other fields, such as public relations experts and crisis management specialists.

“When I was on the activist side, there were moments where I didn’t have a single other associate or partner to work with. It’s a lot more fun to have a team that attacks issues,” he said. “I really appreciate the ability to bounce ideas off of other folks. You don’t have to be Rambo and take on the world by yourself.”

In fact, the nature of Gadson’s work today largely skirts any Rambo-like aggression. Though activist investors are often known to be abrasive or even reckless, Gadson works with clients to help them understand activists by helping them wrap their minds around activists’ motivations and the pressures that they face.

“Activists, for the most part, don’t have permanent capital, so don’t think they’re bad people or they’re jerks because they tend to want to move at a velocity that can be borderline reckless. If, at any moment in time, your capital structure could evaporate, you might tend to think recklessly every now and again, too,” he said. “Trying to get clients to understand what is driving those emotions of the activists can be very helpful in terms of getting clients to work constructively with an activist, where they otherwise would probably just say, ‘I don’t like this guy.'”

There are, of course, a few bad apples among activist investors. Gadson said that, in the past, he was particularly disturbed to encounter clients who tended to target companies where the corporate boards or leadership ranks featured significant gender or racial diversity. In other cases, Gadson said, activist clients dug into the divorce records of corporate board members in an effort to find “anything horrible” they could use for leverage.

Extreme examples notwithstanding, Gadson said many activists “are just trying to do the right thing.” Many times, he added, activist investors don’t realize that some of their suggestions are ideas that companies have explored earlier of their own accord. “We hear all these hedge funds’ propose ideas that the board stress-tested and discarded months or years ago, but the hedge fund guys think they’re the first to come up with them.”

But Gadson said that once companies show they are willing to work constructively with activists, both sides become amenable to settlements.

“I have found that eventually, if clients are willing to do that, there is a breakthrough, usually on the activist side as well, and they realize, ‘Maybe I am acting like a jerk. Maybe I’m not being as constructive as I could be,'” he said. “Then you can get some nice outcomes for your client.”

That’s not to say that Gadson isn’t willing to get tough and exploit an opponent’s mistakes when necessary. For instance, Gadson and his team recently discovered that a prominent activist investor hadn’t taken necessary steps to prevent the use of a universal proxy card in a corporate board election. The card allowed Gadson’s client a rare opportunity to provide shareholders the flexibility to “mix and match” their board selections rather than being forced to decide between the activist’s slate and the incumbent slate.

“It was one of those ‘gotcha’ moments that gave us a lot more leverage,” Gadson said. “We were able to better protect more of our clients’ interests.”

Gadson finds additional gratification when the activists he’s squaring off against happen to be represented by his old firm — which happens quite a bit. “It’s always fun to play against your old team,” he said.

Whether it’s through artfully negotiated settlements or “gotcha” victories, Gadson now finds that successfully defending against activist campaigns can be just as rewarding as waging them.