Shareholder Activism is About to Skyrocket and Companies Aren’t Ready
Navigating proxy season presents a unique set of challenges for companies and IROs, particularly amid heightened shareholder activism, potentially reduced regulations, and ever-increasing investor expectations. Companies need to plan ahead to effectively navigate these challenges, ensuring transparent and proactive communication with stakeholders.
Shareholder activism is expected to rise in the upcoming proxy season due to several key factors. First, institutional investors are increasingly adopting proactive engagement strategies, allowing them to have a stronger influence over corporate governance decisions. Vanguard’s expanded "Investor Choice" program, for instance, is set to provide investors with more control over proxy votes, which could amplify activism. Additionally, new SEC disclosure requirements are giving investors greater transparency into issues like executive compensation and company performance, which could spark more shareholder activism. Proxy advisory firms such as ISS and Glass Lewis continue to play a critical role, but their influence may be shifting, as they are expected to take more contrarian stances on issues like ESG, DEI, and governance. As investors question whether companies are overcommitting to these areas at the expense of financial performance, these advisory firms may play a more vocal role in recommending against certain board decisions or executive actions. Finally, the ease of launching proxy contests with the Universal Proxy Card is making it simpler for shareholders to challenge management and board decisions, further fueling the rise in activism. Collectively, these factors point to an uptick in shareholder activism as investors demand more clarity, accountability, and a sharper focus on financial health and governance.
A proactive approach is key to driving credibility and strengthening trust as the stewards of shareholder capital during proxy season. Companies should:
Engage Early and Often: Regular dialogue with investors is critical year-round, not just in conjunction with proxy season, allowing companies to proactively address concerns before they escalate. This includes conducting outreach to institutional investors and governance teams to understand their evolving priorities. It may even include a perception study.
Align Messaging Across Stakeholders: Consistency in messaging is essential. Companies should ensure that their investor communications, board materials, and executive statements align with their strategic vision and governance principles.
Monitor and Respond to Market Sentiment: Keeping a close eye on investor sentiment, governance trends, and peer activity can help companies anticipate challenges and tailor their responses accordingly.
Proxy season brings increased risk of shareholder activism, making it an important time to review issues management preparedness and protocol. Companies should anticipate shareholder concerns, craft compelling responses to any issues, and respond decisively to activism. Leadership needs to always consider their remarks and the longevity of statements they make. They should be prepared to set the tone, control the conversation, and strengthen investor trust. To mitigate potential reputational and financial risks, investor relations teams should:
Conduct Scenario Planning: Identify vulnerabilities with shareholders and develop a response strategy for various scenarios, including activist campaigns or contested votes.
Establish a Clear Internal Response Process: Having a well-defined response plan, including designated spokespersons and a rapid response team, ensures that the company can react swiftly and effectively to emerging challenges.
Train Executives and Board Members: Media training and investor Q&A preparation equip leadership with the tools to communicate effectively and maintain stakeholder confidence during high-pressure situations.
Investor engagement no longer relies solely on traditional methods. Digital and social media platforms play a crucial role in shaping investor perception. Best practices include:
Using Digital Platforms for Transparency: Thoughtful use of company websites, shareholder letters, and investor presentations can reinforce key messages and provide clarity on governance and financial strategies.
Monitoring Social and Financial Media: Conversations around proxy season often unfold rapidly across digital channels. Keeping a pulse on discussions allows companies to correct misinformation and reinforce their corporate narrative.
Proxy season is a critical period that demands preparedness and a strategic approach. Proactive investor engagement, strong governance, and preparation for active shareholder discussions allow companies to enter proxy season with confidence while reinforcing trust with stakeholders. A combination of clear communication, issues management preparedness, and, most importantly, alignment with investor priorities will mitigate risks and strengthen the company's long-term credibility in the market.
