In our January 2023 Blog Post we outlined our expectation for a significant increase in the number of activist shareholder campaigns in the coming years, and predicted that activity would feature a greater number of smaller, first-time activists. Our expectation was underpinned by the implementation of a U.S. Securities and Exchange Commission (SEC) rule in August 2022 requiring parties in a contested election to use a universal proxy card, effectively lowering the barriers to entry and campaign costs for dissident shareholders.

The advent of the universal proxy card is clearly having an amplifying effect on the state of shareholder activism. Its implementation has effectively made all corporates more vulnerable to attack simply due to its easing effect on what were previously onerous and expensive engagement efforts by activist shareholders.

In the two years since the implementation of the rule, the number of activist campaigns launched trended higher, as we expected. In fact, last year activist activity reached a record high, topping the prior record set in 2018, with 252 new campaigns globally, representing a 7% increase from the prior year.

 

 

In more concerning news, the universe of activists is broadening, as smaller, first-time activists see easier and less cost-prohibitive paths to affecting change.  Last year featured the broadest range of agitators in history, with more than 180 different activists – 21% more than 2022 – and 77 “first timers” initiating campaigns, the most ever in a single year. This trend has continued in the first half of 2024.

 

 

According to Lazard and Factset, activists’ success rates remain high despite the growing participation of newcomers. In 2023, total board seats won by activists increased for the third consecutive year to 122 seats, up 13% globally compared to 2022. A record 31% of Board seats were won through proxy contests, a number which was well above the historical average of 17%. This is a particularly striking fact, as each of these proxy contests in the U.S. would have featured the use of the universal proxy card listing director nominations and proposals from all parties, side-by-side.

The flurry of activity shows no signs of slowing down in 2024, as investor activism activity is set to once again outpace prior years. According to S&P Global Market Intelligence, total campaign activity in the first half of 2024 was up 7.5% compared to the first half of 2023, led by campaigns within the Financials, Industrials, Consumer Discretionary, and Healthcare sectors.

This dynamic requires that companies revisit their activism defense plans, including the construction of a comprehensive vulnerability assessment and ‘break-glass when needed’ response plan.

The senior team at Alpha Advisory Group has extensive experience helping our clients mount successful defenses against activist shareholders across a variety of engagement methods. We would welcome the opportunity to construct or refresh your activism vulnerability assessment and response plan. The pace at which activist campaigns unfold often prevents the construction of these plans at a company’s leisure. A slow or disorganized response to a public confrontation can often mean losing shareholder support and, with it, the company’s autonomy.