If there had to be a country of the year for shareholder rights, which would it be?
The concept of a country of the year, stolen shamelessly from The Economist, is a novel one at Activist Insight. But what better way to review a year in which activism pushed new boundaries and was often met with heavy-handed resistance?
First, consider a global activism heat map. The number of companies publicly subjected to activist demands was down in almost every major market this year. Only a few examples stood out to the contrary: Japan and the U.K. set new records, while France and Hong Kong were slightly busier than last year but short of record volumes. [Since Hong Kong has bigger things to worry about, and only a few activists of standing, let’s leave it for another year.]
Next, consider the regulatory/legislative backlash against shareholder rights.
In the U.S., this took the form of a crusade against proxy voting advisers and shareholder proposals. Many of the changes have yet to take effect, and for some there is little likelihood that they will directly impact the 2020 proxy season. Even were they to be adopted en masse, it is unclear how much they would change activist investing, since the most likely victims are small organizations that spread their capital thin to maximize the number of shareholder proposals they can file.
So too with the Business Roundtable Statement on putting stakeholders ahead of shareholder value. Some investors insist that you cannot have one without the other. And while many activists or their defenders may decry the sentiments and lack of concern for accountability, it’s hard to see the downturn in activism this year as being from any fear of public shaming.
In Japan, November’s Foreign Exchange and Foreign Trade Act has many worrying that what are ostensibly national security measures are, in fact, disguised protectionism. Revealingly, U.S. and European changes to foreign investment rules have caused less alarm. Quite apart from the contents of their reforms, those federal polities have much smaller roles driving corporate governance changes than does Japan’s national government.
France deserves a mention for the PACTE Act, which among other things lowers the delisting threshold for takeovers and “should in principle limit purely opportunistic shareholder engagement, where the sole purpose is to block the squeeze-out in order to negotiate better financial terms,” according to Skadden lawyers Armand Grumberg and François Barrière.
On the other hand, European and Canadian regulations on “say on pay” votes do advance shareholder rights, albeit largely lagging their practical implementation, rather than leading.
For short selling, a Reuters article in November name-checked six countries considering short selling bans or regulatory action against short sellers, plus the European Union. China and Hong Kong were already unfavorable markets for short selling – many but not all targets are listed in the U.S.
If there is little to commend on the regulatory side, what about the content of activist campaigns?
The U.S. market was dominated not so much by proxy fights (despite a late flurry) but by activists letting companies like AT&T and Dollar Tree implement changes without standstill agreements or board seats. Yesterday’s extension of the information-sharing agreement between ValueAct Capital Partners and Citigroup was a love-in. I’ve become skeptical of these arrangements since first writing about them some months ago, but I think you could plausibly argue that sharing the credit is progress.
M&A activism also saw many interesting developments, with more convergence between activists and private equity firms than we have seen previously and campaigns on the buyer’s side suggesting shareholders hold a more long-term commitment and an obligation to explain the alternatives. Yet skeptics suggested activists might be turning a profit by shorting the acquisition target, so the tactic is not free from cynicism. More short disclosure would help.
Japan saw hostile deals for the first-time in living memory, as well as ValueAct and King Street winning board seats at well-known firms. Activists still lost plenty of campaigns but it would be a very sudden reversal if next year were not at least as busy.
In the U.K., shareholders fought a record number of proxy contests and gained a record number of board seats (the two were not necessarily linked, given how many of the fights turned out). Management also had to work harder than previously for their victories, making changes on their own account at the likes of Barclays and FirstGroup, the latter of which had previously been immune to pressure.
And despite many French activist campaigns historically being hold-outs against acquisitions, this year saw a more collaborative model exemplified by Elliott Management and Pernod Ricard.
So, the choice comes down to Japan, the U.K., and France. Neither is a compelling choice, so I’m simply not going to. We’ll put the question to readers in our poll on Tuesday as an incentive to read our Christmas Eve newsletter and reveal the results at the end of the break.