Evolution of Investor Activism: What’s Driving Continued Activity?

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 below recaps analysis from Carmen Lilly, Director of Market Development at S&P Global Market Intelligence, as she provided an overview of market conditions that are fueling activism campaigns. 

Dearth of Issuance Poses Challenges 

According to our 2024 Big Picture Outlook report for the capital markets, corporations maintained access to debt markets in 2023 even in the face of significant increases in interest rates and the liquidity crisis that erupted in the U.S. banking sector in the spring. However, equity issuance plummeted amid heightened economic uncertainty and swift tightening of financial commissions. The market is reacting to the weight of high interest rates and lingering COVID concerns from earlier this year, leading to a skittishness in the market that’s often referred to as “reluctantly bullish” investing. 

Global military conflicts have increased market volatility, but that could ease and investor support for new transactions could grow as inflation declines and the U.S. Federal Reserve ends its rate hike cycle. 

Regulations Fuel Shifts in the Landscape 

The Corporate Sustainability Reporting Directive (CSRD) is set to be enforced as early as January 2024. The largest U.S. companies that raise money on European stock exchanges will be forced to begin compiling information about their climate risks and strategies in emissions. U.S. corporations are still awaiting climate disclosure guidance from the SEC, a ruling that was supposed to be finalized earlier this summer. The uncertainty in what will be included in the final ruling and when it will be passed is contributing to both corporate and investor uncertainty. 

On top of all this uncertainty lies one regulatory change that we believe will further fuel investor activism. The new universal proxy rule announced in 2022 lowers the number of procedural hurdles that dissident shareholders previously faced when nominating directors. They also impose additional proxy and annual meeting-related disclosures, as well as process obligations should a contested director election ensue. 

What Drives Activists? 

There's been a monumental shift in who the activist investors are, how they operate and why they do what they do. Traditionally, activists were viewed as corporate raiders, but sentiment has shifted over the last few decades toward regarding these investors as canaries in the coal mine, so to speak, and they're calling out practices that might pose financial risk. Christopher Stroh, Executive Director of Situational Analytics for S&P Global Market Intelligence, noted that “activists, over the years, have become less hostile.” A notable switch has taken place “from the corporate raiders of the '80s focusing on small and mid-cap companies and board turnover, to greater collaboration with management teams. You have the occasional bad actor, but overall, activist investors tend to get into a company to help elevate the company and improve their performance longer term.” 

Najy Nahkle, Director of Investor Relations Solutions for S&P Global Market Intelligence, agreed with this shift in sentiment: “When [an activist] publicly discloses its position in a company, they are typically raising their hand and striking a chord on a particular issue that sometimes does resonate with investors. That's why it becomes important for companies, issuers, and executives to think of some of these activists more as partners instead of standing against them.”