Shareholder activism: generally, is the method by which shareholders (typically in publicly listed corporations), seek to influence change when they consider management is not maximising a company’s fullest potential. The motive and reason for this will largely be dictated by a combination of both the types of shareholders involved and what they are trying to achieve, together with recent events and policy decisions influencing the climate relevant to the applicable corporation.
Shareholder activism can appear in many forms, including shareholders’ private engagement with management on specific issues, or alternatively publicly petitioning companies to undertake a form of transformational change in either its policy decisions, structure, or strategic objectives. Traditionally associated with disgruntled shareholders requesting managements’ declaration of increased dividends, in recent years even financially sound and well-performing companies have become subjected to shareholder activism seeking to pursue campaigns furthering the promotion of a variety of ESG aspects, ranging from climate change initiatives to issues related to social justice.
What is true of the last twelve months however, is that during the pandemic (and accompanying economic uncertainty), activism has been somewhat dormant, with shareholders abstaining from engaging in intense (private or public) scrutiny and lobbying, in order to avoid creating further instability, disrupting managements’ efforts in weathering the Covid-19 storm, and consequently harming their own interests (already exacerbated by the volatility and decline in share prices seen during March and April 2020).
Nevertheless, as we transcend towards post-pandemic economic recovery (whereby managements’ efforts have largely been towards improving and sustaining balance sheet liquidity - with dividends, share buybacks and other return of capital mechanisms effectively halted), they may have well become a victim of their own success. Notwithstanding managements’ triumph in ensuring corporations remained afloat (including those boasting envious 2020/21 “liquidity cushions”), ‘What next?’ is the question shareholders are likely to ask of (or asking) management once again. The reality is that absent (or even irrespective of), persuasive and transparent post-pandemic emergence decision-making, a resurgence of activist agitation and the end of shareholder hibernation (following 2020’s ‘wait and see’ strategy) can be firmly anticipated, where answers and clarity on managements' capital allocation policies, projects, and strategies are likely to be sought (or even demanded) in earnest, as it is now back to business for shareholders.
As we shift to the recovery era, corporations will start to see their liquidity premia erode.