March 28, 2023

Activism: Thinking Like an Activist Pays Dividends

Here’s something I posted last week over on the blog:

A recent Stanford report on shareholder activism highlights some of the ways in shareholder activism and companies’ responses to it continue to evolve. In recent years, companies have frequently been admonished to “think like an activist” and identify & address potential weaknesses before activists leverage them into a successful campaign. This excerpt from the report says that’s proven to have been good advice:

As a result, more companies are looking at themselves through the lens of an activist and proactively taking actions that an activist would advocate (thereby weakening the argument for an activism campaign). Given that activists derive their power from gaining shareholder support, this means companies too are more likely to think in terms of maintaining shareholder support. Companies conduct preparedness exercises and advanced planning to discuss how they would respond, even before an activist engagement takes place. Preparedness also means that boards are much more conversant and comfortable with activism.

These practices took a dramatic step forward following the high-profile campaign between Nelson Peltz and Dupont, in which mega-cap companies realized they are not too big to become a target. Preparedness exercises have since proliferated to many large, medium and, in some cases, small-sized firms.

One result of this preparation is that companies have increased their success when campaigns come to a vote. According to statistics from FTI Consulting, whereas the activism slate historically has prevailed 50 percent of the time in a proxy contest, in recent years that success rate declined below 30 percent. Only around 30 directors are replaced each year in contested elections in the United States.

The report notes that how the universal proxy rules will affect these statistics remains to be seen, but says that boards will study early campaigns in order to learn how to improve their responses to activists in the new environment.

John Jenkins