What are activist investors and should your board be concerned?
What are activist investors? The term activist investor refers to shareholders of publicly traded companies who use direct engagement to pressure the board of directors to change the organisation’s strategy, bypassing the normal advisory process.
Today’s activists are not simply looking for an immediate release of value to shareholders but to improve corporate performance – a different approach to the same end. Board composition, tenure, diversity, skills, and experience can improve a board’s performance and now attract a lot of activist attention.
As Warren Buffet put it: “If every company were well managed, there would be no reason for activists. The truth is, at some companies, the managers forget who they’re working for.
The key points covered in this guide include:
- Companies should remain on high alert to the possibility of being targeted by activist investors.
- Post-pandemic investor activism is now global and healthy and well-funded.
- Activist-driven changes are likely to include more arguments focused on the company’s handling of ESG issues, particularly environmental and social issues such as climate change and racial equality.
- Companies with better ESG ratings generated higher returns than did their peers in 2020.
- Many organisations in 2021 will face activist targeting and proactive measures can remedy vulnerabilities.
- Organisations need not sit by passively and wait to see whether they are targeted by an activist group – they should assemble an activism response team.
Many organisations in 2021 will face activist targeting and proactive measures can remedy vulnerabilities or issues. To prevent unwanted probing, corporations must proactively and thoughtfully message to the overall health and viability of the business, addressing liquidity concerns, what the company is doing to give back to the community, and the company’s long-term strengths and potential opportunities.
As long as it is scrupulous, a strong central message can ward off activist investment.