Shareholder activism is expected to rise in the fourth quarter and into 2013 as investors push for management changes at companies that have performed poorly on a consistent basis, according to a report by law firm Schulte Roth & Zabel.
Produced in association with mergermarket, the Shareholder Activism Insight report is based on a series of interviews with corporate executives and activist investors, and provides a review on emerging trends in shareholder activism, as well as insights into the changing corporate landscape investors and executives will face in the coming years.
The industries expected to see the biggest increase in shareholder activism are financial services, industrials and chemicals, technology, and energy. The majority of respondents (79 per cent) expect the financial services industry to experience the most shareholder activism over the next 12 months, reasoning that investors are still looking to repair the industry after the 2008 crash.
"Given the damage and upheaval launched by the financial crisis, it is not surprising that the financial sector has been regularly identified in our surveys (in 2008, 2010 and this current survey) as the sector anticipated to be the most active. Investors are still looking for responsible governance and improved results from this critical industry," says Marc Weingarten, chair of the business transactions group and co-head of the shareholder activism practice at Schulte Roth & Zabel.
Respondents disagreed markedly on the issue of board representation. Activist investors unanimously agree that shareholders should have board representation whereas only 36 per cent of corporate executive respondents believe they should.
"The extent to which corporate executives take a dim view of shareholder representation on the board of directors is surprising and a significant change from prior surveys. This attitude suggests that there may be more contentious contests between companies and activists in the future as companies may be more likely to fight to keep shareholder representatives out of the board room," says David E. Rosewater, Schulte Roth & Zabel M&A partner and co-head of the shareholder activism practice.
Respondents to this survey report a busy 2012 proxy season for investors and company managements. The primary demands of shareholder proposals featured voting rules, operational changes, and board nominations, among others. The majority of shareholder activist respondents and plurality of corporate executive respondents expect between 20 per cent and 30 per cent of the proposals will have received majority support.
