Activists increasingly are seeking settlements that give board subcommittees the power to hire consultants that can drive a wedge between management and directors, Freshfields Bruckhaus Deringer LLP partners Ethan Klingsberg and Elizabeth Bieber argued on the latest Activist Investing Today podcast.

The duo spoke about why they believe insurgent investors are seeking to create new board subcommittees imbued with activist-backed directors that bring in outside consultants to support investor strategies.

“The idea here is that the activist comes in with a thesis and has good ideas, and they also talk to consultants and can, as part of their negotiations with the company, suggest, ‘If you don’t believe us, and want to learn more about our ideas, let’s just ask a consultant,’” Bieber said. “The consultant typically works with the board or a committee, and they have all these good ideas that aren’t necessarily vetted by management. That’s where the danger is in acceding to the request.”

Klingsberg insisted that many consultants understand that activists “are a tremendous source of business for them,” and he argued that there often is a tacit agreement where they know they will be brought in again and again if they advocate for the activist playbook. “When we face this, we make sure management selects the consultant and oversees the consultant,” he said.

Beyond consultants and board subcommittees, Klingsberg and Bieber talked about corporate governance and why shareholder engagement is still vital at controlled companies, which could face activism, and how corporations with sunsetting dual-class structures could keep their insider-controlled status longer.

Check out the podcast with Ethan Klingsberg and Elizabeth Bieber here:

More podcasts from The Deal are available on iTunes, Spotify and on TheDeal.com.