The activist evolution & revolution around the world


By Jeremy Daniels –

Shareholders are increasingly making their opinions known and voices heard when it comes to corporate decision making and issues. They are becoming more forceful and effective than ever across a wide range of business strategy and management related issues. Recent developments in corporate governance policies have reinforced a growing shift in fundamentals when it comes to the balance of influence between boards of directors and shareholders in the corporate decision-making process. We have moved and are still moving even further away from the previous model of corporate governance where the board held the dominant power in decision making. Shareholder activist groups are targeting companies with strong underlying business fundamentals that they believe can be better run so as to improve shareholder returns and value. The focus of these activists is typically on companies that have had underperforming share prices over significant lengths of time. Often this has been as a result of poor and failing business strategy and management and very often the case will be that certain board members have been identified as poor stewards of the enterprise.

A number of factors have contributed to the growing shift in power of shareholder activism. For example, the attitude of institutional investors has evolved to the point of prioritising shareholder activism issues. These parties have become increasingly focused on business performance of the companies in their portfolios. Further to this, institutions are increasing the amount of attention they devote to investigating corporate responsibilities. The ability of boards has been put under question – in particular their ability to perform well in a timely and decisive manner to the best interest of the business. Investors are becoming increasingly willing, therefore, to heed the advice of credible external advisers when it comes to corporate issues. Over the last five years we have seen an increase in the general number of activist campaigns across the globe in combination with a general trend of increasing success from these campaigns. The growing number of activist groups challenging boards on corporate issues is further feeding and encouraging the environment for corporate activism.

Another factor contributing to the growth of shareholder activism is that in some cases it can lead to more attractive returns to investors. With more capital and institutional support being directed towards shareholder activism campaigns we can expect to see further growth in this area going forward.  Corporate governance policy has shifted so that boards have less power, shelter and protection from activism campaigns and shareholders are also increasingly able to share information and opinions.

The growth in shareholder activism is becoming so strong that large institutions, and funds of many types, are taking large positions in these areas and in fact now the line between activists and mainstream institutions are becoming increasingly blurred. This is occurring so much so that corporate boards are now becoming more and more inclined to engage in an active dialogue with shareholder activist groups. Boards have been placed under a great amount of pressure to review corporate policy and procedure and improve the efficiency of the workings of their enterprises. More and more companies are pursuing self-initiated reviews and restructurings and boards are now more prepared to directly, and proactively if possible, address activism issues as they arise.

In the future it is very likely that activism will increase and expand across the globe to cover a wider range of issues towards improving shareholder returns and value. In particular, it is expected that further structural governance reforms will be placed at the top of activism campaigns – with particular attention on accountability and performance related compensation. A further issue that is gathering pace with activist groups is the move to specifically stipulate a separation of the role of the Chair and CEO roles of company boards. As the power of activist groups grows and evolves the landscape of corporate governance will likewise react and evolve.