When Elliott Management launched its high-profile campaign against Salesforce in early 2023, it sent shockwaves through boardrooms across the globe. This wasn’t a case of activist investors targeting an underperforming company; this was a formidable tech giant with billions in revenue and a reputation as an industry leader. The message was unmistakable: no company, no matter how successful, is beyond the reach of activist scrutiny.
Elliott, known for aggressively pushing corporate reforms, took issue with Salesforce’s stalling growth and perceived lack of executive accountability. Therefore, the firm amassed a multibillion-dollar stake and threatened a proxy battle. Its demands included major operational changes, from board shake-ups to a sharper focus on profitability. Under pressure, Salesforce responded by cutting 10% of its workforce and appointing new board members. By March 2023, Elliott unexpectedly backed down, opting not to move forward with its board challenge, an outcome that signalled the growing power of activist investors and the necessity for companies to proactively address shareholder concerns before they escalate into full-scale conflicts.
For non-executive directors (NEDs), these developments signify a profound shift in the dynamics of shareholder influence. The challenge of balancing short-term market pressures with long-term strategic priorities has never been more critical or more complex.
Activist Investors Target UK Boardrooms
UK boardrooms have emerged as the latest and most prominent battleground in the escalating wave of shareholder activism. Armed with vast capital reserves and data-driven strategies, US investors are homing in on UK companies. Once a haven for undervalued firms with conservative governance practices, the UK market has become a focal point for activist giants such as Third Point and Trian Partners. Notably, in 2023, 20% of all European activist campaigns centred on UK firms. By 2024, public campaigns against UK-listed companies had risen from 36 to 46, accentuating the intensifying scrutiny.
US-based funds now account for 27% of all UK and European activist activity, with high-profile campaigns impacting a variety of industries. The UK’s appeal stems from its unique blend of undervalued assets and a regulatory landscape conducive to shareholder engagement. Its perceived governance vulnerabilities ultimately serve as a beacon for activists. This dynamic has emboldened US investors, fuelling demands for boardroom overhauls and operational restructuring, all aimed at unlocking shareholder value and reshaping corporate governance.
The New Activist Investor: A Rising Threat to Corporate Stability
Today’s activist investors aren’t just hedge fund disruptors looking for quick wins. Conversely, they represent a broader coalition of stakeholders, including pension funds and ESG (environmental, social, and governance) advocates, all of whom view corporate governance as a battleground for financial performance and ethical transformation. In this era of heightened activism, proxy wars have ceased to be isolated skirmishes. In fact, they are becoming frequent and highly publicised conflicts, forcing boards to respond to mounting shareholder demands.
Increasingly, companies must also contend with influential individuals seeking control to advance ideological agendas. Elon Musk’s recent attempt to acquire OpenAI is a prime example. His $97 billion bid to buy the company behind ChatGPT was a power play in the escalating battle over AI ethics and influence. OpenAI’s board rejected the offer, reflecting a growing resistance to corporate takeovers driven by personal motivations rather than shareholder value. Consequently, businesses must prepare for a new kind of activist pressure concerning who holds the power to shape the future.
Gone are the days when activist investors were dismissed as opportunistic corporate raiders chasing quick returns. They are now sophisticated, data-wielding strategists emboldened by public sentiment and ESG rhetoric.
The Activist Investor Playbook: Undermining Corporate Power
Activist investors have traditionally zeroed in on underperforming companies, leveraging sluggish stock performance to justify demands for leadership overhauls or strategic pivots. But the rules of the game have changed. Today, even well-managed, high-performing firms find themselves in the crosshairs. Activists argue they can unlock untapped shareholder value through aggressive restructures, like share buybacks or transformative M&A deals.
Over the past decade, the evolution of activist investing has been nothing short of remarkable. Gone are the days when activist investors were dismissed as opportunistic corporate raiders chasing quick returns. They are now sophisticated, data-wielding strategists emboldened by public sentiment and ESG rhetoric. Modern activists are equally adept at tapping into the zeitgeist, using social media campaigns and direct outreach to institutional investors to rally support for their agendas. These tactics proliferate their influence far beyond the boardroom, shaping public perception and redefining the relationships between companies and their stakeholders.
The data reflects this shift: in 2021, activist hedge funds launched 89 campaigns worldwide, spanning industries from energy to technology. By 2023, Lazard’s Annual Review of Shareholder Activism reported a record number of campaigns, with 252 new campaigns launched globally, a 7% increase from the previous year. This surge highlights the escalating frequency of proxy fights, as activists challenge previously untouchable corporations.
How can companies proactively liaise with stakeholders to address concerns before activists seize the narrative and escalate a full-blown boardroom battle?... Success demands foresight and the ability to engage with a diverse and empowered shareholder base.
How NEDs Can Manage Activist Investors
This uptick in activism forces boards and NEDs to pose the thorny questions: How do you protect long-term value while addressing the immediate concerns of vocal investors? How do you maintain alignment between the company’s purpose and its performance? And perhaps most importantly, how can companies proactively liaise with stakeholders to address concerns before activists seize the narrative and escalate a full-blown boardroom battle? The stakes are high. Success in this environment demands foresight and the ability to engage with a diverse and empowered shareholder base.
NEDs are often the first line of defence when activist investors target a company. Their role as independent advisors means they must balance competing interests: executive leadership, shareholders, regulators, and wider stakeholder groups. Effective engagement and transparency are critical to prevailing in the face of these challenges.
1. Engage Early, Before It’s Too Late
Many activist battles escalate because companies fail to engage until it’s too late. By the time a proxy fight goes public, the board has already lost control of the narrative.
Case Study: Disney vs. Trian Partners
In early 2024, Nelson Peltz’s Trian Partners reignited its proxy battle with Disney, demanding board seats and sharper cost-cutting measures. Trian argued that Disney’s streaming strategy was inefficient and that its corporate governance lacked accountability. Disney’s response was telling. Instead of outright rejecting the activist’s demands, the company strategically restructured its leadership, appointed new directors, and increased transparency on cost-saving measures. By taking a hybrid approach, conceding some ground but maintaining control, Disney diffused the crisis without ceding too much power.
For NEDs, this case spotlights a crucial lesson: ignoring activists is no longer an option. Boards must engage early and, when necessary, compromise strategically.
Key Takeaways for NEDs:
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Regularly meet with key investors, even when times are good. If an activist feels ignored, they are more likely to escalate publicly rather than negotiate behind closed doors.
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Establish a shareholder engagement strategy. Not just an annual investor day but frequent, transparent communication.
2. Understand What Activists Want
Activist investors don’t all share the same playbook. Some push for cost-cutting and leadership changes, while others focus on ESG and long-term governance reforms.
Case Study: Engine No. 1 vs. ExxonMobil
When activist firm Engine No. 1 launched a campaign against ExxonMobil, it wasn’t about short-term financial gains but long-term environmental risk. The fund, backed by large institutional investors, argued that Exxon was failing to plan for a low-carbon future, jeopardising its financial stability.
In a stunning victory, Engine No. 1 secured three board seats despite owning just 0.02% of Exxon’s stock. The campaign was a wake-up call: activists can win if they align with broader investor sentiment.
Key Takeaways for NEDs:
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Understand the activist’s core demands. Are they financially motivated or pushing for governance reforms?
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Gauge investor sentiment. If major shareholders support activist concerns, the board must adapt, or risk losing control.
3. Balance Short-Term Pressure with Long-Term Strategy
Activists often push for immediate returns: share buybacks, leadership changes, or spin-offs. But NEDs must ensure these moves don’t come at the expense of long-term growth.
Case Study: Starbucks vs. Activist Pressure
In 2024, Starbucks faced mounting pressure from activist investors, notably Elliott Management, which acquired a stake in the company, demanding cost-cutting and operational efficiency improvements. Rather than dismissing the concerns outright, Starbucks appointed Brian Niccol, former CEO of Chipotle Mexican Grill. The company also implemented long-term strategic initiatives to enhance operational efficiency and shareholder value. These actions led to a significant increase in investor confidence, with Starbucks’ stock price rising by 24% following the announcement of Niccol’s appointment.
The result? Activist pressure was diffused, and confidence in the company grew.
Key Takeaways for NEDs:
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Consider appointing new board members with expertise aligned with activist concerns.
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Communicate the long-term value of strategic decisions while addressing short-term pressures.
4. Use Transparency as a Defence Mechanism
Activists thrive on the perception that boards are failing to act in shareholders’ best interests. The best defence? Radical transparency.
Case Study: Unilever’s Response to Activist Criticism
Unilever has faced criticism from Terry Smith, manager of the Fundsmith Equity Fund, regarding its emphasis on sustainability and brand purpose over traditional business fundamentals. Smith expressed concerns that Unilever’s focus on ESG issues may be detracting from its core business performance.
Instead of going silent, Unilever responded with detailed financial disclosures, demonstrating that sustainability and shareholder returns weren’t mutually exclusive. Its CEO, Alan Jope, has stated, “We believe the evidence is clear and compelling that brands with purpose grow.”
Key Takeaways for NEDs:
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Use clear, data-backed communication with investors.
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Pre-empt activist claims with proactive disclosures on strategy and performance.
NEDs are often the first line of defence when activist investors target a company. Their role as independent advisors means they must balance competing interests... Effective engagement and transparency are critical to prevailing in the face of these challenges.
A New Reality for NEDs
The rise of activist investors has irrevocably redefined board dynamics. Passive oversight is no longer an option. In today’s high-stakes boardrooms, NEDs must embrace proactive engagement, ensuring clear communication with shareholders and aligning long-term strategies with investor expectations. The future of corporate governance demands that NEDs evolve into skilled negotiators and agile leaders capable of addressing challenges before they escalate into crises. Activist investors are here to stay, but they don’t have to be adversaries. Boards must recognise them as potential allies in driving strategic clarity and strengthening governance frameworks. For boards willing to adapt and embrace this paradigm, shareholder activism presents a rare opportunity to enhance organisational resilience and future-proof their companies.
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