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IR Careers
The Ultimate Guide to Shareholder Activism And Proxy Contests
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Any publicly traded company, big or small, may have activists in their shareholder base. As such, all investor relations professionals should know how to identify and mitigate potential activist threats through shareholder monitoring. Learn more about what activists are, how they operate, the origins of corporate activism, and how investor relations professionals can protect their company from activists.
An activist investor is a person or organization who uses their ownership stake in a publicly traded company to advocate for changes in its governance, operations, or strategy. Activist investors typically seek to improve a company's financial performance or unlock value for shareholders by engaging with management, board members, and other stakeholders.
There are several types of activist investors, including but not limited to:
It’s important to note that activists may fall into multiple or different categories for various campaigns.
The answer to whether activist investors are good or bad for stock issuers is complex, as it depends on the specific circumstances of each case.
On the one hand, activist investors often bring new ideas and strategies to a company, challenge complacency, and push for changes that can improve its performance and profitability. Even still, since activists can take up time and resources, it’s usually not ideal to have activists in your stock.
On the other hand, activists’ demands can sometimes be short-sighted, overly aggressive, or in conflict with the long-term interests of the company and its stakeholders. In some cases, activist campaigns can also create uncertainty, distractions, and negative publicity that can harm the valuation and/or the reputation of the company.
With that in mind, it's important for companies to carefully evaluate the goals and methods of activist investors and decide whether to engage or resist them based on their potential benefits and risks. Shareholder monitoring can help IROs track activists in their stock and alert you of suspicious activity.
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Every activist investor has a unique approach and set of tactics to achieve their objectives, which may include public campaigns, proxy contests, or private negotiations with management and the board. Common activist investor strategies include (but aren’t limited to):
There are several signs that a shareholder activist may be preparing to initiate a legal battle, including:
Learn more about how Irwin's IR CRM alerts issuers of activists in real time.
A proxy contest, also known as a proxy fight, is a battle between activist shareholders and senior executive management over control of the company and the decisions made on its behalf. Most often, proxy contests are initiated when shareholders aren’t satisfied or are unhappy with the leadership and overall direction of a company.
In a proxy contest, a group of activist investors will attempt to pressure management to make changes within the company by convincing other shareholders to vote against leadership and the board of directors during the Annual General Meeting (AGM).
Proxy season is a specific time of year when publicly-traded companies host AGMs and vote on the most important issues facing issuers, investors, and other stakeholders. It occurs annually during the spring, as companies host their AGMs during April, May, and June.
Learn More About How To Be Effective During Proxy Season
Proxy contests can be expensive and time-consuming for both shareholders and the company, with costs ranging from hundreds of thousands to millions of dollars. The average cost of a proxy contest will differ depending on various factors such as:
Due to such extreme financial requirements, proxy fights can sometimes lead to a settlement or a compromise between the two parties. If settled early, the costs of the fight will most likely be lower, while a prolonged battle will be much more substantial. Overall, it’s critical that shareholders and company leadership consider the costsnd benefits before proceeding.
Try Irwin's Shareholder Monitoring
Proxy season and the shareholder voting process is an important way for investors to have a say in how the company is run and ensure that their interests are both heard and represented. During a company’s AGM, shareholders are given the opportunity to vote on certain matters related to the company. This process entails the following steps:
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A proxy contest will have a significant impact on the shareholder vote during a company’s AGM.
During a proxy contest, the activist shareholder group will typically send out their own proxy statement and subsequent card, urging other shareholders to vote in favor of their proposed nominees or voting matters. This can create significant confusion among shareholders, as they receive multiple proxy statements and voting cards, all of which containing conflicting information.
The activist shareholder may also implement a proxy solicitation campaign to persuade other shareholders to vote for their nominees or proposals. This could involve issuing press releases or other public statements to bring attention to their campaign details, launching a roadshow to meet with other shareholders in person, or setting up a social media campaign to raise further awareness.
No matter the final outcome, a proxy fight will have significant implications for a company’s executive management and acting board members.
If a group of activist shareholders successfully nominate and elect their own candidates for the board of directors, the new acting members will likely have vastly different perspectives or agendas than the current board. Because an activist investor is a clear representation of the dissatisfaction of a company’s shareholders, there is a high chance that changes to a company’s leadership team or strategic direction will be implemented.
Even if the activist shareholders’ efforts aren’t successful, the authority of the board of directors and executive leadership will be diminished by the proxy fight. The company will need to actively reach out and engage shareholders to address the concerns that were raised and maintain the support of the company's investor base. This may result in changes to the board's makeup, the company's governance structure, and an overall shift in the balance of power.
However, for organizations caught in a proxy battle—not all hope is lost. A proxy fight can be a solid opportunity for a company and its leadership team to address shareholder concerns and strengthen their position moving forward.
Shareholder activism has a long history that can be traced back to the 1920s. There are records as early as 1927 of investors like Benjamin Graham launching proxy fights and getting involved in corporate governance. The introduction of the SEC in 1934 formalized the ability of shareholders to engage in proxy solicitation and opened the door for shareholder activism to become a more common technique.
By the 1950s, shareholder activism had become more accepted, and proxy contests were commonplace in America’s biggest boardrooms. In this era, there was a large focus on corporate governance and management, and there were even activists campaigning to elect women to boards.
In the 1960s-1980s, new tactics such as hostile takeover bids emerged, which ushered in the era of “Corporate Raiders” who would purchase large stakes in undervalued companies and force changes in management. The focus of activism in this era was largely based on ROI and maximizing shareholder value. Many of today’s most famous activists, like Carl Icahn and Nelson Peltz, got their start during this era.
In the past 20-30 years, corporate activism has become more mainstream. Not only have the information disclosure requirements on public companies increased due to legislation such as the Sarbanes-Oxley Act of 2002, but investors have also become more active in advocating for change concerning environmental and social issues (ESG). The growth of passive investing, such as index funds, has also given rise to new forms of activism, as investors seek to influence the companies in which they are invested through engagement and proxy voting.
There have been many famous activist investors throughout history. This list of activist investors includes some of the most well-known names in corporate activism and their firms:
In addition to the above individuals, some of the other biggest activist firms include (but are not limited to):
It is important to note that there are countless activist investors on every stock exchange, and they’re not always easy to spot. Some activists will file their 13F forms as institutions, some will file as individuals, and some will use a combination of various ownerships to stealthily acquire large stakes.
The best way for investor relations professionals to identify activists is to employ stock surveillance and track who is accessing your investor relations website and filings.
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Most often, activist investors target companies that they believe are undervalued, underperforming, and have significant issues that must be addressed. Examples of companies that have been through an activist campaign in the past 10 years include:
In 2015, Yahoo—the internet company known for its search engine and email platform—faced an activism campaign from private investment management company, Starboard Value LP. One of the main issues raised was the need for Yahoo to unlock value from its stake in Alibaba, the Chinese e-commerce giant. Starboard also criticized Yahoo's core business and called for the company to cut costs, streamline its operations, and focus on its most promising business ventures.
In 2016, Yahoo announced it would detach Alibaba into a separate company and add four new independent directors to its board, including two directors nominated by Starboard. However, Yahoo's efforts to become profitable were ultimately unsuccessful leading to an acquisition by Verizon Communications in 2017.
In 2016, Apple—arguably the world's largest technology company—faced a campaign by world-known activist investor Carl Icahn. Icahn had acquired a significant stake in Apple and called for changes to the company's strategy and capital allocation policies. Icahn also criticized Apple's long-term growth plan and called for the company to make strategic acquisitions or invest more in emerging technologies, such as virtual reality (VR) and artificial intelligence (AI).
In 2016, Apple announced plans to increase its dividend payments and buy back more of its own shares, which helped to boost its stock price and return more value to shareholders. However, Apple didn’t make any significant investments in emerging technologies and continued to develop its own products.
In 2017, Procter & Gamble—a global consumer goods corporation—faced an activist campaign from Nelson Peltz and investment firm Trian Fund Management. One of the main issues raised was the need for P&G to improve its financial performance by cutting costs, streamlining operations, and focusing on core brands to boost profitability and shareholder returns.
In 2018, P&G announced plans to cut $10 billion in costs and streamline its operations costs. The company also added Nelson Peltz to its board of directors, along with another independent director, and agreed to separate the roles of CEO and Chairman of the Board.
In 2017, Nestle—one of the world's largest food and beverage companies—faced a campaign by activist investor Third Point LLC, led by billionaire hedge fund manager Daniel Loeb. Third Point called for Nestle to find better solutions to underperforming business departments, cut costs, and improve financial performance. They also called for changes to the company's board structure.
In 2018, Nestle announced a major restructuring of the business, including the sale of its confectionery business and the acquisition of a majority stake in Blue Bottle Coffee. The company also announced plans to return $21 billion to shareholders through share buybacks.
In 2019, Cisco Systems—a digital communications technology corporation—dealt with an activist campaign from investment management firm, Elliott Management. Led by Paul Singer, it called for changes in Cisco's strategy and financial performance, including the restructuring of the company's business and the return of more cash to shareholders.
In November 2019, Cisco announced a new stock buyback program, as well as plans to cut $1 billion in expenses over the next few years. The company also announced a new organizational structure that would simplify its operations and enable it to better focus on its core businesses.
In 2020, L Brands—the parent company of Victoria's Secret and Bath & Body Works—faced an activist campaign from Barington Capital Group. Barington called for changes to the company's leadership, governance, and business strategy. The underperformance of Victoria's Secret was a serious factor, as the business had been struggling in recent years due to changing consumer preferences and increased competition. The firm also called for changes to the company's board of directors.
In May 2020, L Brands announced that it would spin off Victoria's Secret into a standalone company that allowed for the brand to be revitalized and its performance to improve. The company also agreed to add two new independent directors to its board and separated the roles of CEO and Chairman of the Board.
In 2020, Disney—the world's largest media and entertainment company—faced a campaign from activist investor Dan Loeb and his hedge fund, Third Point LLC. Loeb's campaign called for changes in Disney's strategy and leadership, which came at a time when the organization was dealing with significant challenges due to the COVID-19 pandemic.
In October 2020, Disney announced a major restructuring of its media and entertainment sectors that would focus more on streaming. The company also announced that Bob Chapek would replace Bob Iger as CEO. However, Iger did remain on the board as Executive Chairman.
In 2021, Salesforce—a cloud-based software company—faced an activist campaign from Elliott Management. The campaign was led by Jesse Cohn, head of U.S. equity activism at Elliott.
In response to the campaign, Salesforce announced a share buyback program and changes to its board of directors in May 2021. The company also agreed to provide more detailed disclosures on its merger and acquisition strategy and to consider the adoption of majority voting for board elections.
Corporate governance is the responsibility of a company’s board of directors and ensures that a company is conducting business both fairly and with accountability. In fact, one of the main goals of corporate governance is to ensure that a board of directors and executive leadership is managing the company's finances effectively. It also aims to ensure that decisions are being made with the best interests of the shareholders, customers, and staff in mind.
The impact of shareholder activism on corporate governance can be both positive and negative. Overall, it depends on an activist campaign's specific goals and objectives.On the positive side, shareholder activism can help improve corporate governance by bringing attention to issues such as the makeup of the board, compensation of the C-suite, and environmental, social, and governance (ESG) requirements. Activist investors push forward organizational changes that increase transparency, accountability, and alignment with shareholder interests while also encouraging the board to take action on items that create long-term value.
However, shareholder activism can also be disruptive and counterproductive, especially when activist investors have short-term goals that don’t align with the long-term interests of the company and other shareholders. Keep in mind that activist campaigns are commonly expensive, distracting, and damaging to a company's reputation.
Activist investors may also have different priorities and perspectives from other shareholders and don’t always represent the best interests of the company as a whole. For example, some activists may be focused on maximizing short-term returns at the expense of long-term value creation or may be more interested in cost-cutting measures rather than investing in innovation or company growth.
It’s important to balance the interests of all shareholders and ensure that activist campaigns are aligned with the company's wider goals and long-term strategy.
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Activist investors are typically attracted to companies that are underperforming or undervalued relative to their peers or potential. These could be companies that are experiencing financial distress, have weak management, or are not using their resources effectively. In general, activist investors look for companies with potential for significant value creation and that are not realizing their full potential due to internal or external factors.
It’s worth noting that any publicly traded company is potentially vulnerable to activist investors, even if no warning signs for shareholder activism are obvious. Regardless of a company’s size or industry, as long as there is a perceived opportunity for change or improvement, activists may build positions in your company.
When considering how to prevent activism in your company, it is important to be on the lookout for reasons an activist could be attracted to your company or industry. If your company is underperforming, it might make sense to proactively identify the causes and address potential solutions before you find an activist in your shareholder base.
Similarly, sometimes entire industries become attractive to activists. Some activists are interested in opportunities to push for ESG-related changes or want to enact changes in response to current events. One way to spot activism risks in your sector is to monitor activist campaigns in your peers and within your sector to see if there are similar risks.
Additionally, Kiley Rawlins, VP Investor Relations at Ulta Beauty, drawing on her experience dealing with activism in the past, recommends looking at your peers across your entire ISS peer group, even if they aren’t operationally your peers. She notes that using research and estimates to assess their profitability and valuation can help you reveal potential vulnerabilities in your own stock.
Listen to Kiley Rawlin’s podcast episode on How to Effectively Prepare For and Manage Shareholder Activism
One way to defend against shareholder activism is to actively monitor your shareholders. Some activist investors build their positions slowly, making it difficult to notice big changes. Although investors are required to report their holdings via SEC Form 13F filings at 5% or 10% of a company’s value (in the US and Canada, respectively), many will use tactics that do not require them to report holdings through the 13F, such as buying stock through holding companies and other investment vehicles. For this reason, it is imperative to proactively look for activism threats from institutional investors and retail investors.
Irwin’s shareholder monitoring solution enables you to track your shareholder’s positions in your stock and alerts you of significant changes and potential activism threats. Irwin also seamlessly enables you to track NOBO shareholders, granting you full depth of insight into your shareholder base.
Read More About How To Spot And Manage Activist Investors.
Irwin’s market surveillance, which allows surveillance analysts to incorporate NOBO and IR website data, helps you flag potential activists and helps keep track of institutional and retail investors buying and selling activities outside of 13F filings. Investor surveillance can also help you monitor if activists are interested in your peers.
You may also want to monitor whether activists are visiting your websites or viewing your investor materials. This tactic is helpful for catching activists who may be trying to obfuscate their ownership in your stock while they accumulate stake in your company. Irwin IQ is the most reliable way to identify who is visiting your investor relations website.
Read More About How To Use Your IR Website To Uncover Activist Investors.
One way to avoid investor activism is to employ a proactive investor relations strategy with trusted shareholders. For example, you might use investor targeting to seek only good-fit investors without a history of activism. Another strategy is to leverage relationships with existing shareholders to ensure your company’s message and growth strategy are effectively communicated and understood; after all, you don’t want your first interaction with a shareholder to be when they’re faced with a proxy contest.
If your peers are at risk of activism, your business might also be at risk. Keeping up with analyst research and news about your peers and industry is a good way to monitor how your company may be perceived. Irwin’s Professional Services include a curated Weekly Market Summary, which can help you stay on top of current activist campaigns within your sector and help you get ahead of potential threats.
You can also use Irwin’s shareholder monitoring solution to track changes in your peer’s shareholder base, giving you additional insights into industry risks.
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In addition to leveraging surveillance and proactive investor relations, an activist preparedness plan can help you position yourself for a better outcome should an activist arise.
An activist preparedness plan should:
If an activist is growing their position in your stock, it usually means they have already done their research and believe they can unlock shareholder value. Having a well-developed strategy ready in case an activist emerges can help you quickly and decisively evaluate the activist’s claims and determine the next steps.
As soon as you think there is an activist in your stock, you need to assemble a response team and carefully decide your next action. Your response team should include leadership, legal counsel, and any relevant external advisors.
Kiley Rawlins offers the following rule of thumb for deciding when to involve management and the board:
“Whenever there's something that seems off, or you're just like, this is weird, I elevate it to the CFO and my GC, and I will preface it by saying ‘this could be nothing, but this is what I'm seeing”. And my rule of thumb is, if I don't say something and it escalates, will I wish I had spoken up?
When do we pull in the board? Again, I think the rule of thumb is if something were to surface in 30 days or 60 days and we didn't share what we were seeing now, would we have regretted it?”
Your next step is to gather as much information as possible about the activist and what their goals might be. If the investor already has an activism track record, you can see how they’ve behaved in similar situations.
No matter what, it is of critical importance that your leadership, board, and other potential spokespersons are unified in their messaging and communications. Your messaging needs to be clear and easily understood with no room for ambiguity or damaging soundbites that can be used against you in a proxy contest.
While every situation is unique, and there is no one-size-fits-all approach to dealing with activists, it’s always a good idea to ensure you have as much information as possible. Before considering the next steps, you should know:
Once you have a firm understanding of the risks involved with a particular activist, you’re better equipped to decide on your strategy. Remember, not all activists will run campaigns where they own stock, so it may not be necessary to engage.
There are a number of ways an activist can decide to surface, and one critical factor is if they surface privately or publicly.
If an activist reaches out to management privately, you have a few options to help you control the situation. While you have no duty to meet with them or negotiate, it may make sense to assemble your activism response team and review their proposals to see if a public confrontation is avoidable.
Keep in mind that the activist can take their campaign public at any time, so it is important to communicate effectively and be prepared for the activist to reach out to directors, shareholders, analysts, and other constituencies. Ensure that you can funnel activist communications back through your investor relations department or designated activism point person to ensure your messaging is consistent
The first step in dealing with an activist who has made their campaign public is to assemble your activism preparedness team and acknowledge that you have received the proposal. A generic and non-committal statement such as “the board will welcome and consider input from its shareholders” is often sufficient.
At this stage, it is critical that your communications are streamlined and intentional to avoid reputational issues. Aim to designate a singular point of contact for communications for all shareholders to ensure that your messaging is clear. Any communications you send out should clearly state your company’s strategy to create long-term value for shareholders.
If you learn that an activist has taken positions and launched a campaign in your peer group, your first course of action should be to learn everything you can about the situation. These questions can include:
From there, you will have enough information needed to analyze your own business’ risk. It’s a good idea to alert your management team about the status of your peer’s activist so you can assess your particular risks. At this juncture you should ensure that your activism preparedness strategy is up to date.
Lastly, you should use this opportunity to ensure that your shareholder monitoring strategy is set up in a way to flag potential activists in your investor base so you can stay apprised of activists silently building positions.
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