Navigating a World Where Almost Everyone Is an Activist

In many ways, 2021 was a high-water mark for corporate activism. The levels of traditional shareholder activism rebounded from the lows reached during the early days of the COVID-19 pandemic. M&A activism increased substantially as shareholder activists sought to capitalize on the M&A boom. Large-cap activism returned as activists targeted Fortune 500 CEOs with increasing frequency. The year also saw the emergence of a new brand of ESG-themed shareholder activism in the wake of the Engine No. 1 activist campaign supported by CalPERS at ExxonMobil and the copycat ESG tactics deployed by other shareholder activists. 

At the same time, ESG shareholder proposals passed in record numbers as institutional investors sought to burnish their ESG credentials and attract an ever-growing pool of ESG capital. Under the Biden administration, the SEC joined the fray and facilitated activism by taking a step back from its role in policing which shareholder proposals make it onto the annual meeting agenda and moving to repeal Trump-era reforms designed to limit the influence of ISS and Glass Lewis. The ranks of climate change and DE&I activists expanded significantly, and their campaigns became more potent as efforts to accelerate change through corporate accountability gained traction amidst positive publicity and favorable political winds. Employee activism also proliferated as high-profile unionization drives accelerated and workforce-wide walkouts to register disapproval of corporate cultures continued to spread.

As we enter 2022, public companies face a world in which it seems that just about everyone is an activist. In navigating this new environment, boards and management teams would be well advised to take heed of some of the key lessons of 2021:

• Although ESG activism clearly is on the rise, investors typically are unwilling to sacrifice financial returns for ESG values— they expect companies to deliver both. Companies that incorporate sustainability into their strategic planning will be better positioned to achieve this objective than those that do not, but a sustainability focus alone will not be enough.
• M&A and activism often go hand in hand. Companies pursuing M&A must be prepared from the moment a transaction is announced to convince stakeholders of the strategic and financial merits of the transaction and how it will accelerate their broader corporate objectives. In 2022, a well-thought-out and effective M&A engagement strategy will be focused not just on top shareholders and analysts, but also on employees, business partners, government actors and other key stakeholders.   
• Deconglomerization and optimizing portfolio mix will continue to be a focus of companies and activists alike—the late-2021 spin-offs announced by Johnson & Johnson and General Electric will likely trigger a re-assessment of other companies’ sum-of-the-parts values and catalyze other corporate breakups.
• As retail shareholding evolves and generational shifts among asset owners and stewardship groups emerge, companies should re-assess their shareholder engagement strategies to ensure they are reaching and impacting the desired channels and constituencies and their broader messaging is aligned with strategic objectives.
• Someone does not have to be a shareholder to be an activist—activism is increasingly coming from independent ESG actors, employees, politicians, the plaintiffs’ bar and others. Companies and their advisors must look proactively across the risk spectrum and beyond the traditional cast of activists, assess potential vulnerabilities holistically and calibrate their playbooks to the threats they are likely to face.
• As companies develop corporate strategy and respond to societal crises, they must be mindful of the perspectives of all potentially interested stakeholders. In an era when stakeholders look to companies for leadership, silence is often not an option. Companies must stay true to their purpose and communicate with clarity.
• Stakeholders are more willing to hold companies accountable for their public statements than ever before. A company’s statements must be followed by meaningful action to achieve results.
• Preparedness will continue to be paramount. Companies, together with their advisors, should periodically revisit their preparedness plans at the C-suite and board levels to ensure they reflect a real-time assessment and are aligned with broader strategic planning.

This article was republished by the Harvard Law School Forum on Corporate Governance and Financial Regulation.