As companies stabilise after the initial turmoil of the coronavirus pandemic, it will be increasingly important to have shareholder support for new plans and initiatives that aid recovery. This year we have seen a huge amount of volatility, with some company’s current shareholder structure unrecognisable to what it was only a few months ago.

Activist engagement guidelines: Do’s and don’ts – what works

Mark Simms, CEO, CMi2i:

How has the covid-19 pandemic impacted the market so far – both regarding equity and debt based on research intelligence? Market rumours said that the equity funds and similar investors had retrenched, but that turned out not to be completely correct so far as hedge funds started to reinvest but not sticking to the historically most obvious targets – they are now rather looking at the company fundamentals. So far, they have adopted a far more collective and activist approach in their investments which is a fundamental shift rendering much higher focus on governance and stewardship codes. New focus of the activists:

Issue of corporate governance survey

• The activist will try and get other shareholders in on a campaign
• Divestment of the share

What triggers a fund to conduct an investment review?

• AGM voting behaviour
• Indication of shareholder distrust

Are you under threat?

• Hedge funds can hold both direct and indirect positions in companies
• Stock lending and hidden holdings behind prime brokers; it is still possible after SRD II
• In Denmark we have seven activist funds; you need to monitor the buying and selling activity
• Define were the voting power sits so you can assess and quantify the level of risk

Who holds the voting power?

• Track positions

Alice Squires, Managing Director, Rothschild & Co’s Investor Advisory:

• Rare for activists to come up with some completely new issues – look for what the arguments are
• Do not instantly reject public campaigns -> engage in private discussions
• Control narratives, preparation of the right responses
• Engage in governance roadshows before your start directly in fights – integrate ESG propositions in your roadshows, presentations and reports
• Do perception studies every 18 months, monitor what you are doing compared to trading development, consider CMD. Start at none-executive level, but also involve management and board
• Most discussions go on privately – have the most accurate information at hand is crucial
• Investors hate proxy battles
• Company size is no longer a barrier to activists, often seeking more independence on the board

Key take-aways

• THE LANDSCAPE IS CHANGING RAPIDLY AT THE MOMENT
• Look at angels of attack: debt / equity in terms of financials and governance
• Pro-active intelligence, understand the activist drivers

Request for Re-play Link: Why All Issuers Should Be Concerned About Shareholder Activists