Last year was a record year for shareholder activism; in 2023, that trend only looks to be continuing. But companies face increased pressure heading into this year’s proxy season. The latest IR Magazine and Corporate Secretary webinar looked at what’s driving the shareholder activism trend.
If we go back to 2020 and look at what happened with Covid-19, ‘there’s a lot of uncertainty in terms of how investors would react to an activist campaign in the midst of a global pandemic,’ said Amy Lissauer, managing director and global head of activism and raid defense at Bank of America. ‘We saw instead that activists were still investing in undervalued companies and in undervalued sectors.
‘If we fast forward to 2021, the market was strong. It didn’t matter what you invested in, people did well. In 2022, however, we saw the return of market volatility. In 2023, we are continuing to see very volatile markets and undervalued companies and sectors, but we are continuing to see opportunistic buying by many of those players. What we know to be true is that activists are looking for fairly valued companies where they believe they can be influential in helping to move the stock price up.’
Policy and regulatory drivers
'The substantial market shift, not just in the private sector, but also in the world, are all creating new vulnerabilities and opportunities for both activists and companies,' said Sabastian Niles, partner at WLRK.
‘All these factors – whether that is stock market volatility, macro uncertainty, new business pressures, investors and analysts taking new perspectives or sometimes companies’ specific perspectives – [attract] new entry points but also new risks for companies.
‘When you think of the regulatory environment at the moment and the lack of more substantive regulation around concerted group activity, we’ve still got legal blind spots when it comes to derivatives and swap building by activist funds or others.’
Activist target points
‘One thing that’s emerged over the past year or so, that’s personally surprised me, is the number of dual-class stocks being targeted by activists,’ said Kelsey Markovich, partner at FGS Global. ‘That type of ownership structure has historically been a strong deterrent and helped inoculate a company against an attack. The calculus of running a campaign has historically been about whether it was feasible to get a director on the board: that was the end-game. That would be victory through shareholder vote.
‘But we’ve been seeing a lot of big name-controlled companies being targeted, such as Peloton, Alphabet and Meta. It’s interesting for us being in communications and PR because I think PR really comes into play in those types of campaigns as they get a lot of media attention.’
Identify the problem
‘There’s long been people waiting for the rise of SPAC-tivism,' said Jared Levy, partner at FGS Global. 'Thus far we have not really seen these de-SPAC’d companies be the target of activists in a major way. If you’re an activist coming into a stock, you not only need to identify the problem – you also need to identify a solution to be able to create value.
‘For companies that are hoping to stay independent, the name of the game is to clearly demonstrate that they can create superior value through their stand-alone plans.’