Conference Presentation, Panel, Fireside Chat
How Activist Investing Is Reshaping the Boardroom: A New Dawn for Corporate Governance?
Milken InstituteDavid Faber, Gene Lee, Raymond J. McGuire, Clifton Robbins, Anne Sheehan, Jeffrey Smith
- CalSTRS and BlackRock intend to maintain long-term activist strategies to serve as catalysts for underperforming companies, with CalSTRS engaging across 7,000 portfolio companies and BlackRock potentially pursuing specific actions such as in Hong Kong.
- Blue Harbor restricts its strategy to collaborative engagements within the $2 billion to $10 billion market cap range, avoiding proxy contests or litigation by investing only where boards and CEOs align on value creation.
- Starboard focuses on operational improvements and cash flow enhancements rather than capital structure changes alone, expecting to exit positions when further alpha cannot be controlled or when management performs well, and declining to pay premiums for stakes.
- Global activist activity is projected to rise in Asia Pacific due to shifting governance structures in Japan and Korea, while European activity is expected to remain stagnant due to existing structural barriers.
- The frequency of proxy contests is forecast to drop precipitously over the next 18 to 24 months as boards increasingly add new members to address investor concerns rather than engaging in litigation or fights.
- A reduction in the number of firms identifying as activists is anticipated as internal corporate governance introspection leads to self-driven improvements and companies act as their own activists to prevent external intervention.
- Director compensation models are predicted to evolve toward all-stock structures without cash to enhance alignment, potentially including restrictions on stock sales until a director leaves the board.
- Companies are expected to face increased engagement requests from activists as management teams become more receptive to shareholder views to avoid hostility, with Investor Relations assuming a larger role in facilitating CEO-shareholder dialogue without dominating 25% to 30% of executive time.
- Future activism is shifting toward the $1 billion and under market cap segment as large-cap hostile activism declines, while firms like Starboard may consider investing in companies owned by Warren Buffett provided Berkshire does not impede shareholder influence.
- Investors are expected to face fewer opportunities for capital structure changes as a result of companies adopting disciplines to improve performance, though opportunities for value unlocking through operational fixes will persist even if timing extends beyond initial expectations.