Report: Executives, Activists Expect Shareholder Activism to Continue Rising

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By Michael Greene

Nov. 10 — U.S. corporate executives and activist investors expect the volume of shareholder activism to continue to rise, according to a recently released Schulte Roth & Zabel, LLP report.

Released in late October, the report found that 98 percent of U.S. respondents expect an increase in shareholder activism during the next 12 to 24 months, and almost half (48 percent) expect it to be significant.

When asked which specific investor groups they expect to drive activity during the next 12 months, most respondents answered hedge funds (60 percent), followed by unions funds (24 percent).

“Hedge funds have already proven to be highly successful activist investors in recent years, so it is not surprising that respondents see this trend gaining momentum,” the report noted.

Rise in Shareholder Proposals

Along with an increase in activism, the report found that U.S. respondents expect shareholder proposals to increase as well.

Well more than half (68 percent) expect the volume of shareholder proposals to “somewhat increase” during the next 12 to 24 months, with an additional 26 percent expecting this increase to be significant.

“These results are in line with the last survey's results, which showed 70% of respondents expecting to see an increase in the number of shareholder proposals from 2012 to 2013,” the report noted.

The primary focus of these shareholder proposals, according to respondents, will be operational decisions/changes (68 percent), cash spending/allocation (66 percent) and board nominations (60 percent). Additionally, 46 percent of respondents expect “meeting and voting rules to demand the most focus while 20% cite disclosures on political spending.”

According to one U.S. shareholder activist quoted in the report, limiting executive pay based on the ratio to the average employee will be a focus of shareholders. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act—and a Securities and Exchange Commission rulemaking promulgated in 2013, but not yet finalized—public companies are required to disclose the median annual compensation of all employees and the annual income of their CEO.

Proxy Advisory Firms

The report also asked respondents about the influence of proxy advisory firms and found that 90 percent expect these firms to become more influential during the next 12 months. Additionally, 26 percent expect this increase to be significant.

Securities and Exchange Commission Member Daniel Gallagher and other commentators repeatedly have called for reform of the proxy advisory industry and for withdrawal of two no-action letters they say might have entrenched the industry's outsized influence.

Social Media Effect

Social media is also expected to be an increasingly important part of shareholder activism, with 88 percent of U.S. respondents stating that they expect the use of social media to become a trend within the activist community.

“This finding is unsurprising given how far social media has permeated business allowing activist campaigns to be played out through public digital communication forums,” the report noted.

A U.S.-based media executive quoted in the report stated: “Social media gives shareholders the freedom to express their feelings about businesses openly, and to meet like-minded investors.”

According to the report, activists and corporate executives have differing views on whether activists and shareholders work together cooperatively without media attention: 52 percent of activists say that cooperation occurs more often than not, whereas just 32 percent of corporate executives think the same.

One chief financial officer at a U.S.-based media company was quoted in the report as favoring the more discreet approach. “Businesses are proactively reaching out to activists, even though these investors are headstrong in their demands. Some shareholders and businesses work together to keep media away from these activities, which is a win-win for both parties.”

Although this route may be preferred by some executives, businesses should still be prepared for the use of social media, according to some experts.

During the Association of Corporate Counsel's Annual Meeting in New Orleans Oct. 30, Kevin Maxwell, assistant general counsel for securities and M&A with Mueller Water Products, Inc., warned that companies should be prepared for activists' continued, and increasingly successful, use of social media to further their causes. He stated that “[b]y the time a social campaign strikes, it's too late.”

Businesses need to be prepared to effectively communicate their message during a crisis, which includes having a “social media crisis plan,” according to Judy A. Smith, a crisis expert and former White House Deputy Press Secretary who spoke at the National Association of Corporate Directors 2014 Board Leadership Conference in October.

Schulte Roth & Zabel's “Shareholder Activism Insight” report drew from interviews with senior corporate executives and activist investors from the U.S. and Europe in the second quarter of 2014.

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Ryan Tuck at

The report is available at


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