Nasdaq board trivia: trends in shareholder activism


Nasdaq Corporate Solutions has launched #BoardroomTrivia to explore the hot-button issues affecting today’s corporate boardrooms. This month, the topic is shareholder activism.


NASDAQ BOARD TRIVIA: TRENDS IN SHAREHOLDER ACTIVISM

Throughout the month of March, Nasdaq Corporate Solutions’ #BoardroomTrivia questions were focused on the topic of shareholder activism. The answers to the trivia questions (below) were revealed in a March 13 Facebook Live session, where TK Kerstetter, host of Inside America’s Boardrooms, and Nasdaq’s Brad Smithdiscussed how activist investors are impacting today’s boardrooms.

Why the Rise in Shareholder Activism?

Once regarded as a rare and unlucky occurrence, shareholder activism has now become a fact of corporate life. While shareholder activists have been around for decades, several trends over the last few years have drastically reshaped the landscape. The 2008 financial crisis, for example, ushered in regulatory reactions like the Dodd-Frank Act, which created an environment where shareholders were not shy to flex their muscles. In particular, the rise in hedge fund activism and regulations like say on pay have brought about new expectations for shareholder engagement, and boards must move quickly to adapt.

Trends in Shareholder Activism

In the Facebook Live segment below, Kerstetter and Smith discuss the answers to this month’s #BoardroomTrivia questions, which were shared on social media:

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The past three years (2014, 2015 and 2016) has seen a significant increase in high-impact activist campaigns. Here are a few other trends (via FactSet):

  • Activist attention is no longer limited to large-cap companies. In 2016, 75% of all activist campaigns targeted companies with valuations of less than $1 billion.
  • “First-Time Activists” are claiming a larger piece of the pie. In 2016, 60% of activist campaign were launched by first-time activists, who generally targeted companies with smaller market values
  • Finance & healthcare proved to be the greatest activist magnets. The finance and healthcare industries drew the most activist attention, attracting 22% and 12.8% (respectively) of the total campaigns launched in 2016.

What’s the Effect on Today’s Boardrooms?

Shareholder activism—or rather, avoiding activist attention—has become a powerful motivator in today’s boardrooms. Now that activists are targeting small- and large-cap companies alike, and now that institutional investors are acting more aggressively, shareholder activism has become a universal board challenge. Yet, not all board members view shareholder activism as a negative thing.

In PwC’s 2016 Annual Corporate Directors Survey, 80% of corporate board members indicated that shareholder activism has compelled companies to more effectively evaluate strategy, execution, and capital allocation. With these areas of board oversight often serving as red flags for activists, boards have placed a heightened focus on matters of operational efficiency and capital allocation, which one could argue is a win for both sides.

Throughout 2016, Nasdaq, Boardroom Resources, and PwC’s Governance Insights Center (in partnership with Wilson Sonsini Goodrich & Rosati and Equilar) jointly hosted the Investors Board Performance Review, a series of three panels that brought together corporate directors, major institutional investors, proxy advisors, and shareholder activists to discuss the new imperatives for shareholder engagement. Representatives fr om BlackRock, Vanguard, CalSTRS, Trian Partners, Glass Lewis and more—explained wh ere they often see shortcomings in today’s board communications.

“So many companies say, ‘Our shareholders don’t understand us.’ Well, who’s fault is that? If you’re not telling us what you’re doing—and how you should be measured against those goals—then it’s quite likely that we will be misunderstanding what you’re trying to do and holding you accountable for the wrong things.”

– Michelle Edkins (BlackRock’s Global Head of Investment Stewardship) during the Investors Board Performance Review hosted at the Nasdaq MarketSite

These opportunities for open dialogue, which allow both board members and shareholders to swap expectations, will be critical if today’s boards and management hope to reap any benefits from the rise in activism.

What Can Boards Do Minimize Their Risk?

While there’s no air-tight method to safeguard against activists, there are several steps a board can take to minimize its risk of being a target. Nasdaq’s latest white paper, Learn from Activists: Share Your Story With Shareholders Consistently, outlines various proactive measures boards can engage in to avoid activist attention. Developed in partnership with the NACD, the white paper highlights the importance of developing a shareholder engagement strategy—one that outlines predetermined talking points about the board’s approach to CEO succession planning, corporate strategy, compensation, etc.—and designating a spokesperson to ensure the board’s message stays consistent across all interactions. Download Learn from Activists: Share Your Story With Shareholders Consistentlyfor a comprehensive roadmap to improving your board’s shareholder relations.


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