Shareholder Activism: A Pivotal Year

By Josh Black, Skytop Contributor / April 4th, 2022 

Josh Black is the editor-in-chief of Insightia, a financial news and data company focused on shareholder activism, proxy voting, and corporate governance. In that role he leads a team of reporters and multimedia journalists. Based in New York City, Josh is a frequent speaker at industry conferences and an expert for the media. His weekly newsletter on developments in shareholder activism, as well as Insightia’s two monthly magazines and frequent special reports, are among the most widely read analyses of what is happening in these exciting areas of the investment world.  

About Insightia: Financial news and data providers Activist Insight and Proxy Insight announced in October 2020 that they had merged to form Insightia, a leader in the field of public company information. Activist Insight was formed in 2012 and offers an extensive range of products including Activist Insight Online, Activist Insight Governance, Activist Insight Vulnerability, Activist Insight Shorts, Activist Insight Monthly magazine, and The Activist Insight Podcast. Proxy Insight has quickly become the world’s leading source of information on global shareholder voting, covering such hot topics as director and auditor elections, “say on pay” resolutions and environmental, social, and governance (ESG) proposals. 

______________________________________________________________________________ 

Engine No. 1’s Victory 

In the rear-view mirror, few activist engagements from last year loom as large as Engine No. 1’s victory over ExxonMobil. The largest proxy contest ever ended with a clear demonstration of the power of linking environmental arguments to shareholder value and illustrated the increasingly stringent approach of institutional investors to companies that are by their nature significant carbon emitters. The proxy contest will undoubtedly affect the strategy of energy companies and inspire copycat activist campaigns. 

Looking Beyond Engine No. 1 

Look beyond this campaign, however, and the picture of activist investing in 2021 was a little less glorious. The Activist Investing Annual Review 2022, Insightia’s flagship publication back for its ninth edition, highlights that most traditional forms of activism – demands for board seats or strategic reviews – continued to decline even as the stock market bounced back from the early onset of the COVID-19 crisis.  

True, there were still settlements and breakthrough campaigns, but proxy contests on the whole were far rougher in 2021 as companies resorted to more aggressive defensive maneuvers and activists tested which ESG arguments would be meaningful. 

Uncomfortable Corporate Climate 

That didn’t make for a comfortable corporate climate. There was an increase in votes against directors in the U.S., an increase in “say on pay” revolts in Europe, and the rare voting down of a corporate merger, by Monmouth Real Estate shareholders.  

Institutional investors have signaled that they will continue to take a tough line in 2022, with high expectations for the diversification of corporate boards, ever more far-reaching environmental disclosures, and scrutiny of M&A. Indeed, shareholders of Zendesk have already voted down a merger, part of the new wave of anti-M&A campaigns by activists, wary of rock-bottom prices and top-of-the-cycle hubris. 

Dramatic Pivot in 2022 

If activism in 2021 pivoted to M&A opposition, ESG, and compensation from traditional capital allocation, pro-M&A, and board seat demands, the pivot in 2022 could be more dramatic still. The introduction of the mandatory universal proxy card in September threatens to give more ESG activists an opportunity to influence corporate policy at a lower cost.  

Boards constantly need to refresh their membership, especially now that ethnic diversity is fast becoming an expected part of their composition. Stock prices remain vulnerable to changes in risk appetite and execution missteps, but M&A continues apace. Those angles all provide forward-thinking activists with opportunities to identify new targets and apply pressure.