SquareWell Partners’ report: “The Long and Short of It: Institutional Investors’ Views on Activism” (available upon request here)—based on a survey of more than 30 institutional investors—including both asset managers and asset owners (collectively responsible for more than $35 trillion in AUM) regarding their perspectives on shareholder activism—revealed these key takeaways:
Views on Activism
- Investors universally consider activism to be a useful market force, most commonly because activists are associated with catalyzing change. That said, nearly two-thirds of investors reported concerns about activists’ often narrow focus that overlooks the broader complexities of the business.
- Investors cited activists’ arguments as the most critical activist credibility factor, followed closely by their previous track record.
- Investors are most comfortable supporting board / governance-related activism (including management changes) by a wide margin as compared to operational, balance sheet, and M&A activism.
Evaluation Criteria
- The vast majority of investors believe poor corporate governance practices attract activists.
- Investors rank return metrics and profitability ratios significantly higher than other financial metrics (e.g., efficiency, debt, and liquidity ratios) when evaluating a company’s performance.
- Investors identified proposals that are not well justified as the top barrier to supporting an activist campaign – much more so than overreaching, prescriptive, or mischaracterized/mislabeled proposals.
- Investors most commonly react to or engage with activists’ direct and substantive written communications (e.g., letters/releases, direct engagement, decks) in lieu of microsites and webinars.
Engagement Dynamics
- A plurality of investors (45%) reported involving both stewardship teams and fund managers in final decision making in contested situations, whereas 39% rely solely on their fund managers.
- Nearly half of investors (48%) engage with an activist before a campaign becomes public (typically smaller investors pursuing active strategies), while 39% do not. More than half information/idea-share about a campaign with other investors (aside from the activist) during the campaign.
- A majority of investors would consider going public with their support for an activist to support the campaign’s momentum.