Campaigns by shareholder activists look set to rise further this year after a return to pre-pandemic levels in 2022.

The conclusions come from experts following research by Lazard revealing activist action was at its highest for the past four years.

Lazard documented 235 campaigns last year at companies with market caps of more than $500m, higher than the 209 in 2019 and approaching 2018’s 249.

Experts studying the data say activists are likely to continue targeting companies in the coming 12 months as the economic conditions remain unchanged, with increased scrutiny of board decision making. Some observers believe many companies have been sheltered by tolerant shareholders willing to give boards “grace periods” due to recent economic conditions.

“The rise of activism campaigns back to pre-pandemic levels indicates that this grace period was only temporary and we should expect the trend growth in activism (in all its forms) to continue,” says Andrew Brady, a director at shareholder consultancy SquareWell.

Full Peltz

According to Daniele Vitale, head of ESG at consultancy Georgeson, Trian Partners’ proxy fight with Disney, in which founder Nelson Peltz is attempting to get himself appointed to the media giant’s board, will set the tone for the activists’ year.

“We believe the battle will elevate the profile of shareholder activism in general and may well encourage more activist situations if investment firms believe such campaigns are a good way to make headlines,” Vitale said.

Lazard is not the only researcher to reveal the rise in activism. Analysts at Insightia have looked across the global market to find 967 campaigns across all company sizes in 2022, rebounding from 913 in 2021.

The US is the largest market for activists, according to Insightia, followed by Japan, Australia, Canada, South Korea and then the UK and Germany. UK activism looks to be holding steady in numbers, but remains some way off its peak activity year of 2019.

Josh Black, editor in chief at Insightia, says: “This is one of the best environments for activism in years (especially in the US), as 2019 saw stocks quite richly valued and then the pandemic and associated crises made influencing corporations quite difficult.

“The sell-off last year and change in market sentiment to favour profitability over growth has put a lot more companies on activists’ screens, plus the universal proxy has introduced more uncertainty that may make companies more willing to settle.”

Singing to a different tune

Georgeson expects a rise in ESG activism, citing Strive Asset Management, an anti-sustainability investment fund. Led by Vivek Ramaswamy, a self-styled “scourge” of “woke” companies, Strive has attempted to win board seats at Warner Music.

Vitale says he expects the “anti-ESG debate to continue to polarise industry opinion in the US”.

In Europe, however, he believes activists are targeting companies they consider to be laggards on ESG issues because they fail to disclose vital sustainability information.

“As a result, such stakeholders are increasingly using activism as a tool to apply pressure on such companies,” Vitale says.

His observations come in the same week Norges Bank, the world’s largest sovereign wealth fund, said it would begin filing its own shareholder proposals on ESG issues. “Activists will take note of the trend of traditional investors starting to act as activists,” Vitale added.

Outside the ESG agenda, companies with performance issues should be on alert for a possible activist attack.

“Activists,” says SquareWell’s Brady, “will be searching for the companies that used the challenging market backdrop as a shield for poor management and oversight.

“We expect to see companies being questioned considerably in private on how they are managing the opportunities and threats posed by the market, and a push for transparent communication of how the company’s strategy and associated governance structure are optimised to create long-term shareholder value.”

Brady adds: “A board should be wary if they have a high free float and have either underperformed versus peers and/or experienced a strong level of oppositions at a recent general meeting.”