Barri Rafferty, CEO of Morrow Sodali, a global advisory firm specializing in stakeholder engagement, discusses the rising trend of shareholder activism following the pandemic. With activist campaigns becoming more sophisticated, companies must be prepared for potential impacts on their strategic plans and corporate governance practices. Rafferty highlights key areas of activism trends that could affect unprepared companies, including M&A campaigns, ESG-driven proxy contests, and shifting retail shareholder support.
M&A activism is on the rise, with shareholders increasingly taking action to either support or block M&A transactions. According to Diligent Market Intelligence, the number of U.S. companies facing opposition campaigns related to M&A increased by 20.8% in the past year, with a 7.9% increase in demands for M&A transactions. Effective shareholder engagement is crucial for companies anticipating M&A-focused campaigns, as understanding their shareholder base can help predict voting outcomes and successfully communicate a deal’s strategic rationale.
The discourse around ESG-driven proxy contests is undergoing a shift, exemplified by the recent contest at Starbucks involving labor unions under universal proxy rules. Despite proxy firms advising shareholders to vote for management board nominees, the coalition of labor unions successfully brought Starbucks to the bargaining table. This case study highlights the potential for using shareholder activism to apply pressure on companies’ labor practices, indicating an increased focus on ESG activism that could demand more attention and resources from companies in the future.
The landscape of retail shareholder opposition is evolving, with retail investors displaying more willingness to oppose ballot items and influence voting outcomes. The influence of retail investors has grown, particularly among small- and mid-cap companies, with the “new” retail investor being less inclined to support ballot items and more likely to vote for new board members. Companies can navigate this changing landscape by engaging with investors proactively to understand their concerns and potentially win close votes through ongoing dialogue and a deep understanding of retail investors.
In the face of ongoing pressure from activists, companies can achieve better outcomes by engaging in consistent dialogue with shareholders, embracing strategic changes, and effectively articulating the value they create. By focusing on stakeholder engagement year-round and understanding the composition of their shareholder base, companies can adapt and thrive in the marketplace. The importance of navigating shareholder activism trends and staying proactive in stakeholder engagement is essential for companies looking to succeed in a changing business environment.
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