On 10 January 2024, K2 Integrity and Schulte Roth & Zabel hosted a webinar on the state of corporate activism across various regions. Jason Wright, senior managing director at K2 Integrity, moderated the discussion with Lisa Silverman, senior managing director at K2 Integrity and head of its Chicago office; Ele Klein, partner and co-chair of the M&A and Securities and Global Shareholder Activism groups at Schulte Roth & Zabel; and Jim McNally, partner and head of European Activism at Schulte Roth & Zabel. To watch a recording of the full webinar, click here.
Looking Back: 2023 Trends
- Broad trends
- 2023 was a record year for activism. There were 252 campaigns globally, a 7% increase over the previous year.
- There was wider use of activism—40% of activists launching campaigns in 2023 did so for the first time.
- “Swarming” was notable as a phenomenon in 2023, with multiple activists holding shares in one company (albeit not always with the same coordinated agenda).
- More difficult financial conditions and higher interest rates have put the financial results of companies under increased scrutiny, giving activists an opportunity to put pressure on boards.
- U.S.-specific trends
- Despite a small decrease in campaigns in 2023, the United States remains the driving force in activism globally.
- ESG remained a focus of some campaigns, but an anti-ESG movement has also developed, putting boards in an awkward position. This has resulted in a more diverse slate of candidates with less board experience and more industry experience.
- Early analysis of the implementation of the Universal Proxy Card in the United States shows some change in campaign outcomes. There were more split slates and split boards elected in 2023 and more activist activity at the mid- and small-cap levels.
- Litigation in the United States increased in relation to company bylaws and governing documents which provide requirements for activist campaigns. These bylaws can lead companies to reject nomination notices and impose barriers for activists running campaigns.
- Swarming was a notable trend in 2023 and played at out large and smaller companies.
- U.K.-, Europe-, and APAC-specific trends
- Although there were no major regulatory changes in 2023, Europe and APAC saw an increase in activism, led by the U.K. and Japan. Experts agree the increase was the result of both a more difficult economic environment and a positive shift in the cultural acceptability of activism in continental Europe and APAC.
- In APAC, the rise of domestic activist funds is also an important trend.
Successful Campaigns in the United States
Preparation and analysis are as essential as ever for successful activist campaigns, particularly with the potential for litigation related to company bylaws. The most successful campaigns and the most successful defenses take place with the preparation performed in the off season. For issues that affect a specific group of shareholders, it’s possible to start reaching them as part of a pre-campaign via social media before it becomes an open campaign. This makes the role of advisors and investigators more critical since when there’s more information and communication around campaigns, there’s also more risk. The greater flow of information around the campaign needs to be analyzed and investigated to see whether it is accurate and true.
For companies with a large retail shareholder base, social media is very important for communicating the activist agenda and can become outcome determinative if used properly. From an advisory perspective, expertise is key in being able to determine the most effective approach and channels to communicate to shareholders.
Successful Campaigns in the U.K. and Europe
Activism varies between the U.K. and the rest of Europe due to differences in jurisdiction and between common law and civil law, which results in people thinking through legal issues differently. There is, however, commonality on how jurisdictions consider the right to bring resolutions, to request meetings, and to make supporting statements. It is crucial for activists to understand the differences and nuances throughout the U.K. and Europe. For example, when looking at activism in Europe, activists need to consider not only the shares they hold, but what those shares actually mean and how that view might change by looking at how the shareholder register has changed (i.e., France’s Florange Law).
Despite legal and political differences, activist firms are becoming more comfortable operating in Europe and have successfully challenged corporate boards in recent years. European boards are becoming more optimistic and open to working with activists, recognizing the potential benefits of engagement, and there have been movements to improve the regulatory environment for shareholder engagement and rights.
Successful Campaigns in APAC
Historically, there has been a lot of protectionism in APAC, and the landscape has been challenging. However, there have been gradual changes in the perception of activism in the region, with local and international funds having successes in South Korea, Japan, and Hong Kong. Local funds in particular are achieving greater success and more acceptance from the various governments and regulators. Although they still face difficulties, the involvement of local fund managers and firms does nullify some of the problems created by distrust of foreign activists. The perceived discount in the value of companies listed in Japan and South Korea due to corporate governance issues will continue to provide a financial incentive to well-prepared activist investors.
Looking Forward to 2024
- There will likely be continued growth in issues like swarming, litigation, and regulation (i.e., reporting timing, short sale disclosure, economic derivative disclosure) in the next year.
- Campaigns will continue to increase, particularly in the areas of nonprofits, technology, healthcare, and industrials.
- Boards will be better prepared to respond to activist requisitions by either privately addressing concerns or publicly resisting them.
- There will be more sophisticated use of universal proxy cards.
- Allegations will continue to come swiftly, and it is vital for companies to prepare well for opposition and strengthen their ability to respond in real time to debunk or amplify items.
- In the United States, as interest rates come down, there should be an increase in calls for mergers and acquisition proxies or spin-offs.
- Given the large number of elections globally in 2024 and the continued geopolitical risk, companies and activists alike should determine how to best position themselves for success and mitigate potential risks.
