Small caps, big noise

Despite attention on big firms, it is small-cap companies that are most likely to be targets of activist investors—according to research from the advisory outfit Georgeson—way over and above mid and large cap companies combined.

Looking at the 2024 market, Georgeson says 40% of UK companies that drew the attention of activists were small cap, compared with 10% mid cap and 14% large cap. London-listed companies targeted included Smith & Nephew, Rentokil and Rio Tinto.

This contrasts starkly with Germany, where activist action is aimed mostly at large-cap companies (47%), with small caps accounting for only 25% of activity.

The situation is even more pronounced in Switzerland, where 73% of activism is aimed at large-cap companies.

Meanwhile, the sectors falling under the lens of activists differ, too. In the UK, consumer businesses figure most, on 22%, while in Germany, it is industrials, 31%, and in Switzerland, it is overwhelmingly the finance services sector: 60%.

Activists in the UK and Europe most often look for personnel changes on boards, 42%, while the next most popular topics, on 17%, are M&A action and governance.

More than 80% of activist campaigns to change personnel are successful. Georgeson says in its report: “Primary activists, such as hedge funds, ran highly effective campaigns focused on direct elections to remove one or more current board members during 2024.

“These campaigns often succeeded insuring at least one board seat.”

Conversely, institutional investors, acting like activists and demanding changes, are much less successful. They win only about half their demands for moving people on.

So, board members, if the hedge funds come looking for you to make exit, you should probably pack your bags. If it’s a fund manager, hang on in there.

Like never before

It’s strange how the word “unprecedented” is used these days with increasing frequency. The crash of 2008, the Covid pandemic, inflation after Russia’s invasion of Ukraine, and now, in the wake of Donald Trump’s trade wars. Oh, and the climate crisis.

Unprecedented crises are coming round at an unprecedented rate. Which takes its toll on corporate leaders (the point of this item, in case you were wondering).

Global headhunters Russell Reynolds has a blog out, noting the challenge facing company leaders and offering some advice. But they note: “The most effective boards will engage deeply on critical issues and strive to support without distracting their management team.”

To be perfectly honest, tariffs, supply chains, wars, climate change, and diametrically opposed approaches to regulations on sustainability, diversity and technology all seem like distraction enough.

Defining boards

Over in the US, amid the rising competition between Delaware, Texas and Nevada to register companies, they are wondering: what’s the point of the board?

The competition, as you may remember, stems from a Delaware Court ruling twice that Elon Must couldn’t have his $56bn paycheck.

Musk immediately moved the registration of Tesla to Texas (with other companies following suit) and Delaware has been revising its corporate law to make it more alluring to would-be registrants.

Over on Bloomberg, Lawrence Cunningham, a governance expert at the University of Delaware, wonders whether all this shopping around for domiciles softer on execs is a good thing. It seems a lot like the state’s courts are assumed to be providing the stewardship and making boards irrelevant.

“The most important question isn’t whether Tesla’s board still matters—it may not, and that may be fine for that company and its shareholders,” Cunningham writes.

“The questions is whether the American corporate board, as an institution, can continue to serve its intended functions of effective stewardship of shareholder capital to deliver high sustained returns and prosperity.” No pressure there then.