Dedicated shareholder activists less busy in first half of 2016
A total of 463 companies worldwide were the subject of activist demands in the first half of 2016, according to the half-year review from Activist Insight, produced in association with law firm Olshan Frome Wolosky.
While that number is up from 405 in the same period last year (which saw a total of 637 activist demands) and increases are seen across the US, Europe, Asia and Australia – though not in Canada – the data also shows that funds dedicated to shareholder activism appear to have been less busy.
‘Notable among the data is a slowdown in demands by funds dedicated to activist investing,’ notes a press release from Activist Insight. ‘Primary focus activists – which dedicate almost their entire funds to activism – subjected 75 companies worldwide to public demands in the first half of 2016, against 81 in the same period last year.’ This marks the first decline in such activity since Activist Insight’s records begin in 2010, it adds.
Despite this slowdown from the core activists, Josh Black, Activist Insight spokesperson, notes in the release that activism has become an ‘increasingly widespread tool’ used this year by everyone including ‘ex-CEOs, hostile strategic acquirers and even index funds. Even if the biggest activists have not started as many campaigns in the past six months, there is unlikely to be a shortage of activity in the near term.’
Andrew Freedman, co-head of Olshan Frome Wolosky’s activist and equity investment practice, agrees. ‘Established activists continue to identify opportunities and are better able to push for change behind the scenes,’ he explains. ‘[But] at the same time, previously passive investors have begun to take advantage of some of the items in the activists’ toolkit as a last resort, leading to a big increase in the number of situations over the last six months.’
The study also looks at the number of contests that actually made it to a vote. Of the 306 companies targeted in the US in the first six months of the year (a 10 percent increase on the first half of 2015), Activist Insight data shows that 20 proxy contests went to a vote, along with five situations where proxies were filed but settlements were reached before the shareholder meeting.
‘In 13 of those 25 situations, the activists won at least one board seat’, with 30 seats won in total out of the 98 sought. One activist, VIEX Capital, won two full proxy contests, the researchers note.
Also commenting in the press release, Dan Burch, chairman and CEO of MacKenzie Partners, says: ‘In recent years the paradigm has shifted from ‘activism defense’ to ‘activism preparedness’. We have seen companies become much more willing to engage with activists and other shareholders to hear their input on strategy, governance and capital allocation.
‘There are many situations where everyone’s interests are served by settling a contest before it becomes a time-consuming and expensive distraction, but we have also heard some shareholders say they would rather have the ability to vote on the construction of the board than abdicate that process.’
In the foreword to the review, Freedman and Steve Wolosky, also co-head of Olshan Frome Wolosky’s activist and equity investment practice, comment on the failure of companies to essentially ‘be their own activists’.
‘Thinking like an activist’ requires more than just ‘adopting the low-hanging fruit of governance changes’ such as proxy access or majority voting, they note. What it does require is ‘honest self-assessment to tackle the tough issues that are likely to be raised by an activist, such as best-in-class performance, board reconstitution and executive compensation,’ they argue. ‘We’ve yet to see any company truly be its own activist in this sense.’