2016 U.S. Shareholder Activism Review and Analysis: Activists Face Headwinds in 2016; Institutional Investors Highlight Risks of Settling Too Quickly and Without Consultation; Number of Campaigns Remains High, Reflecting More Campaigns by Newer and Less Frequent Activists
Sullivan & Cromwell LLP - November 28, 2016
Shareholder activism remains a major force in corporate decision-making in 2016 but is increasingly operating in an environment of robust, multi-faceted shareholder engagement, particularly at large companies. The time and effort that companies and institutional investors have spent developing a mutual understanding of each other’s concerns have narrowed the opportunities for activists at high-profile companies, and the returns of activist funds overall are down in 2016. The total number of activist campaigns has nevertheless remained high, due in large part to newer and often smaller activists targeting small and mid-size companies.
Large institutional investors have long been an important constituency in any activism campaign, and the influence of these institutions has continued to grow, as share ownership becomes increasingly concentrated and as they directly express their views and concerns, both through direct engagement with companies and by public pronouncements of their priorities, including their skepticism over the impact of “short-termism” that activism can engender.
This publication summarizes significant developments in proxy contests and other activist campaigns in 2016, including:
- Developments in the institutional investor space, including an increased concentration of ownership in a handful of large index funds and other institutions, as well as an increased focus by institutions on engagement and governance reform
- Trends in the assets under management and performance of activist hedge funds
- Activism targets by market cap and industry
- Trends relating to activist campaigns, including frequency, objectives, tactics used, success rates, and actions taken by companies in response
- Proxy contests, including frequency, outcomes and changes made in the year following the conclusion of contests
- Recent trends in settlement agreements, including an increase in the frequency and speed of settlements
- Implications and potential impact of SEC universal proxy proposal and proxy access on proxy contests
- Certain steps that companies should consider taking to enhance preparedness for a potential activist situation