Shareholder activism: What’s new and next for 2024
Driven by valuation gaps, governance reform, M&A and more, shareholder activism has returned to pre-pandemic levels, with nearly one thousand companies across the globe subjected to campaigns in 2023.
What should corporate leaders and governance professionals watch out for in the year ahead?
The new Diligent Market Intelligence: Shareholder Activism Annual Review 2024 report, unveiled at Diligent Market Intelligence’s February 15 Proxy Season Preview Conference, revealed highlights.
North America and Asia in the spotlight
Worldwide, there’s been a 4% rise in companies targeted by activist campaigns and demands, according to Diligent Market Intelligence — and some regions have attracted more attention than others.
Driven by cheaper valuations and governance improvements, Asian companies marked their third year of increased activism. South Korea saw 77 public campaigns launched last year, 57.1% more than the year before, and seven times more than 2020. Singapore saw a 37.4% increase.
While Europe saw both decreased dealmaking and activism due to the war in Ukraine and economic uncertainty, the picture was quite different on the other side of the Atlantic. Canada saw a 25.5% jump in the number of companies subjected to activism, while in the United States, 550 companies were publicly subject to demands, up from 510 in 2022.
Sharpened focus on risk management and resilience
As activist activity increases, more and more shareholders are subjecting outsized executive compensation packages and mispriced mergers and acquisitions under enhanced scrutiny. In a world of deep valuation gaps, rising interest rates and empty office buildings, activists seek evidence companies have robust policies and practices established for managing risk.
In Canada, roughly one quarter of resolved activist campaigns focused on M&A. Meanwhile, in the U.S., there was a 20.8% increase in the number of companies subjected to oppose M&A demands in the past year.
But the area with the highest increase in scrutiny was remuneration, with campaigns in this area seeing a 37.3% increase. Executive pay has risen higher on the activist agenda as well. Three proposals seeking clawback policy amendments won 36.5% average support in 2023, up from five winning an average of 27.5% support in the year prior.
“It will be important for companies to demonstrate that executive pay rewards realized achievements, and is closely correlated with financial performance and returns to investors,” the report noted.
“Market conditions are playing a notable role in shaping activist demands and the companies which activists choose to target,” said Josh Black, Editor in Chief at DMI. “Now, more than ever, boards need to demonstrate that they are financially resilient and have strong governance practices in place to stay one step ahead.”
Universal proxy elevates ESG oversight
When the universal proxy card launched in 2023, many expected a surge of would-be ESG activists. What resulted instead was the first ESG campaign by a nontraditional activist.
In November, trade union coalition SOC launched its bid for three board seats at Starbucks, citing “severe human capital mismanagement.”
“The newfound freedom universal proxy offers when casting votes at proxy contests has the potential to encourage nontraditional activists to seek board composition changes to remedy ESG shortcomings,” DMI publications editor Rebecca Sherratt wrote.
This campaign took place against a backdrop of rising ESG demands — at least in some areas. While the number of environmental demands publicly made decreased 1.5% from 2022, the number of social demands continued to increase — with 2023 numbers up 6% from 2022 and a full 34.7% from 2021. Demands related to governance increased 4.5% over the past year.
Bruce Goldfarb, CEO of Okapi Partners, shared his thoughts with DMI. While 2023 “did not see the same level of support” for environmental and social demands compared to previous years, campaigns proved successful “where the risk to value was clearly understandable.”
For more insights into the most notable activism trends of 2023 and what’s in store for 2024, download the full report by Diligent Market Intelligence.
