IR in Focus | Season 3 | Ep. 6 - Navigating Investor Activism: Strategies for Corporate Leaders

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[Carmen Lilly] Welcome back to IR in Focus. I'm your host, Carmen Lilly, and today we're going to take a deep dive into the world of investor activism. With me today is my colleague John Karageorge. Welcome John. 

[John Karageorge] Hi, Carmen. Glad to be here. 

[Carmen] I am so glad you are here with me today to unpack this rather interesting and meaty topic here.

Now, before we dive in though, I would like to just spend a moment introducing you to our audience. So John, Karageorge is an executive director here at S&P  Global and he sits in our issuer solutions division and heads up our activist defense surveillance group. John brings 31 years of experience in tracking activist campaigns and having identified hundreds of initiations by activists and investors.

So, John, obviously you've worked in this space a very long time, but I wanted maybe to start and set the context for this conversation and talking a little bit more about your role in advising companies that are facing activist campaigns. So how does that usually kind of unfold and what sort of role do you play?

[John] Sure. So great question. So it's kind of twofold. So usually I get brought into situations where either a rumor has transpired in the marketplace that activists might be sniffing around a company, or perhaps even a company has gotten a phone call and a request for a meeting, or perhaps an activist has popped on a conference call participant list or even had requested a meeting.

At a, on a road show, at a conference. So generally when they start getting inquiries is when you know I'll get that first phone call and they'll wanna know a little bit of information about how we're able to track activists and yeah, any kind of intel we can share on how to deal with that specific activist or activist in general.

So typically we have that. Conversely, we work about half of our clients are. Potentially worried about an activist coming in the stock or down the road, and that could be for a couple different reasons. That could be because they just missed earnings or they had some kind of corporate event, whether they just cut their dividend or perhaps their stock price has under underperformed vis-a-vis their peers or their broader market. So they feel that they're vulnerable at that time and they want eyes and ears more attuned to tracking potential activist investors. So those are typically the ways I get involved with a, with an issuer who's concerned about an activist.

[Carmen] That's good to know. Thank you for kind of explaining how those introductions or how those initiations start. And now in terms of, so trends and themes that you're seeing this year or maybe years past. What kinds of situations do clients typically call on you? 

[John] So I would say that typically, well lemme start with this year. I, I think in the first quarter we saw kind of. Activist investors pick up where they left off in 2024, which was a, a banner year for activists or activist campaigns. We saw that trend continue into 2025, and then we kind of took a pause for about three months in early April, do some some political wins that were happening at that time, and so everyone sat in the sidelines for a little while while the broader market kind of digest what was gonna happen.

And then I think we saw a pickup again starting in about June where activists and, and the broader market kind of came together and it was guns a blazing again for activist semesters. 

[Carmen] Yeah. And would you say, I guess in terms of you, you mentioned in April there seemed to kind of be a slow down. Is that, could we understand that like as the markets maybe get a little bit more volatile or, and or there's not like clear signals on the direction of the market that activists kind of take a step back and kind of analyze, is that what you're saying? 

[John] Yeah, absolutely. So I think when we saw the market at volatility, the last thing an activist wants to do is buy a stock or through equity, or even through derivatives, and the very next day, see that price drop five or or 10%. They want to come in at a relatively a lower price, hopefully, and have that.

Event happen, whether that's a news story leak or a 13 F or a 13 D filing, and have the stock pop and be able to, to use that price appreciation. And last thing they wanna do is when they come out, be underwater in the stock. 

[Carmen] Yeah, that, that's good context to have. Thank you. And when, I think I noticed looking at like news stories this year as well, in terms of like themes that activists are, are acting on, I guess you should say something that you know was apparent to me is that there's board pressure here and I wanted to see, I guess, gut check with you in terms of themes that, that you're seeing in the market. What sort of categories most often are, are you dealing with? Is it like board changes and overhaul or other topics? 

[John] Yeah, for sure. So I think we've seen a slowdown when it comes to ESG. I think we've seen a, a slowdown on the E in that, in the S But I, as far as governance, that's still prevalent. And I think what we are seeing is that over the last couple years that activists are putting. Up for nomination, much more qualified candidates where it's hard for a company to really kind of push back on those specific candidates, and that's often candidates who have industry experience, sector experience, so have been around the block and it's, they're just not nominating friends or friends of the potential activists. So when companies are faced with that and it, it's easier. For the activists and the company to settle at the end of the day as it, as opposed to going to a full on proxy fight at that point. 

[Carmen] Interesting. I like that little tidbit there. So it's, in a sense, it sounds like corporations. Ha are learning from what's happening in the market and taking, taking that as a signal to say, Hey, in order to kind of avoid something that's drawn out, that actually eventually turns into a proxy fight, that they are incorporating that feedback or what, at least what they're seeing happening in the market.

[John] Yeah, I think we, we've seen a record number of settlements, whether they're public or private. A lot of it is private. A lot of it happens behind the scenes. I've been involved in a lot of situations where. It's really all behind the scenes and the market first finds out about it when there's this settle that's announced before anyone even knew that a potential activist was already in the stock. So we, we are seeing a reckon number of settlements and that doesn't appear to be slowing down anytime soon. 

[Carmen] So when you're thinking about first assessing a company, so a company comes. To you, they know there's some sort of activist pressure going on there, you're, and you're trying to ferret out what it could be. What are some of the top red flags that you look for, as well as maybe some other kind of indicators that you look at in terms of that could be causing this activist pressure? 

[John] Sure we're first assessing a potential activist, whether they're likely to come into a stock. Obviously we're looking at stock price performance. So if a client has potentially been underperforming vis-a-vis its peers or the market in general, that's often kind of an early warning sign that they might be more susceptible to an activist or an activist potentially coming in. So if a company is performing pretty well and they're hitting all their buttons ,and have either already gone through a restructuring and like I said, the stock price is perform well. There's been maybe management change already in, in the last 12 months, then might feel differently or less likely that an activist might come into that stock at that point. But certainly if there, there hasn't been much change at the board of director level and the stock is underperforming. That's certainly a red flag. One of the, the other great tools that we have at S&P, that's a unique data set is shares on loan. So we use that to kind of monitor for any kind of potential economic exposure that a hedge fund or an activist, more importantly, might be looking at to build up a position an issuer in a relatively quick and cheap way, and what I mean by that is typically when a company has an X dividend or has an accelerated share buyback or has a comfortable debt offering, we'll often see shares on loan spike up. We do get, obviously, through the SEC, we get short interest reported twice a month. And we're able to compare that to what we're seeing on shares on loan. So if we're seeing a divergence from shares on loan spiking, let's say from five to 10 million shares or five to 15 million shares, yet short interest for the month has remained relatively flat and there hasn't been a corporate action that has taken place at the company that would help explain why there's been a jump in sharers on loan, it's often a red flag to us that someone has built economic exposure in a potential issuer without necessarily wanting to short the stock. So that's often the first thing that we look at, especially for some of the larger activist investors out there. You'll see, they'll come out with a new story that says they have economic interest of, let's say, a billion dollars and x, y, z stock.

That's often an indicator that they've built that position. Through very little in terms of equity, but mostly through swaps and derivatives, maybe some options or forward purchase agreements. But that's kind of correlates with what we're seeing in shares on loans. So when we see that spike up, it's often a first alert for us at SAP that something potentially might be in play. 

[Carmen] Thank you. That's, it's very interesting. Like I can't even imagine like the pieces that you have to put in place and the experience that you need to have in terms of like being able to say like, yep, when we see this happens, we know what happens next. And so I think that's very insightful in terms of sharing your experience on these are the things that we look at and how we understand, yeah, there's a potential activist building positions here, so thank you for explaining that. I appreciate it. I was curious here, in terms of thinking about trends and what sort of areas where we might anticipate more activism. So are there any industries or maybe company or profiles or subsegments that you see as most vulnerable to activism right now?

[John] Yeah, look, I think certainly healthcares have been kind of in the spotlight. Industrial stocks, information technology stocks have been kind of the biggest names out there, or biggest sectors that have been attracting activist investors. One of the really cool, neat things that we do at s and p is since we work with so many companies, we compile meeting data on about 1300 issuers out there where we anonymize kind of the meetings data and we're able to see kind of in a real time basis who activists are meeting with specifically, which sectors they're meeting with.

So for August, we just rolled out the report and I can tell you that the number one sector where activists had meetings with was industrials, followed by financials, followed by information technology. So not only are we able to see what activists are doing, what meetings that they're taking, but more specifically we could see at the PM or analyst level who it is at the firm.

And I, like I said, which, which. Sector focus, they're, they're involved in that current month or prior months. So it's, what's really cool is we've been able to tell that whether is, we'll take this month, for example, in the month of August where we have industrials and financials and information technology as the top three. We'll know for sure in, in a couple months, in two to three months, you'll start seeing some activist activity, whether that's kind of behind the scenes or it's more of a public kind of news story, perhaps that's kind of leaked out, but I'm willing to bet you that those three sectors will have activist activity for sure within the next several months.

So this is a report that we share with our activist surveillance clients. It's meant for them to kind of stay in tune. To who it is potentially that they should be worried about, but more importantly, what the hot buttons are that are out there. 

[Carmen] A couple different areas that I did want to explore with you within this discussion is in terms of how do you engage and how do you respond to activist investors, right? So maybe we start with from a board member or an executive or management response. Start there and then maybe we can think about shareholder engagement after that. But in terms of how you advise management in what to do and how to engage. Can you go into a little bit on that, whether you have do's and don'ts or maybe you have a, a story of where you saw this worked well, but essentially, I'm just trying to get at an understanding of how do you think about advising executives when it comes to engaging activist pressures?

[Carmen] Yeah. I think first and foremost, I think the first meeting depends if an activist calls out. Calls a company and says, we wanna have a discussion with the CEO or CFO or the board, that call is typically going to come into the investor relations officer. And what we typically see, and not just myself who advises, but bankers and law firms, is the IRO should be that first point of contact, meaning that you know it's okay for the IRO to take that first phone call, whether he wants to do it or he or she wants to do it solo or potentially with the CFO. But that should be kind of an information gathering point for the company, meaning that they should be listening, taking good notes, obviously, and then using that.

To go back to management with and kinda lay out what the activist specifically is looking for. Generally, you'll get a sense really quickly based on the tone of the phone call, whether it's going to be a a, an easier quote unquote type of campaign, meaning that it's gonna be friendly, at least initially, or if they're coming out for blood on kind of day one. So based on that rhetoric, obviously taking that, gathering that intel. It's valuable going back to senior management, going back to your advisors and kind of reporting back so the company can kind of game plan from them and prompt a, a proper response to whatever demands they might be making at that point.

[Carmen] I gotcha. Yeah, so you could tell, so what you're saying is you could pretty much tell like right off the bat, like in terms of attitudes and then having to manage those attitudes. Right. 

[John] Yeah, look, I mean, there's a lot of activists brand themselves as constructivist, right? So they're not necessarily gonna come out and guns blazing, like I said earlier, kind of day one with all their demands. They're gonna come out and say they wanna work with management. And kind of help the company turn around and, uh, in whatever facet that might entail. Obviously share price being kind, kind of the most important, but we'll see them try to work with a company or most activists try to work with a company. 

It's when there's a divergence or the company for, for their own reasons. Does it feel like that's the appropriate action to take or agree with? The activist playbook, if you will. That's when we see things get kind of contested and maybe a little bit more drawn out and potentially into a proxy fight.

But a lot of activists, like I said today, are more willing to work behind the scenes, be willing to see if management will work with them initially, and that's why we've seen so many settlements, to be quite honest with you. 

[Carmen] Interesting. Thank you for that perspective. So this may not be as relevant, as I know you've been talking a little bit more around, we've seen a large number of settlements. We don't  necessarily see the. These activist campaigns play out in the public market, but I'm still curious and understanding in terms of from the shareholder side and thinking about shareholder engagement, how should companies engage with their broader shareholder base once they get a sniff or something around activists kind of pop up in terms of activists, pressures.

[John] Yeah, that's a great question. I think, look, in an ideal world, a company should be communicating with their shareholders all the time, right on, on a blue sky day. They should have regular phone calls, regular visits with their institutional shareholder base. And whether that means that they're visiting on site or there is a scheduled call that happens with your top shareholders, that's certainly the first line of defense is gonna be.

Your shareholders and you should know based on your conversations, you know, how your shareholders feel, uh, at that given point in time about the company. Right? So if you have some disgruntled shareholders, that's gonna be an early warning to you that you might be more susceptible to an activist coming in and them having some sympathy with some current shareholders as well.

But certainly my first suggestion, and, and you know, a lot of companies already do this as kind of a matter of fact, is, having that regular dialogue, having that regular engagement, maybe eliciting a perception study as well, just to get some anonymous feedback from your current shareholders so you have that pulse, whether that's you're doing that quarterly or semi-annually, or even annually.

Just having that pulse of your current shareholder base and what their feelings are on some of the hot topics and how the company's overall performing and how senior management is doing, I think is invaluable. 

[Carmen] Yeah, that's a great point. That kind of reminds me a little bit about the conversation I had recently with a company called Stocktwits and really their bread and butter, the retail base.

And he, the way he was framing around trying to understand the retail base is it gives you a great understanding of the perception of your stock in the market. And again, I think it's, I think IROs think it's a very interesting space to monitor, but I would definitely echo your point in terms of communication with shareholders, whether it be institutional or retail, is definitely important part of the IRO function and getting that feedback and it really, at the end of the day, getting an understanding of how your stock is perceived by the market in general.

[John] Yeah, absolutely. And look, you wanna be doing that, like I said, on the blue sky day, you don't wanna necessarily be first making those phone calls when something is happening or an activist has presented themselves. 

[Carmen] In terms of when we think about shareholder engagement, what role does communication with proxy advisory firms like ISS or Glass Lewis play in your strategy?

Yeah, so I think certainly that plays a huge role. Obviously companies and activists are always vying for their ear and for their recommendation, if you will. So I think that having regular dialogue with ISS and Glass Lewis, I'm certainly carries a lot of weight. Obviously there are a lot of institutions who have their own voting procedures as well, who don't use Glass Lewis.

And ISS and others. So it's a fine balance, but I think when you're talking to your shareholders and you should also be thinking about ISS and Glass Lewis and having regular dialogue with them, even when things are normal, is equally important. 

[Carmen] Yeah, that totally makes sense. Shifting gears just a little bit here, let's think about, you mentioned earlier you're seeing a lot of settlements come through. Right? So a lot of these things are being agreed upon, maybe behind the scenes, but before it becomes like this long, drawn out fight, right? And so I, I would take that to mean that I am seeing activism become more collaborative instead of adversarial. Is that in line with your experience and in terms of what you're seeing?

[John] Yeah, and I think that kind of speaks to what we talked a little bit earlier is that I think activists have gotten better at better at their kind of playbook in kind of whether it's kind of nominating qualified people to the board or really taking a deep dive into ways to potentially turn around a company and putting a lot of thought and a lot of research.

Into that. So when they come out with their deck, they've done a lot of homework on that. A lot of times they've talked to a lot of the shareholders already as they're making their investment and can figure out what those pain points are. But I think, yeah, I think activists have gotten a lot better, and I think that's why we've kind of seen settlements at an all time high is because, for that very reason is that it's not just yours or mine, but the, it's more, let's meet in the middle and let's find some quality people to kind of turn around the company. 

[Carmen] And do you have any maybe specific examples, uh, for this collaborative approach? 

[John ] Yeah. I would say in the news here, we had CVS and Glenview Capital. Glenview Capital is not someone I would kind of c characterize as maybe an activist that is always gonna be an activist. They're what we classify an occasional activist, if you will, but they worked collaboratively with CVS and it was kind of.

A little bit more behind the scenes in a sense where they worked with them to expand the board size from 12 to 16 members. They added four new independent board members. And one of the things that, uh, if I remember right, that Glenview and CVS when they were working things out, there was, uh, a lot of pressure to kind of change management.

And I think both sides kind of capitulated. So the CEO ended up staying on where Glenview was able to kind of gain. Board representation. They gained one seat from themselves but also gained, like I said, they were able to increase and expand the board size from that 12 to 16. So I think at the end of the day they cooperated together. I think they both came out as winners potentially in this case. And I think working collectively together I think was was a good outcome for both.

[Carmen] Nice, and thank you for sharing that. I appreciate that. Then looking forward, thinking about where you see activism headed, do you have any thoughts in terms of how you expect activism campaigns to evolve in the next few years?

[John] Yeah. I think what, what the markets were when they were jittery at the kind of beginning, middle of this year, we didn't see a lot of Actis come out with kind of. An m and a playbook, if you will. Right. So it was more of corporate governance related, maybe some operational suggestions, but we really didn't see that kind of m and a factor that we've seen in years past.

I think as we see interest rates continue to kind of come down, hopefully, fingers crossed. We'll see a, a return to that. So I think we'll see activism pick up as a result. So for sure, I think there's gonna be some changes and M&A is is gonna be an important one, but it'll be dependent on interest rates and what we see happening.

[Carmen] Yeah, absolutely. All depends on what's gonna happen in the markets, right. Just still a big question mark, and then that's helpful though. I know that a lot of folks are anticipating more interest rate cuts and then the return of M&A, so we all keep our eyes and ears peeled for that. In terms of just kind of wrapping up with just some advice for our listeners here.

I know a corporation can never be activist proof, but if you could give one piece of advice to corporate leaders who are concerned around activism, what piece of advice would you'd give them? 

[John] Well, I don't know if we have enough time for this, Carmen, but let me try. So look, the first piece of advice I would give is, we touched upon it, is that companies should be talking with their shareholders regularly, right?

So, and that's just good practice in general. So that'll help you better potentially defend yourselves against an activists should one emerge, right? So my other piece of advice is certainly have an activist playbook in place, and that's mean that you have all your ducks in a row in case of an activist emerging.

So that's internally having a team in place know how, who's gonna respond to the activist, how you're gonna respond. It's having assessing potential vulnerabilities at the company and things change. So I know companies do this. Some companies do it monthly, some companies do it quarterly, semi-annual, annual at the least.

I would say a company should be looking at that kind of internally, but also having external advisors, whether that's gonna be your investment bank, activist, defense team kind of in place or know potentially you, you may use, or your activists, the law firm or PR firm as well along with. Proxy advisors and having all those people kind of in place so you're not scrambling should an activist kind of arise day one.

So that, that would be my advice in, in a nutshell. Certainly it goes without saying, I'll give myself a selfish plug, is obviously having a stock surveillance firm who's well versed in tracking potential activists, having a lot of these kind of great tools where activists are taking non-traditional ways to acquire stocks.

Some, having someone who's well versed in that and being able to detect those early warning signs, I think is vital to a company who's worried about a potential activist coming in. 

[Carmen]Yep. And I totally agree with that. I, there's. There's a lot I can, yeah could tell just from this conversation that you just have a ton of institutional knowledge, and we definitely know that IR teams are stretched thin, especially when it comes to be sitting in a more proactive space rather than a reactive space. And I would definitely, lean on someone like you and S&P in terms of leveraging our expertise here. So I don't think it's a shameless book. I think it's just understood that something is needed to be successful. Right. But thank you so much, John. I appreciate you joining me today for this discussion. 

Thank you, listeners for tuning in. Now this podcast is published monthly, so until next time, please check out some of my previous episodes, and I'm always looking for ideas to cover. So please feel free to reach out to me at Carmen.Lilly@spglobal.com. Thank you again, and thank you very much to my special guest, John Karageorge.

Until next time, happy listening.