Activist investors leapt into action for the 2021 proxy season following the volatility of the COVID-19 pandemic, scoring several high-profile wins. Activist activity in the first quarter of 2021 was 50% higher than the corresponding quarter of 2020. The total number of activist campaigns in the same quarter represented nearly half of the total seen for all of 2020. The pace is expected to continue into 2022, motivated by 2021 successes such as at ExxonMobil.
PWC recently published “The director’s guide to shareholder activism,” taking a look at the current activist landscape – who they are, their goals for current campaigns, how they pick targets, and response strategies for companies. Some interesting highlights include:
- Shifts in the typical activist: the term “activist investor” may conjure images of hedge-fund corporate raiders (they still exist), but the current crop of activists is just as likely to focus on ESG themes.
- 4 of the 5 most prolific submitters of shareholder proposals are socially-conscious investors including As You Sow (63 proposals), Trillium Asset Management (34), and the NYC Comptroller (25).
- Major red flags include executive compensation: Activists frequently target companies with problematic pay practices, pay that is out of alignment with company performance, or unresponsive boards after a low say-on-pay vote.
- 2021 saw substantial increases in companies targeted for environmental and social considerations including energy and drug companies.
- Strategies for addressing an activist or responding to a campaign: A formalized shareholder engagement, especially during market volatility, can often forestall campaigns.
- Directors should be well acquainted with the largest shareholders.
- Get outside views regarding the company’s strategy, results, and ESG risks.
- Seek potential consensus with the activist and other shareholders before going into a full proxy fight.
- In 2020, the average proxy fight cost the target nearly $3.0 million. High profile fights can cost an order of magnitude more. Some estimates for the Exxon proxy fight topped $100 million with each side spending close to $50 million.
An activist campaign will often feel personal, but planning and rational engagement can head off a full-blown fight. It is useful to read shifting trends; at the moment, mainstream institutional investors may be more willing to join an activist in an ESG related fight, especially those focused on climate risk or diversity and inclusion/human capital metrics.
