Activist investors are getting more active. In 2021, publicly traded companies in Canada were subject to 47 proxy contests, where shareholders forced a vote on mergers or a slate of directors. That was the highest number of proxy contests since 2013, according to Kingsdale Advisors, whose business is to represent either the shareholder or the company in the wrestling match. Boston Consulting Group says globally, activist campaigns are growing to the point where we might see “one attack every other day.” Activists say they’re unlocking value at underperforming companies or forcing boards to consider the whole range of risks modern corporations face. Companies that come under fire often say activists are a nuisance that distract from the job at hand: creating shareholder value.
So who’s an activist, anyway?
Not long ago, corporate elections were sleepy and investors who wanted to cause a ruckus rare. A small number of “corporate raiders” bought stock in a company and agitated for change; sometimes they went away when the company bought their shares and gave them a profit, a practice known as greenmail.
Today, an increasing number of hedge funds or investment firms consider themselves “activist,” and many are in it for the long term. Some engage quietly with management and only go public if they get the stiff-arm. When things get messy, they offer up new directors to replace some or all of the company’s board. In those 47 contests in 2021, Kingsdale says, activists tried to replace at least the majority of directors 86% of the time.
There’s another kind of activist investor: shareholders who engage companies on environmental, social or governance matters. They’re interested in issues like climate policy, treatment of workers and executive pay. If the board isn’t responsive, they’ll place a proposal on the annual proxy statement and have shareholders vote on it.
Who’s winning these battles?
Kingsdale says that from 2018 to 2021, management has been winning more Canadian proxy contests than activists, following what it calls a “decade of dominance” by agitators. Boston Consulting says that if companies want to “defeat an activist investor, think like one.” Management “should screen for blind spots on at least a quarterly basis,” from expense management and governance practices “to a list of whatever activist ‘hammers’ are currently in vogue.”
Kingsdale says that from 2013 through 2021, investment managers sided with the activists just under 42% of the time. In 2021, it was only about 35%. Still, “companies cannot assume their institutional investors will give leadership the benefit of the doubt and side with management, especially when an activist delivers a compelling case for change.”
What’s next on the ballot?
The annual “say on pay” vote on executive compensation is an example of a type of shareholder proposal that became so popular, most companies have adopted it annually. (In some countries, it’s mandatory.) The next wave of ballot measures may elevate climate to the same level. British hedge fund manager Christopher Hohn’s TCI Fund Management, a shareholder in both CN and CP, has pushed companies to hold an annual “say-on-climate” vote. After talks with TCI, CN submitted its climate plan to shareholders in 2021 for a vote—the first Canadian company to do so. CP says it will put its own climate strategy to shareholders in 2022.
Companies faced with a shareholder proposal may work with the investor to keep the measure off the ballot—or, in rare cases, actually recommend a vote for rather than against. In 2021, TMX Group, parent of the Toronto Stock Exchange, agreed to support a proposal from the Shareholder Association for Reach and Education to report on its work on Indigenous inclusion. It passed with 98% of the vote; according to Kingsdale, 25 of the 33 shareholder proposals in Canada in 2021 got less than 20%.
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David Milstead