Numbers don't tell the whole story: At a glance, shareholder activism in the U.S. appears to be down nearly 25% compared to 2018 and close to 40% compared to 2016, with large cap companies experiencing the second lowest number of engagements in the last four years. However, as noted by Lazard, every board seat won by an activist in 2019 was accomplished by a settlement. Activist hedge funds are still requesting board seats and seeking to influence corporate strategy, including M&A activity.
Settlements often kept behind closed doors: Silent settlements, which are increasingly common, may explain the drop in the number of “official” activist interventions. The "behind-the-scenes" nature of many of today’s activist negotiations reflects the substantial experience U.S. companies now have in working with activist shareholders and hedge funds. A primary example is found in the financial services industry, in which eight of nine companies targeted by Arjuna Capital negotiated the withdrawal of a shareholder resolution and agreed instead to publish a gender pay equity report or other information instead of risking a public campaign and a shareholder vote.
ESG issues are a primary discussion item: As is demonstrated by the Arjuna example, shareholders seeking to discuss environmental, social, and governance (ESG) issues have increasingly sought to utilize behind-the-scenes negotiations with companies through negotiated withdrawals of shareholder proposals and other tools. Given the subject matter of some of the ESG topics—such as diversity and gender pay equity—conversation and negotiations are clearly a preferred path of action of companies versus a public or social media-driven conflict.
Public fights still occur: While it is true that private negotiations and conversations are increasingly common, as Axios notes, big public battles are still a common occurrence with activist shareholders like Icahn, Ackman, and Loeb ready and willing to step up the publicity battle to fight.