4/25/2024
Preparing for Conflict: Activism Trends in North America, Europe and Asia
IR Magazine (04/25/24) Riches, Adam
Shareholder activism is increasing. 2023 saw activist situations reach a four-year worldwide high, with nearly 1,000 companies subjected to activist demands publicly, according to a study by Diligent. However, if this trend is set to continue — almost a quarter of Russell 3000 companies disclosed the potential for activism in their 10K reporting — executives must understand the precise threats they’re likely to face. Alliance Advisors explores what executives across a range of geographies should anticipate, and how they can keep shareholders at bay. In North America, the U.S. Securities and Exchange Commission in March 2024 published its rules on climate disclosure. Among other things, companies are now expected to report both direct and indirect carbon emissions, in addition to how they plan to manage climate risk. Although the final mandates are somewhat less strict than some insiders feared, the prospect for environmental activism remains. As sustainability nonprofit Ceres has reported, a record 263 climate-related shareholder resolutions have been filed across North America so far in 2024, with JPMorgan (JPM) and Citigroup (C) among the companies under pressure. Other regulatory changes, notably SEC Rule 14a-19, presage more ESG activism in other areas, as well. Triggered when a shareholder intends to solicit at least 67% of voters, the universal proxy card rule obliges both executives and dissidents to list every board nominee on a single slate. That makes activism easier, especially for remote voters, as seen by the long-running dispute between unions and Starbucks (SBUX). Europe has traditionally seen a lot of boardroom activity, a trend that’s likely to continue through 2024. As a poll by Skadden found, over half of European respondents expect an increase in shareholder activism over the next year, and two thirds of activists expect their organization to be involved in at least three engagements. And if financial and political uncertainty thwarted some proxy fights last year, that looks likely to change, too, with a full 98% of executives forecasting a resurgence in visible, public disputes. For example, between tepid economic performance and concerns for social justice, stakeholders across the continent are less likely to tolerate big executive pay deals, especially when needing to compete with dynamic U.S. competitors. Concerned European executives could embrace pay performance schemes, an increasingly popular tactic across the continent. They also could leverage external expertise to understand exactly what shareholders are planning — then acting to stop opposition prior to it crystallizing. Meanwhile, activism is ramping up in Asia. In March, for example, the Federation of Korean Industries reported that boardroom battles in the East Asian country have increased nine-fold since 2019. Markets as diverse as Singapore and Japan are moving in the same direction and, though the details vary across borders, executives should nonetheless be conscious of common themes such as governance reform. In Japan, the Stewardship Code and Corporate Governance Code are geared to align shareholder and corporate interests, for instance by discouraging cross-shareholdings. That’s echoed by similar pushes in China and India, with the results already affecting individual boardrooms.
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