Activism in Europe is in good health and ready for a comeback

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The past 16 months have given activists pause when it comes to launching campaigns in Europe but we’re willing to bet their appetite will return for 2022.

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Q1 2021 hedge fund letters, conferences and more

In our new special report, Shareholder Activism in Europe 2021, released earlier this week, we don’t shy away from the fact that 2020 was an exceptionally quiet year, and at least the first half of 2021 could be quieter still. Dedicated activists have publicly subjected just 12 companies to activist demands so far this year (as of April 28), down from 20 in the same period last year and a peak of 31 in 2017. Major markets such as the U.K. and Germany saw particularly notable declines.

In that respect, the timing for a report on European activism may seem slightly inauspicious. The length of the continent’s battle with COVID-19 remains uncertain, as does the time at which it will be seen as socially acceptable to agitate for changes that are not solely reactive. Opportunities in the U.S. and Asia, as well as special purpose acquisition companies (SPACs) are competing for activist attention and currency.

Activism In Europe Is Ready For A Comeback

Nonetheless, there are reasons to believe that activism in Europe is in good health, and ready for a comeback.

The first is the arrival of domestic agitators on par with Cevian Capital, long thought of in America as the lone representative of this craft in Europe. Cevian itself is doing just fine, with wins at Nordea and Pearson last year but other European funds like Amber Capital, Bluebell Capital, Gatemore Capital, and Veraison Capital have all demonstrated the ability to generate new ideas and the tenacity to see fights through in recent years. Companies should be wary of underestimating them.

The second is that European activists are giving U.S. funds a run for their money on the integration of ESG into activist campaigns. While Jeff Ubben’s Inclusive Capital and Engine No. 1’s tussle with Exxon Mobil have rightly garnered most of the attention in this area, Bluebell’s first "one share" ESG campaign at Solvay and the impending launch of Gianluca Ferrari’s Clearway Capital suggest that this type of agitation will develop in Europe too, even as the campaign at Danone has emphasized that good corporate citizenship cannot come at the expense of returns.

Perhaps the best example of this is "say on climate," a campaign by The Children’s Investment Fund (TCI) that started at Spanish airport operator Aena and which has rapidly spread across Europe and North America. Given that Europe lacks the same culture of shareholder proposals putting ESG on the agendas of European companies as the U.S., the role of activists is likely to be even more pronounced there. But proposals are also an area where companies may be vulnerable. Proxy Insight Online data show a smaller number of better-focused proposals have gained more shareholder support in the last two years.

The third and final reason for optimism is that U.S. funds could soon find themselves facing the same abundance of over-valued and over-picked stocks that were weighing on activism before the pandemic hit if U.S. markets continue to climb. Third Point Partners and ValueAct Capital remained committed to Europe in 2020, while Elliott Management’s big win at SoftBank last year may be giving way to a campaign at GlaxoSmithKlein, if reports are to be believed.

It’s unlikely that the numbers will turn around imminently, but this is where you’ll hear about it first. For more analysis and data on activism in Europe, please download a free copy of our report.

Josh Black, Editor-in-Chief, Insightia

Shareholder Pressure For Independent Board Chairs

Independent boards serve as a beacon of good corporate governance, but shareholder pressure for independent board chairs is putting companies in a tight spot.

So far this year, eight shareholder proposals asking companies to adopt policies to require independent board chairs have been subject to a vote at U.S.-listed companies, receiving an average of 31.6% support, compared to 29.9% in 2019, according to Proxy Insight Online data. Twenty-four additional shareholder proposals of this kind will be subject to a vote by the end of May alone, suggesting the total for 2021 will top the 47 filed at U.S. companies throughout the entirety of 2020.

The increase in support partly reflects a dip during the pandemic proxy season this year, when combined CEO/chairman roles were given some slack, but several companies are veering close to what would be a powerful rebuke of their CEOs.

On April 22, a proposal filed by Trillium Asset Management, asking Johnson & Johnson to require an independent board chair, received 43.3% support compared to 42.8% and 41.8% support respectively at the pharmaceutical company’s 2017 and 2020 annual meetings. Proposals seeking independent board chairs are also gaining increased support year-on-year at Abbott Laboratories and Pfizer. A proposal seeking an independent board chair at Pfizer received 37.3% support at its April 22 annual meeting compared to 34% support in 2020, while one filed by Kenneth Steiner received 32.2% support at Abbott Laboratories’ April 23 annual meeting, another year-on-year increase.

"Shareholders are best served by an independent board chair who can provide a balance of power between the CEO and the board," said Steiner in his shareholder proposal at Pfizer. "The primary duty of a board of directors is to oversee the management of a company on behalf of shareholders. A CEO serving as chair can result in excessive management influence on the board and weaker oversight of management."

Falling Support For Independent Chair Resolutions

The reason for independent chair resolutions repeatedly falling slightly short of majority support is often attributed to opposition by the world’s largest fund managers, including BlackRock, Vanguard, and State Street General Advisors (SSGA). In 2020, BlackRock supported one independent chair proposal out of the 47 put to a vote at U.S.-listed companies, while Vanguard supported three of the 45 subjected to a vote. SSGA supported five of the 34 independent chair proposals it voted on, according to Proxy Insight Online data.

So far this year, both BlackRock and Vanguard have opposed the one independent chair proposal put forward to them at AmerisourceBergen, while SSGA has yet to vote on a resolution of this kind.

BlackRock says combined CEO and chairman roles are agreeable, provided companies "ensure that directors individually and collectively have the relevant skills and experience to guide the company."

Vanguard’s proxy voting policy similarly dictates that the fund manager will "generally vote against shareholder proposals to separate CEO and chair, absent significant concerns regarding independence or effectiveness of the board."

Investors Expect Companies To Increase Their Board Independence Levels

However leading fund managers decide to vote on shareholder independence proposals, it is clear that investors still expect portfolio companies to increase their board independence levels or face increased opposition toward director elections.

A proposal to re-elect Amtech System’s nominating committee chair, Michael Garnreiter, received just 46.1% support at the U.S. technology manufacturer’s March 23 annual meeting, shareholders expressing concern regarding a lack of board independence.

Proposals to re-elect MACOM Technology Solutions Holdings’ chairman John Ocampo and REV Group’s Jean-Marie Canan also received just 66.4% and 69.2% support respectively at their 2021 annual meetings, investors criticizing insufficient board independence levels.

As a lack of board independence continues to be cited as a crucial reason for investor dissent, companies might be wise to review their board structure. In many cases, a policy change from one of the major investors could be the difference between a pass or fail.

Rebecca Sherratt, Corporate Governance Editor, Insightia