Shareholder activism outside of US increases fivefold since 2010
A strong US dollar, undervalued asset prices and increased global scrutiny of corporate governance practices are contributing to an uptick in shareholder activism incidents around the world.
According to the Global Shareholder Activism map from FTI Consulting, there were 342 activism campaigns outside the US in 2016, compared with only 70 in 2010. Over the same period in the US, the number of campaigns increased from 135 to 645.
Speaking to IR Magazine, Steven Balet, managing director and head of corporate governance & activist engagement at FTI Consulting, says: ‘We have seen some of the larger US activists going overseas with US-style activism. But we’re increasingly seeing a great deal of home-grown shareholder activism in Australia, the UK and the Nordic countries.’
FTI Consulting, using data from Activist Insight, also calculated a shareholder activism threat level for investor relations professionals. According to this IR doomsday clock, the US and Australia are the countries where activism is most prevalent, with a maximum threat level of 10. Canada and the UK register a nine on the threat level.
Shareholder activism threat level
Source: FTI Consulting/Activist Insight
ACTIVISM IN NORTH AMERICA
There were 645 activist campaigns in the US in 2016. While the US style of activism is often thought to be aggressive and public, Balet explains that activists are increasingly engaging with companies privately.
‘We’re seeing an uptick in settlements for board seats prior to an actual proxy contest,’ he says. ‘Engagement is happening earlier and is happening for the most part behind the scenes between the activists and the companies.’
Canadian activists were also busy last year, with 77 campaigns. While that represents a slight decrease on the previous year’s number of campaigns, it is still the second-highest total in the last six years.
The most common reason for activist campaigns in the US and Canada is attempts to gain board representation. For activists in North America, Balet says a board seat is often a means to an end. ‘Gaining board seats is probably never the end-goal for shareholder activists,’ he explains. ‘They’re trying to get the company to engage in some sort of change, and often the only means to push change is through running for a board seat.’
ACTIVISM IN EMEA
All of the seven European and Middle Eastern countries covered by FTI Consulting’s research have seen a significant increase in activist incidents over the last six years.
In the UK, the number of campaigns has doubled since 2010; there were 51 campaigns last year. The government intensified the focus on corporate governance by publishing a consultation paper on executive pay back in November 2016.
”As Brexit becomes ironed out, we will see a surge of activism” – Steven Balet, managing director at FTI Consulting
The number of campaigns in Germany skyrocketed over the last year. In 2015, there was only one campaign; in 2016, there were 18.
Germany’s two-tier governance structure, which consists of both a supervisory board and a management board, has typically been seen as a hurdle for activists. But the Children’s Investment Fund Management’s successful campaign against Volkswagen has given confidence to other activists.
That campaign was an example of an investment fund trying to remove company management, and last year the number of those campaigns increased across the region – from 8.4 percent in 2015 to 18.8 percent in 2016.
Gaining a board seat is still the most popular type of campaign in Europe, representing 20.8 percent of all campaigns in 2016.
‘The European campaigns tended to have a more operational focus, where sometimes a change of management is called for,’ Balet says. ‘Part of that is economic. The M&A climate until recently has been more limited compared with other parts of the world and that could lead to activism that’s not pushing a company for a sale.’
Balet also predicts that activist incidents will slow down in the first half of 2017, as investors wait for more details about Brexit and a trade deal between the UK and Europe. ‘Activists are trying to get a handle on what the value is of UK and European companies post-Brexit and figuring out whether there is value to be had or value erosion,’ he explains. ‘As Brexit becomes more ironed out, we will see a surge of activism.’
ACTIVISM IN ASIA-PACIFIC
Before 2012, activism in Australia was almost non-existent. But favorable governance structures have boosted its use for both local Australian activists and US investors. In 2016 there were 78 campaigns, making Australia the country with the third-highest rate of campaigns in the world, behind the US and Canada.
‘It’s a really friendly environment for activists [in Australia],’ Balet says. ‘Institutional owners have become more inclined to support activists there.’
The number of campaigns in Japan also more than doubled last year, from nine in 2015 to 19 in 2016. Prime Minister Shinzō Abe’s 2015 Corporate Governance Reforms are a move to instill greater shareholder rights, board independence and more reporting transparency. This has attracted some US activists – like Third Point Partners, which has targeted Sony, Suzuki Motor Corp and Seven & i – to enter the market.
”What we’ve seen in Asia is that the majority of the activism is more short term” – Steven Balet, managing director at FTI Consulting
‘Typically the Japanese market has not been seen as friendly to shareholder activism,’ Balet says. ‘As more activists go over there, it makes it easier for others to follow.’
The campaign types across Asia target both board representation and management removal equally – but they are different to the campaigns popularized in North America and Europe, Balet adds.
‘When we think of shareholder activism, we typically think of buying a company and trying to push it for a sale,’ he says. ‘What we’ve seen in Asia is that the majority of the activism is more short term, with investors publicly announcing that a company is not worth the current value and pursuing a very public campaign.’