Shareholder activism rising, big companies in crosshairs

Shareholder activism used to be just a nuisance that arose during proxy season, involving a group of contentious investors who tended to target smaller or less established companies.

Shareholder activism used to be just a nuisance that arose during proxy season, involving a group of contentious investors who tended to target smaller or less established companies.

However, in recent years activists have set their sights on larger companies, and more traditional investors are joining those fights. As shareholder activism goes mainstream, companies are becoming more proactive in engaging investors year-round, communications professionals say.

"Shareholder activism is now an accepted practice among the traditional investor community," says Matthew Sherman, partner at Joele Frank, Wilkinson Brimmer Katcher. "Management teams across industries are taking shareholder relations very seriously. There is a lot more awareness, consideration, and direct engagement at all senior levels of an organization – more now than there probably has been."

An activist shareholder is an investor who attempts to use his or her stake in a publicly traded corporation to affect change at the company. Activists often launch campaigns that put public pressure on companies, tackling issues such as executive compensation, management structure, or corporate strategy. 

Another emerging trend in shareholder activism is to focus on fewer companies when launching campaigns, bringing in several activists at the same time to gain force, according to Activist Insight.

Out of 57 companies targeted by global activists during Q2 this year, more than 10% of those campaigns involved more than one activist compared to 30% last year, the study found.

Power struggles
Recent contests that have been highlighted include Trian Fund Management founder Nelson Peltz calling for PepsiCo to sell its soft drink business and buy Kraft Foods spin-off, Mondelez, as well as activist investor Carl Icahn and other Dell shareholders voicing dissatisfaction over a proposed buyout offer from founder Michael Dell. Icahn also sent a tweet about a talk with Apple CEO Tim Cook and said "a larger buyback should be done now" sending Apple stock up about 5% and adding about $17 billion to the company's market cap.

As activists have gained muscle, large companies are twice as likely to be targeted as in 2010, according to data provider Activist Insight. Between January 2010 and June 2013, global activist shareholders increased investments in companies with a market capitalization of more than $10 billion by 104%.

"No one is immune. Everyone has to be prepared, no matter their size," says Rachel Posner, SVP at AST Phoenix Advisors, a proxy solicitation and corporate governance advisory firm.

Additionally, more investors that had been on the sidelines of proxy fights, such as mutual funds and other institutional shareholders, are now becoming activists, especially in the wake of the 2008 financial crisis and subsequent federal regulations, communications pros say.

Activists are also catching the attention of more traditional investors because they are waging more sophisticated campaigns, says Michael Fox, president of the corporate communications group at ICR.

"Funds engaged in activism have matured, and they are less combative and more responsible in how they approach being activists," he says. "They're more adult conversations. That makes it a lot easier for mainstream, blue-chip companies to be associated with activism."

Additional tools
With the rise of social and digital media, activists now have more tools at their fingertips to help them bring their contests to the public or other investors, Posner adds. Because of these factors, C-level executives must not wait until proxy season, the period in which many companies hold their annual shareholder meetings, to engage investors. 

"Now that anyone can be an activist in theory, you can't just sit back. With top shareholders, you must have ongoing dialogue," explains Brian Schaffer, transaction services practice leader at Prosek Partners.

The companies that tend to be most successful in defending against shareholder activism typically have close collaboration between their PR and investor relations departments, financial communications experts say.

Those teams must first take the time to get to know their shareholder base properly, says Susan Stillings, principal at Stillings Communications. 

"A lot of companies, at least small and midsize, may not be as aware of who is in their stock or how their voting decisions get made," Stillings explains. Other tactics that PR and IR practitioners advise include direct calls with C-level executives, participation in brokers' conferences, one-on-one meetings, and road shows.

"You don't have to be at every conference, but just make sure you're reaching the people you need to reach," Schaffer adds. "The last thing you ever want to do is get caught off guard."

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