Paul DeNicola is Principal at the Governance Insights Center, PricewaterhouseCoopers LLP. This post is based on his PwC memorandum. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here); and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here).
For many people, proxy fights are almost synonymous with shareholder activism. But we view them as just one point on an activism continuum that also includes investors’ engagement with companies whose shares they hold, shareholder proposals, and more. Whenever an investor leverages their rights and privileges as an owner to influence a company’s practices or strategy, that’s shareholder activism.
Increasingly, investors of all kinds are using the full spectrum of activist tools to weigh in on environmental, social, and governance (ESG) issues. Indeed, it’s likely 2021 will be remembered as the year that ESG became a key part of shareholder activists’ strategies.
A handful of newly-launched ESG-focused activist firms and their high-profile proxy contests are a big part of the reason why. In addition, large institutional investors have reported that they’re engaging with companies around climate risk disclosures, D&I, and other ESG topics with much greater frequency. Some have said they increasingly chose to vote against directors at companies they felt weren’t handling these matters appropriately. And the number of shareholder proposals focused on environmental and social matters that received majority support reached a record high during the 2021 proxy season.
What connects all these activities—from engagement to proxy contests—is how they demonstrate many shareholders’ conviction that good performance on ESG-related matters builds value, while poor performance destroys it. Obviously, companies and their boards can’t afford to take those views lightly. It’s more important than ever for directors to take a holistic view of shareholder activism and to understand their role in navigating the challenges it may pose.
