Although ‘dedicated activists are keen to suggest that conditions are better than ever’, Josh Black, editor at Activist Insight, says the firm’s research suggests ‘their activity did not dominate corporate life as in years past’. His comments are published in the firm’s Activist Investing Annual Review 2022.
Despite a ‘a temporary halt’ on activist investing because of the Covid-19 pandemic, many hedge funds have told the researchers that by summer 2020, there had been a return to normal conditions – ‘perhaps even open season’.
Activist Insight points to the favorable conditions for activists: more companies were trading at near 52-week lows, there were wide dispersions in performance, and new challenges for management teams (not only those related to the pandemic) had ‘reshuffled the pack so that every player had a new hand’.
Even so, the report notes that ‘activists held their cards close well into 2021’, with issuers on the front foot in both M&A and board refreshment. ‘Activists won 23 percent fewer board seats worldwide in 2021, partly reflecting a decrease in public demands,’ the report states, though it adds that more may be happening behind the scenes.
A shifting landscape
The changing activist landscape has prompted Activist Insight to also change how it assesses campaigns. ‘It is no longer as useful to say there was more or less activism this past year,’ writes Black in the introduction to the annual review.
In previous years, headline findings largely focused on how many companies had been subjected to a public activist campaign or activism-focus types. But activism is changing and the annual review reflects that.
‘Activism increasingly means different things to different people, from an event-driven strategy for maximizing returns to a method for changing the world one company at a time,’ writes Black. ‘Some activism is proactive, some reactive. The boundary between ESG and hedge fund activism is getting thinner every day.’
Instead, Activist Insight says it is favoring more specific measures of activism, including those that have seen increases – Black cites opposition to M&A and environmental and remuneration-based campaigns – and those that have seen big decreases. He says that ‘interestingly, attempts to remove prominent directors or executives are down worldwide while pro-M&A activism also suffered – surprisingly – in last year’s boom.’
M&A, executive pay and board diversity
Within the shifting nature of shareholder activism, what has the firm been seeing? Proxy contests were ‘notably unproductive’ in both the US and Europe, according to the report. Activist Insight notes that Box’s victory over Starboard Value, ‘where shareholders gave the management team the benefit of the doubt on its turnaround despite a seemingly defensive equity issuance’, was more representative of the mood than high-profile activist wins such as Engine No 1’s ‘green-tinged triumph’ at ExxonMobil.
Generally, unless there were ‘catastrophic’ governance concerns, researchers say management teams were given space to improve performance.
The report highlights a number of trends across 2021: pro-M&A campaigns fell to just 69 last year, from 107 in 2019, while opposition to deals ‘spiked’ with a 6 percentage-point increase on the previous year to 72 campaigns.
The number of say-on-pay votes receiving less than 80 percent support jumped from 108 in 2020 to 177 in 2021 in Europe. In the US, the proportion of pay revolts actually fell from 13 percent in 2020 to 12 percent last year – but researchers point to a 10 percent increase in votes against director re-elections, which climbed to 150 during 2021.
There has also been growth in support for campaigns with an environmental or social focus, such as say-on-climate votes and racial equity audits. But Activist Insight notes that ‘management support for some proposals – in itself a sign of success – may have inflated the shareholder vote.’