The time has come for “activist stewardship.” Simply put, this means putting the skills and techniques of activist hedge funds to work where a company’s financial performance is deteriorating and traditional engagement tools have failed to produce meaningful results to protect value and mitigate long-term risks, including recognizing the importance of environmental, social, and governance (ESG) risks. Historically, ESG issues have been the province of the engagement and stewardship group in the asset manager due to their importance in creating value over the long-term. These groups have sought to change corporate behavior through private, constructive conversations. Large asset managers, including asset owners who manage their own assets, have been rapidly increasing their commitment to engagement and, more broadly, to stewardship activities including proxy voting and advocacy work with regulators and policy makers.

Despite this growing commitment to engagement, there are some companies who remain absolutely implacable after years or even decades of efforts by their shareholders. We call them “Corporate Castles.” They are uninterested in engaging with their shareholders, let alone stakeholders. They have drawn a moat around their corporate walls and are exercising every means at their disposal to persist in their practices, even as their financial performance declines and the negative externalities they are creating in the world persist. For such companies, the traditional tools of engagement, typically used in selective and discrete fashion, are simply not effective.

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