Interview, Fireside Chat
Shareholder Activism in Uncertain Times
- Activist campaign volume dropped 60% during the March-to-May period compared to the prior year due to market volatility, including a 30% S&P 500 decline on March 23rd, which prioritized investor liquidity and safety over public campaigns.
- A resurgence in activist activity began around June 1st, with campaign levels returning to prior-year figures and private dialogue increasing as markets stabilized to early-year valuations.
- Future targets are identified as companies with poor total shareholder return relative to peers, specific capital allocation issues, or those possessing M&A potential including divestitures, spin-offs, or full-company sales.
- Governance vulnerabilities such as boards with excessive tenure, insufficient diversity in skills, gender, or age, and a lack of independence are expected to trigger activist attacks.
- The adoption of shareholder rights plans (poison pills) has decreased significantly since June following the recovery of stock prices from the March-to-June downturn.
- Defensive strategies are shifting toward proactive self-activation, where companies identify operational, financial, and strategic vulnerabilities to evaluate whether to sell divisions or the entire company versus executing standalone plans.
- Small-cap companies are advised to specifically assess board tenure, gender diversity, skill diversity, and the board's capacity to hold management accountable.
- Maintaining close engagement with all key shareholders, including index investors, is considered critical for effective defense strategies.
- ESG principles are becoming embedded in investment strategies and shareholder proposal activity, with an expected emergence of "true ESG activists" using environmental and social issues as leverage for strategic outcomes.
- Activist demands continue to center on M&A activities, although the success of these demands depends on an M&A market that is recovering but remains below previous peaks.
- If the M&A market recovery lags, activists are expected to increase demands for board seats to serve as insurance for ensuring their outcomes are pursued.
- Board seat acquisition allows activists to monitor management closely and ensure demands are addressed once market conditions improve.
- Long-term predictions for activist activity beyond the current timeframe are considered difficult due to ongoing COVID-19 uncertainties, though current trends suggest a continuation of strategic and M&A-focused engagements.