Activists Have Changed, Their Targets Should Too

Depending on the source, there are between 100 and 400 activist investor funds, with between $100 billion and $400 billion to invest. According to a recent report by Activist Insight and the law firm of Schulte Roth & Zabel LLP, 344 companies were targeted by activists in 2014, up from 291 companies in 2013. This trend is expected to continue in 2015.

The author, referring to his own experience participating in activist situations and proxy contests, says that both activists and companies need to revise the way they approach shareholder engagement. They need to establish dialogue, and if possible collaborate, before engaging in destructive behavior that is simply designed to obtain, or keep, board seats.

The majority of activist funds operating in the first decade of this millennium were bad actors, so it is not surprising that most companies are suspicious.

But today many activists are investing time and money to understand the companies in which they invest. They are finding independent directors to serve alongside nominees that work for the funds, not just proposing the same slate for every company. They may suggest creative strategic options to companies, not just the standard platform of distribute cash, buy back stock, divest assets or sell the company.

This change in approach has allowed activism to go mainstream and gain institutional investor support. The debate about whether activism is good or bad should end. Activism is here to stay and the participants must engage collaboratively.