Evolution of Investor Activism: How Can Companies Find Potential Shareholder Campaigns?

Shareholder activism campaigns continued to rise in 2023 as capital-raising and other growth avenues for issuers were disrupted. In our recent Evolution of Investor Activism webinar, our panel discussed major updates and trends within the world of shareholder activism. Our blog post includes an excerpt of the webinar’s Q&A between Carmen Lilly (Director of Market Development at S&P Global Market Intelligence), Christopher Stroh (Executive Director of Situational Analytics at S&P Global Market Intelligence), and Najy Nahkle (Director of Investor Relations Solutions at S&P Global Market Intelligence) as they discuss best practices for monitoring investor sentiment and diagnosing potential activist campaigns.  

Carmen Lilly: “Given the activity we've seen in 2023 and the continuing trend of investors contesting elements like sustainability, social, and governance practices, how would you recommend corporations go about monitoring investor sentiment?” 

Christopher Stroh: “Thanks, Carmen. First off, I would say that maintaining an open dialogue with investors and top shareholders is of extreme importance. Activists typically act on scenarios where they know they can generate support from other shareholders, so the concerns they will raise will usually be concerns others in your shareholder base already have. Creating trusting relationships with your covering analysts, portfolio managers and proxy teams within your shareholder base, receiving constructive feedback and sharing investor insights with your management teams and Boards are essential parts of the IR role and can help avoid contentious situations with activist investors.” 

“Investor feedback, both from long-only and shorter-term focused investors, can come directly from investors through proactive engagement, but also through anonymized third-party perception studies in order to get management time to contest.” 

“To monitor for potential activist scenarios, an activist will leave footprints when they’re interested in a company and either performing initial research or beginning to build out a position. They can often be spotted early on through a variety of ways: through their due diligence process, logging into earnings calls or presentations, or logging into your website and downloading documents from your website.” 

“Sometimes they're very direct, requesting meetings directly through the investor relations (IR) team or indirectly at a conference or through a broker. If you see or hear of any interest from an activist or a potential activist investor, the first step you need to take are leverage your surveillance teams. They can help you identify an activist building a position and estimate the size of that position.” 

“Also, you should engage with the activist before anything becomes public and learn what they're potentially interested in. They may be interested in a peer or the industry and maybe doing their due diligence. They might want to learn more about your long-term strategy, communicate potential solutions to issues in the company, or flag changes they and other investors would like to see in the company.” 

“Regardless of the reason they're building a position or researching the company, the best advice is to engage with them, learn, have an open dialogue, include your entire team, and address their concerns upfront. The worst thing you can do is ignore them. Finally, before I turn it over to Najy, activist investors often work together. When you identify a potential activist, engage with your IR partners to learn which other investors you should be aware of and who may also enter the stock if the investors are working together in tandem.” 

Najy Nahkle: “Thanks, Chris. I couldn't agree more. [The] main theme is awareness and preparation. When we think about awareness and preparation, establishing a core internal activist team and identifying your third parties goes hand in hand. Why? Because when an activist has built a position in the stock, you often don't have much time to react.” 

“If that’s the case, they'll reach out to your Investor Relations Officer (IRO) or your management team, let them know they’re getting ready to file a 13D, and would like to schedule a meeting. You’ll want to make sure you have an internal team that's prepared and that you're able to respond back in a quick manner publicly to the activist through a PR firm. Then, make sure you have proxy, banking, and a legal team handy.” 

“The advisory services at S&P can be extremely powerful when it comes to engaging with the stakeholders. For most of the clients that we work with, we begin with weekly surveillance to identify buyers and sellers on a week-to-week basis. We're also keeping tabs to make sure there's not any suspicious activity in the Depository Trust Company (DTC) settlement because [some] activists will start building positions through derivative swabps and options. So, we'll monitor that lending on a week-to-week basis. During our biweekly check-ins or monthly check-ins with our clients, we'll raise our hand and say, ‘Hey, we're starting to see some activity that could be a little suspicious,’ especially for companies that have been underperforming relative to their peers. Those companies might decide to switch to daily activist surveillance. That's where we start monitoring the DTC on a day-to-day basis and providing insights on the level of confidence that an activist is actually building a position on a given day.” 

“The other aspect of it is having a good pulse on your existing shareholders, so targeting is also crucial to the advisory service. The main goal of targeting is identifying new opportunities globally for our clients, but we're also making sure that they're engaging and maintaining relationships with their existing shareholders. On a quarterly basis, our clients are logging their meetings with investors into BD Corporate on a day-to-day, week-to-week and monthly basis. When we run our quarterly targeting reports, we're exporting that data and we're flagging [key events].” 

“So, if there's been six months or nine months since you last met with one of your top shareholders, we’ll ask if you’ve interacted with the firm lately and see what their sentiment is. We want to make sure that if an activist does take a position, you know where your top shareholders stand.” 

“Lastly, we have a dedicated perception team that does an excellent job of garnering unbiased feedback by reaching out to investors, working in tandem with Investor Relations teams. We garner that unbiased feedback for the IR team, so we know where those investors stand.” 

“When we think about which areas of the company that an activist is likely to attack, it's companies that have been underperforming for several years, companies that have a lot of cash on their books, perhaps those with an M&A strategy that missed the mark or misallocated investor capital, or a company that has a mature segment of its business where an activist might think they can unlock shareholder value by spinning out that part of the company.”