Blogs

Shareholder Activism - 2022 Trends and Predictions for 2023

Shareholder activism experienced a watershed year in 2022, with activists securing board seats, forcing strategy changes, and eliciting record settlements. Looking ahead, activism shows no signs of slowing with investors empowered and engaged on issues from climate change to M&A activity.

This post will review milestones in shareholder activism during 2022 and forecast critical trends to watch in 2023. Preparing for rising activism has become imperative for public companies across sectors.

2022 Activism Highlights

2022 shareholder activism will be remembered for:

• - Unprecedented Climate Activism: Small funds like Engine No. 1 and Amber Capital stunned Big Oil giants ExxonMobil and Shell with climate proposals winning board seats and influencing strategy pivots. Climate activism reached new heights.
• - Settlement Records: Activists extorted record board representation and buyback settlements from major companies like Walt Disney and Caterpillar. Activists’ leverage is at all-time highs.
• - Proxy Fight Victories: Insurer First Hawaiian saw an activist slate achieve majority support for three board seats. Activists are winning more full-blown proxy battles.
• - ESG Prioritization: Fund giants like BlackRock and State Street voted for environmental proposals at record levels, accelerating ESG progress.
• - Stifel Deal Blocked: Activists scuttled financial firm Stifel’s planned acquisition of smaller B. Riley, exhibiting their deal-busting power.

Emboldened by recent successes, shareholder activists enter 2023 with extraordinary momentum. Companies should prepare for more confrontational engagements.

2023 Activism Predictions

With activism reaching historic extremes, expect in 2023:

• - Increasing Climate Activism: Climate-focused hedge funds will capitalize on 2022 victories to push new emissions targets, board seats and divestment demands. Exxon and Chevron will remain in the crosshairs.
• - Continued Focus on M&A: Activists will monitor deal activity closely, threatening campaigns against any transactions perceived as overpriced or diverting from strategy. Dealmakers are on notice.
• - Board Diversity Shareholder Votes: Racial diversity may become the new frontier, with activists forcing proxy votes on adding directors of color to predominately white boards.
• - SEC Backing: With a Democratic SEC chairman, activists may receive favorable regulatory treatment on issues like proxy access and climate proposal resubmissions.
• - Social Issue Spotlight: Beyond climate change, activism around social issues like gun safety, abortion access and racial equity will accelerate. ESG covers both environmental and social fronts.
• - International Expansion: Markets like Europe, Japan, and Australia with growing activism may emerge as future battlegrounds as US companies globalize.

All signs point toward an increasingly challenging and forceful investor climate. Proactive engagement will be crucial to mitigate risks.

Preparing for Rising Activism

To ready for growing activism threats in 2023, companies should:

• - Bolster investor relations: Maintain constant outreach to understand concerns, particularly for top institutional investors and activists holding stakes.
• - Stress competitive harm: Argue against overbroad disclosures on climate, M&A plans or diversity data that could aid competitors without benefitting shareholders.
• - Add independent directors: Expand board independence and diversity to help satisfy activists without full-blown proxy fights.
• - Review takeover defenses: Ensure poison pills and bylaw provisions provide leverage to rebuff campaign demands and defend against takeovers.
• - Highlight peer comparisons: Where company progress lags, emphasize specific roadmaps and milestones to catch up with ESG peer leaders.

With activism more confrontational than ever, proactive vigilance and swift responsiveness are essential when concerns arise. Delay risks attack campaigns and defeats.

Conclusion

2022 will be remembered for activists muscling climate and governance changes at fossil fuel giants and other major corporations. With these successes fueling investor power, companies across industries should brace for rising activism threats in 2023. But constructive engagement on ESG issues coupled with convincing competitive harm arguments can help defuse unrest. The stakes remain high, but skillful management can still disarm activist wolf packs before proxy war breaks out. Companies staying ahead of emerging investor grievances will maintain the upper hand.