Over the last few years, shareholder activism has been steadily increasing across Europe. While the movement has long gained momentum across the United States and the UK, a 2019 report showed that over 158 companies in Europe faced shareholder activism. This increased by 23% in 2020 heightened by the impact of the Coronavirus pandemic. As we head into a post-COVID world and European businesses begin to recover, experts suggest that the objectives of activist investors are likely to refocus with M&A being a clear and common area of focus.
This is not to say that businesses should be on edge or overly concerned. After all, shareholder activism can oftentimes be a very positive force in allowing corporations to restructure and access untapped potential. It is instead to say that businesses should be prepared, as always, to focus on strengthening their investor partnerships in light of activist trends.
In this article, we’re going to run through the key trends that have emerged in shareholder activism over the last few years and crucially, also showcase how businesses should respond to these issues, highlighting best practices when it comes to maintaining investor partnerships.
Shareholder Activism trends in 2021
2020 was the year in which the Black Lives Matter protests and the Coronavirus pandemic were the key issues. It therefore comes as no real surprise that 2020 was also the year in which investor objectives were acutely focused on ESG issues.
Issues of human capital have been crucial to shareholder activists for a number of years with board diversity being among the top causes of action. Over the last year, BlackRock have been very vocal in their advocacy that all public companies have at least two women Directors on their boards and their insistence that businesses publicly disclose statistics on the issue of diversity (BlackRock Investment Stewardship Annual Report 2020).
Environmental activism was already on the rise, but has only increased in the past year. This is clearly indicated by the fact that industrials was the most popular market for shareholder activism in 2020.
The case of Bluebell Capital Partners and Belgian chemicals company Solvay is a clear example of the impact of public concern about ESG issues on shareholder activism. Through one of their plants, Solvay were having a hugely damaging impact on a nearby beach. Having picked up on this issue, as many shareholders already had, Bluebell Capital Partners wrote to Solvay demanding reparations and imminent change. Because Solvay is considered a sector leader for chemical safety, water usage and clean tech, Bluebell’s move to create public momentum was a significant moment. In many ways, this acts as a warning to other companies in the sector who don’t seem to take public and shareholder pain points seriously enough.
Perhaps in light of this response to public momentum, shareholder activists are also harnessing the momentum of public disclosure in order to amplify their impact. BlackRock, for example, disclose full details of their voting decisions and engagements. It’s clear that, in investor partnerships, transparency is more critical than ever to prevent this escalation.
In late 2020 another large European company fell prey to shareholder activists, who managed to orchestrate the rejection of shareholder approval for Unibail-Rodamco-Westfield’s €3.5 billion capital increase to repay existing debts. Activists argued that URW could meet their short-term debt obligations without a rights issue that could destroy shareholder value. A short while later, supervisory-board chairman Colin Dyer and CEO Christophe Cuvillier stepped down. The increasing impact of activists is clear from this example alone - working with activist investors rather than against them is key to increasing shareholder value as we head into the future.
How businesses are adapting their Shareholder Engagement plans in 2021
While the objectives of investors may not always be explicit, maintaining an awareness of your investors is key. This applies particularly to understanding your largest and most active current and target investors, but also to keeping an eye on voting decisions which is crucial in managing potential areas of conflict. Try to ensure that discussions with investors remain open and productive. It is through a continued and transparent dialogue with investors that you are able to maintain and strengthen relationships. Praexo provides the ideal solution to facilitate this positive relationship. More than just a CRM tool, our software allows for a two-way dialogue between investors and corporations. Praexo’s solution has been designed to create a direct, transparent and unfiltered connection between issuers and investors. This has been a longawaited development from many market participants, which has become even more critical post MiFID II.
By offering voluntary disclosure wherever possible - for example, on current shareholder engagement, feedback received and changes made - you are able to hit specific investor pain points and keep relations under control. Proving regulatory compliance is also key in this.
Both of these missions are streamlined through Praexo’s CRM. Contrary to other investor relations CRM tools which tend to focus on quantitative data such as investor trading flows or volatility evolution, our tools are aimed at delivering strategic information about investor opinions, expectations and concerns, while offering the ability to track the evolution of this qualitative data over time. Your ability to position data at the heart of your investor engagement activities will allow you to quickly and effectively build trust with your shareholders.
Monitor Your Messaging
Whether speaking to your employees, investors, customers or other stakeholders, it’s important to build a unified and consistent message to boost transparency. This applies to not only your present situation, but also to discussions of your future plans and strategy. You’ll want to incorporate ESG issues throughout this too.
Praexo allows you to combine your communications with your top management including your board members (if you want to), directly linking not only your investors, but also other parties which could include your financial advisor or communication agency under one platform. This not only allows for congruent messaging, but saves you time and streamlines investor relationships.
3 https://www.lazard.com/perspective/lazards-annual-review-of-shareholder-activism-2020/ Page 2