In today’s era of increased corporate engagement, stakeholders of all kinds are voicing opinions on how a company and its management should deliver value. As the number of activist investor campaigns continue to increase around the world, some recent developments as the activism landscape matures:
1. Everyone is an activist
Historically, companies have concentrated their efforts in building relationships with the key portfolio managers in their top investors, but increasingly, they should expand the focus of their efforts to encompass smaller investors and the governance and engagement teams who carry growing influence in determining the stance of institutions towards specific issues.
Collecting feedback from a range of stakeholders - including employees - also enables the company to anticipate where risks might arise and to work quickly to address those issues. A management team and Board that regularly engages openly with all stakeholders has a better chance of preventing a disgruntled investor from gaining support for his/her grievances.
2. The emergence of the activist analyst
An emerging trend in shareholder activism is the sell-side analyst who publicly supports an activist campaign against the company. This type of engagement opens a new front in company engagement and adds to the pressure on a company by using the analyst research platform to criticise management’s strategy and push for strategic alternatives – in some cases through broadcast interviews, by hosting fire side chats, and issuing public statements.
A company’s knowledge of, and relationship with, its covering analysts has never been more important – especially as MIFID II continues to shake up long-standing analyst relationships. Management and investor relations should consider the possibility that a sell-side analyst’s line of questioning could reveal insight about how an activist might engage and what attack themes might be used.
3. The vulnerability spectrum has widened
Any crisis – including workplace misconduct, cybersecurity, ESG – is an opening for activism. The exclusive pursuit of shareholder value is no longer deemed sufficient, and as the expectations around corporate purpose expand to include a wider set of disciplines, so does the company’s potential vulnerability to activist intervention.
It is important for companies to “know their risk” and engage their Boards to provide top-level oversight. Company directors must proactively review and strengthen their policies and prepare for navigating the new expectations for transparency and disclosure. Some examples include: establishing oversight of corporate culture, implementing incentives related to behaviour and culture, and transparency around succession planning.
4. Capital is global and investor expectations have homogenized
Over the past decade, company ownership has been transformed by the globalisation of share registers and the growth of new categories of investor...