Main Highlights
- Corporate activism is experiencing a resurgence, reaching its highest levels since 2018.
- M&A related demands, such as company sales or spin-offs, are increasingly prevalent in activist campaigns.
- While small and mid-cap companies remain primary targets, large and mega-cap firms are seeing a rise in activist attention.
- Proactive preparation, including strategic planning and clear communication protocols, is crucial for boards.
- Adopting an own your activism approach by objectively assessing company performance and vulnerabilities is vital.
In 2024, the landscape of corporate activism has intensified, with the number of activists and campaigns reaching their peak since 2018. In response to this evolving environment, boards and management should strategically and tactically prepare for potential activist campaigns. Key elements for successful navigation include robust information gathering, clear communication strategies, heightened awareness, and a well-defined overall strategy.
💡 Understanding these dynamics is essential for maintaining strong corporate governance.
The Nasdaq Center for Board Excellence recently convened a webinar, The Evolving Face of Corporate Activism, to delve into emerging trends. The panel, featuring Derek Zaba (Partner at Sidley), Pamela Codo-Lotti (Global Chief Operating Officer of Activism and Shareholder Advisory at Goldman Sachs), and Tyson McCabe (Head of Americas Advisory at Nasdaq), provided valuable insights and recommendations for corporate boards.
📍 The expertise shared at this event offers a roadmap for boards navigating shareholder engagement.
The Intensifying Activism Landscape
Citing findings from Nasdaq’s latest report, Shareholder Activism: 2024 Year in Review, McCabe highlighted significant trends concerning the targets of activism campaigns. Key takeaways from the 2024 activism landscape include:
- Activism continues to be a significant factor in the corporate world, with an all-time high in campaign numbers.
- Demands related to mergers and acquisitions (M&A), such as company sales, spin-offs, and asset divestitures, are becoming more common.
- While small and mid-cap companies remain the most targeted, activism against large and mega-cap corporations is on the rise.
✅ These trends indicate a broadening scope and ambition among activist investors.
Codo-Lotti corroborated Nasdaq’s findings, noting that large and mega-cap companies are increasingly becoming attractive targets for activists who need to deploy substantial capital rapidly and enhance their strategic toolkit. While the specific issues driving activist campaigns may fluctuate, consistent themes include CEO performance, corporate strategy, financial results, and governance, particularly board effectiveness.
📊 The persistent focus on these core areas underscores their criticality in investor evaluations.
Furthermore, the emergence of new activist investors continues, a trend that has been observed for approximately the past decade. A poll conducted during the webinar revealed that 48% of attendees had experienced a shareholder activism scenario within their company, with an additional 11% currently engaged in such a situation.
⚡ A significant portion of companies are actively dealing with or have dealt with activist investors.
Navigating Private vs. Public Engagement
Engagement can take many forms, explained Codo-Lotti, It varies depending on the identity of the activist, the size of their stake, and the tenor of their demands. She advised that engagement might be staged, commencing with the company’s Investor Relations Officer and potentially escalating to involve the CFO, CEO, and the board itself. This phased approach enables the company to gather more comprehensive information and effectively prepare its executive leadership for subsequent discussions.
💡 A staged approach allows for measured responses and better information control.
Both Codo-Lotti and Zaba concurred that when a company is approached privately by an activist, maintaining that private engagement channel is often the most advantageous strategy. The primary objective of private engagement is to thoroughly understand the activist’s rationale, ultimate goals, and intended next steps. The aim is to identify common ground and, if feasible, reach an amicable resolution.
✅ Prioritizing private dialogue can often lead to more collaborative outcomes.
Zaba also stressed the importance of being thoroughly prepared for non-private activist approaches. In instances where an activist makes a public and aggressive approach, companies have limited time to prepare, unlike the more typical scenario of an initial private contact. To ensure readiness, boards must have a defined decision-making process, identified internal and external advisors, and readily available communication materials. Failure to do so, warned Zaba, could lead to detrimental decisions that could negatively impact the company throughout the entire campaign.
📌 Forethought and preparation are critical to avert costly missteps during a campaign.
Regardless of whether the approach is public or private, boards must maintain a unified stance and be committed to their decisions. Prior to any potential challenge, boards should proactively assess the company’s vulnerabilities, understand the preparedness of their teams, and engage in scenario planning, including simulations and tabletop exercises.
💡 Proactive vulnerability assessment and scenario planning are cornerstones of effective board preparedness.
Strategic Preparation for Activist Campaigns
To enhance readiness for an activist campaign, panelists underscored the necessity of taking proactive measures and adopting an own your own activism mindset.
📊 Embracing this proactive stance can significantly strengthen a company’s defense and strategic positioning.
Codo-Lotti shared that she dedicates substantial time to preparing clients, often as much as defending them. Her focus lies on fundamental and tactical actions essential for a strong strategy:
- Fundamental actions involve being your own activist and looking very objectively at your company’s business performance relative to peers and history. Codo-Lotti further advises clients to conduct a thorough portfolio review to evaluate assets and potential divestitures, assess the board’s skill set for any gaps, and critically examine the alignment of incentives between management and shareholders.
- Tactical actions are centered on precisely defining the company’s response protocol should an activist letter be received. Key elements of this tactical strategy include implementing a break the glass plan—a set of protocols outlining the what, how, and who of the company’s immediate response—and understanding the shareholder base, including monitoring for share accumulation that may signal activist interest.
✅ A dual focus on fundamental self-assessment and tactical responsiveness is crucial.
Zaba also highlighted the value of tabletop exercises in helping boards deliberate and discuss potential issues and scenarios in advance. A facilitator guide can effectively steer discussions on how the board would react and manage various activist situations. Boards should allocate time to hear from management and advisors regarding the company’s vulnerabilities and the preparedness measures in place. Annual meetings dedicated to such proactive exercises are beneficial as they help solidify board unity and provide a forum for addressing any potential disagreements among members.
📍 Regular tabletop exercises are invaluable for refining response strategies and ensuring board alignment.
Companies and their boards face the challenge of remaining vigilant for potential activist activity and other vulnerabilities. Codo-Lotti mentioned that organizations are increasingly involving executive teams and department heads in simulations to ensure a comprehensive understanding of how activism integrates into the broader value-creation structure. McCabe also recommended engaging a surveillance or stock watch firm to detect early warning signs, such as facilitated derivatives acquiring significant lending or material broker-dealer filings suggesting a broker may be acting on behalf of an activist or hedge fund.
⚡ Utilizing specialized advisory services can provide critical early warnings of activist intentions.
As the corporate activism landscape continues to be dynamic, boards and corporate leaders have a wide array of tools and strategies at their disposal to prepare for the possibility of an activist campaign. For additional insights and recommended tactics, viewing the webinar replay, The Evolving Face of Corporate Activism, is highly recommended.
📌 Staying informed and prepared is the best defense against unpredictable activist actions.
The views and opinions expressed herein are those of the authors and panelists and do not necessarily reflect the views and opinions of Nasdaq, Inc.
Fundfa Insight
The surge in shareholder activism underscores the critical need for corporate boards to remain proactive and well-prepared. By adopting a rigorous approach to self-assessment, maintaining clear communication channels, and engaging in strategic scenario planning, companies can effectively navigate the complexities of activist campaigns and safeguard long-term shareholder value.