After several years on the decline, 2022 saw the number of activist campaigns return to pre-pandemic levels — and it looks like 2023 is already shaping up to be another blockbuster year.
In this year’s Shareholder Activism Annual Review, Insightia, a Diligent Brand, offers insight into this trend, as well as tips for what organizations should do to adequately prepare for the uptick in activism.
Read on for highlights and key takeaways from the report.
U.S. Companies Subjected to More Campaigns in 2022
According to Insightia, the new universal proxy rule means shareholders can “mix and match” director candidates, placing greater scrutiny on individual directors.
This heightened scrutiny coincides with a rising number of activist campaigns worldwide, with the U.S. among the largest targets.
Insightia found that 511 U.S. companies faced activist demands in 2022 — a 10.6% increase from 2021. The volume of shareholder proposals is expected to grow even more through 2023.
Japan also proved attractive to activists, with 108 Japanese companies facing demands last year — nearly double the totals from 2020 and 2021. Insightia credits this trend to "a growing number of domestic investors looking to capitalize on undervalued companies."
Pay for Performance Persists
Pay for performance compensation has become a regular part of investor engagements, especially as markets tighten and global interest rates rise.
Insightia found that 114 companies around the world faced remuneration demands in 2022, compared to 86 and 92 throughout 2020 and 2021, respectively.
Meanwhile, average support for S&P 500 advisory “say on pay” plans reached an eight-year low of 87.5% in 2022.
Given the SEC's new pay for performance rules, executive pay is likely to stay in the spotlight again this year.
ESG Activism Faces Challenges
One area that didn't see growth in 2022? ESG activism.
In fact, just 11.5% of environmental demands were even partially successful in 2022, compared to 25.8% in 2021.
Unless companies could show a clear link between their financial performance and ESG credentials, their ESG campaigns were destined to fail — especially as green stocks underperformed and the energy sector saw record profits.
(Insightia explored this downward trend in greater depth in their ESG Activism 2022 report.)
How Should Companies Prepare for Increased Scrutiny?
“Amid heightened focus on a company’s bottom line, it is increasingly important for leaders to address and mitigate the ever-evolving risks of shareholder activism,” writes Josh Black, editor-in-chief at Insightia. “Complete visibility into organizational data is the first step to building such a program and reducing vulnerability to investor, shareholder and legal action.”
Leaders need a 360-view of data across their organization, so they can be armed with the right information to exercise strong risk oversight and document their efforts in defensible, auditable detail.
A three-dimensional approach to governance makes it easier for directors to effectively fulfill their evolving duties, and therefore reduce their organization's vulnerability to shareholder activism threats.
For a deeper dive into recent activism trends and what companies should be prepared for in the months ahead, download the full Shareholder Activism Annual Review.