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Jan 04, 2017

Shareholder activism in 2017: The view from Okapi Partners

The coming year is set to see more vocal index funds and an activist focus on small and mid-caps

With 48 campaigns during 2016 – on both the activist side and the defense – proxy solicitor Okapi Partners topped Activist Insight Monthly’s second annual ranking of law and proxy firms involved in activism, published in December.

The New York-headquartered firm climbed from fifth place in 2015 to share the top spot with law firm Olshan Frome Wolosky. IR Magazine caught up with Bruce Goldfarb, president and CEO of Okapi Partners, to hear his predictions for the coming year.

Bruce Goldfarb:

‘Coming off one of the most vigorous years ever for shareholder activism, companies should prepare for even more engagement from all types of investors in 2017. Understanding how different shareholders think and behave, what issues concern them and how to best communicate with them will be more important than ever as investors with different priorities become more vocal and involved in the voting process. Companies can distinguish themselves by articulating their long-term value proposition while listening to valid suggestions from all of their investors, even when some of those investors seem initially hostile to management and the board.

‘One trend likely to gain steam in 2017 is increased engagement of traditional investment managers. Fueling the vocalization of this group has been a significant shift from active to passive strategies over the last few years; this shift has changed the balance of shareholder power, with index funds managed by Blackrock, State Street and Vanguard having increased ownership stakes and more voting influence than ever.

‘In 2017, expect these traditional asset managers and others to be more vocal about board compensation, corporate governance, executive compensation and other issues. Also, expect more activist campaigns by traditional active managers in 2017 as they attempt to distinguish themselves from passive managers. Neuberger Berman’s successful proxy contest against Ultratech was just the beginning.

‘Another trend we’re likely to see next year is an uptick in activist campaigns against small and mid-sized companies. Not only have many large-cap companies been targeted already, but their shares have rallied recently and these bigger companies, which are frequently staffed with top-notch IR and corporate governance professionals, have become much more adaptable and open to voices outside the boardroom.

‘Small and mid-cap companies, on the other hand, are often caught off guard when an activist investor shows up, either publicly or privately. Instead of opening up a dialogue, their first reaction in many cases is to dig in their heels and fight. Until that changes, we’re likely to see activist hedge fund managers looking to find value in smaller and mid-cap companies, especially ones that have not had a change in the boardroom for a long time.

‘We will continue to see significant activity from activist hedge funds in 2017 as firms find undervalued companies and push for strategic changes. Companies are becoming more open to suggestions outside the boardroom so we may see more settlements with activist investors, but proxy fights will continue to be an avenue many investors will take as they seek a voice in decision-making.