Investor Relations on the Frontline: Shareholder Activism

Investor Relations on the Frontline: Shareholder Activism

Shareholder activism is on the rise, with roughly 252 new activist campaigns in 2023 alone- from 187 in 2021, according to Lazard. While 80% of these campaigns were with US and Europe-listed companies, they extend to the emerging markets as well. It’s also important to note that not all activism campaigns are disclosed publicly; some are resolved directly with the board and management team without filing nor media visibility.

This month’s blog discusses recent trends in shareholder activism, with suggestions to ensure investor relations officers (IROs) are prepared to navigate potential threats.

Understanding potential triggers

Activists have traditionally been associated with M&A activity and governance issues. But data show an increase in «ES»G-related activism, particularly related to environmental and social issues and disclosure. Data compiled by S&P from 2019 through 2023 reflect almost 940 ESG-related request to be included in annual shareholder voting in 2023, compared with 615 in 2019. A total of 508 requests were related to governance, 72 to social issues, and 44 were related to environmental issues in 2019. In contrast, 578 governance-led requests, 254 social and 125 environment-related campaigns were registered in 2023.

Very few activist campaigns have come to light in Latin America. A closer look at the region suggests that this may be because LatAm companies are less appealing to activist investors for several reasons, including large shareholder blocks (family ownership and or/other controlling shareholders), the direct control said controlling shareholders exert over the board, lower trading liquidity compared to other markets, as well as the related regulatory environment. However, emerging market companies won’t likely remain immune to activism campaigns. Even if these campaigns do not all play out in the public realm, they can take considerable management, Board and advisor time and resources to resolve. ESG considerations are gaining traction, as environmental and social factors continue to attract broader investor interest.

The Power of Investor Relations to Pre-Empt Activism

Against this backdrop, how can IROs prepare for a potential activist campaign?

1# Know your shareholder register

It’s crucial that IROs have a deep understanding of the company’s shareholder ownership. Identify those institutional investors known for shareholder activism by closely monitoring ownership, particularly position increases. A proactive approach enables IROs to anticipate and prepare for activism-related challenges.

2# The “3Es Rule”: Engage, Explain, Empower

Following the «3Es Rule» can strengthen your company’s IR program as a defense against activist campaigns.

Engage: Proactively and consistently engage with your larger institutional shareholders throughout the year through one-on-one meetings, and by leveraging opportunities such as investor days, non-deal roadshows, and industry conferences. Establishing regular communication helps build confidence and trust, which is crucial in building a relationship and countering rumors and potentially false allegations.

Explain: Clearly articulate your company’s strategy, particularly in the context of shareholder value creation. Building credibility through a consistent message is essential, also that the IRO, executive leadership team and board of directors is aligned in communicating this message. Proactive and transparent discussions bolster credibility, enhancing understanding and shareholder alignment.

Empower: In-depth Perception Studies provide the IRO and management team with unvarnished insights into potential investment community concerns and expectations. The resulting feedback and related recommendations empower you to identify and address communication gaps or problematic misalignment. Studies also provide an opportunity to delve deeply into specific topics such as operational and/or ESG initiatives, aiding in strategic decision-making and proactive risk mitigation.

3# Stress-test your crisis communications arsenal

Just as pilots undergo crisis training, preparation is key to effectively addressing an activist campaign. Consider elevating and broadening your media and communications skills through tailored workshops and trainings- either individual or including the broader team. While some situations benefit from learning through experience, activism requires preemptive skill development and strategies. Equipping yourself with techniques to communicate effectively from both a PR and an IR perspective could mean the difference between winning or losing the battle. Investing in your communication capabilities can bolster your readiness to navigate and manage potential activist challenges with confidence and agility.

 

Learn how InspIR elevates your IR and ESG programs by visiting our website here.

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