This article is an extract from Lexology Panoramic: Shareholder Activism & Engagement 2024. Click here for the full guide.

In 2023, global shareholder activism activity reached a record high. Activism remains an international phenomenon; in 2023, activism against non-US companies accounted for approximately 47 per cent of campaigns. The United Kingdom remained the most-targeted jurisdiction in Europe, followed by Germany.

As in previous years, activist campaigns targeted companies across a range of industries. Although some individual managers target companies in specific sectors, activist investors as a whole do not display any clear preference for any particular sector (with many activist funds remaining industry generalists). Activists remain focused more on characteristics such as market cap, undervaluation based on corporate fundamentals, lagging stock performance relative to the market generally, governance – or, more broadly, ESG – weaknesses, low leverage or strong cash positions and announced or potential M&A than the industry in which the company operates.

The list of companies targeted by activist campaigns in 2023 and early 2024, or in which activists acquired a significant stake, spans a variety of sectors and includes large-cap companies and national champions, such as Bayer, BP, Disney, Illumina, Macy’s, Salesforce, Shell and Starbucks. Seasoned activist funds, such as Elliott Management, Icahn, Starboard Value, Third Point, Trian Partners and ValueAct, continue to be responsible for many high-profile activist campaigns.

M&A-related activism continued to make up a significant portion of overall campaign activities, ranging from instigating deal activity by pressing divestitures and break-ups to activists intervening in announced transactions by opposing transactions deemed to be too costly (‘breakitrage’) as pushing for a price increase (bumpitrage) activism was less common given the subdued M&A market. Activist campaigns also targeted operational improvements and cost-cutting.

The number of board seats won by activists in 2023 was up by 13 per cent compared to 2022. The addition of ‘activist-minded’ directors to a board has an ongoing impact on companies after a campaign as it changes the dynamics within the board and may cause changes in a company’s strategy that could culminate in M&A activity.

The concepts of stakeholder governance and corporate purpose beyond profits, which have long prevailed in certain jurisdictions such as the Netherlands, continue to take hold in other jurisdictions. The Business Roundtable’s Statement on the Purpose of a Corporation outlines a modern standard for corporate responsibility, moving away from the concept of shareholder primacy to a more stakeholder-oriented approach. The signatories commit to delivering value to their customers, investing in their employees (including fostering diversity), dealing fairly and ethically with their suppliers, supporting the communities in which they work (including embracing sustainable practices across their businesses) and generating long-term value for shareholders. The pandemic has underscored the continuing importance of restoring and supporting a long-term perspective and a company’s commitment to serving all its stakeholders. In his 2022 annual letter to CEOs, BlackRock’s Larry Fink noted that ‘in today’s globally interconnected world, a company must create value for and be valued by its full range of stakeholders in order to deliver long-term value for its shareholders.’ 

Environmental, social and governance (ESG) advocacy and activism persist, with pressure coming not just from shareholders but a more diverse universe of stakeholders. Institutional investors continue to prioritise ESG, despite increased political scrutiny and the rise of anti-ESG shareholder activism in the United States. The lower a company’s ESG risk score compared to peers, the more vulnerable the company potentially is to ESG-related activism.  

 

Outlook

Shareholder activism activity is expected to persist in 2024. Key trends that we see continuing are:

  • pension funds and other institutional investors being vocal on ESG issues in the broadest sense, including diversity, board refreshment, environment, sustainability and climate change, and ESG-related disclosures;
  • an embrace of diversity and ESG issues by, and integration of such ESG themes into campaigns of, traditional activist hedge funds, especially where the risk to value is clearly understandable (with a potential further rise of anti-ESG activism in the United States);
  • an increase in ‘sell the company’ activism and activist demands for divestitures, as interest rates stabilise or fall, inflation rates go down, and financing and M&A markets improve;
  • heightened M&A scrutiny in the form of ‘bumpitrage’ or ‘breakitrage’ campaigns or vocal opposition from long-term institutional investors, requiring companies to clearly communicate the rationale for and merits of a transaction and proactively pre-empt potential critique; 
  • proxy fights in the United States to gain board seats, also in light of the SEC’s universal proxy card rules facilitating mixed ballot voting, with activists likely to focus on nominating highly qualified, independent individuals with proven track records, diverse backgrounds and a strong commitment to good corporate governance to secure the support of institutional investors and proxy advisory firms; and
  • awareness within boards of the risk of becoming an activist target and the need to ramp up preparedness, address potential vulnerabilities and effectively engage with major shareholders and other stakeholders to defend against or pre-empt activist campaigns.

 

Final note

Each jurisdiction has its own regulations and practices when it comes to shareholder activism and engagement. Although the chapters in this book show that there is growing convergence in certain areas, important differences remain between countries. We hope the concise jurisdictional overviews offer the reader a helpful first look at key activist-related topics in the various countries, enable convenient comparisons between jurisdictions and give food for thought, as reading about the issues, practices and solutions in other countries often offers new insights and understanding relevant to one’s own laws and best practices.

We are thankful for having so many recognised thought leaders from around the globe contribute to this essential reference guide. We look forward to following future developments with great interest as the activist landscape continues to evolve.