A trio of proxy fights announced this week show the benefits of collaboration for activist investors, as well as the impact of a successful track record.
Activists Collaborate To Pounce At Kohl's
Macellum Capital, Legion Partners Asset Management, and Ancora Advisors were joined by 4010 Partners in nominating a control slate at department store operator Kohl’s. Separately, Legion and Ancora announced their own solo fights, at OneSpan and Blucora, respectively.
Running concurrent proxy fights has always been a skill available only to a few dedicated activist funds. In recent years, the number of competencies demanded of a board slate has only increased, and in the wake of COVID-19, institutional investors and issuers could be more skeptical of the benefits of introducing unknown elements into the boardroom. Legion, one such activist (with 10 public settlements for board seats since the start of 2018) noted in The Activist Investing Annual Review 2021 that it planned to contest at least three fights this year.
Collaboration therefore spreads the burden, while allowing small funds to hunt bigger prey. Activist Insight Online data suggest that $8 billion Kohl’s is the largest target for any of Macellum, Legion, or Ancora. For Macellum, which raises separate funds for each activist campaign, the additional firepower is no doubt welcome, while the three have worked together successfully in the past.
Indeed, campaigns at Bed Bath & Beyond in 2019 and Big Lots last year highlight the increasing scalability of the playbook. At the time the Bed Bath campaign was initiated, Macellum, Legion, and Ancora initially owned 5% of what was then a $2.3 billion company. Last March, Macellum and Ancora amassed 10% of the then-$2.5 billion market cap Big Lots. Regulatory filings suggest both investments returned multiples of their initial purchases.
The strategy at Kohl’s resembles both of those triumphs, with an emphasis on controlling costs, improving strategy, and optimizing the balance sheet with a sale-leaseback. Small wonder that the value of the quartet’s stake was around $800 million when they announced their campaign on Monday.
The achievement is also noteworthy because of the pandemic. Activism in the retail and leisure sector fell by one-third to just 55 public targets worldwide last year, after holding steady at elevated levels for three years. Retail appears to be the hardest-hit part of the equation, and the haul for 2021 so far is the lowest at this stage since 2013, according to Activist Insight Online.
It’s a healthy reminder that in activism, you’re only as good as your last deal. And if it works, why fix it?
Josh Black, Editor-in-Chief, Insightia
Gender Diversity On Boards Gaining Attention
The topic of gender diversity on boards has received significant attention in recent years and efforts to boost female representation on boards are coming to fruition in Europe and the U.K. In the U.S., companies within the S&P 500 are taking similar steps to promote diversity at a board level, but smaller companies are struggling to keep up.
The European Women on Boards Gender Diversity Index (GDI), published January 21, analyzed 668 European companies, finding 34% female representation in 2020. Of these 668 companies, 17% included women in executive-level positions, and 42 featured female CEOs.
Meanwhile, the FTSE 350 this month reached a significant milestone, with the last all-male board, at gambling company Entain, adding a female director. As of February 16, 2021, FTSE 100 boards featured 36.2% female representation, with one-fifth of women at or above executive committee level and eight female CEOs. In the FTSE 350, 34.3% of boards featured female representation, including 17 female CEOs and 50 CFOs. That exceeded the Hampton-Alexander Review target of 33% by the end of 2020.
"The eradication of all-male boards across Britain’s 350 biggest companies is cause for celebration, particularly at a time when COVID-19 threatens progress in women’s equality," said Ann Cairns, global chair of the 30% Club, in a press release. "Time and again, research has shown companies with diverse boardrooms and senior leadership outperform their peers. Simply put, diversity is good for business."
The No All-Male Boards
This is the second instance of the no all-male boards. The first time in May 2019, lasted just one month. Yet Cairns is hopeful that this time will not be the same "fleeting experience."
Earlier this month, proxy adviser Glass Lewis published a white paper praising FTSE 350 companies for their renewed efforts promoting gender diversity on boards. Looking forward, Glass Lewis recommends U.K. companies aim for a minimum of 40% female representation, providing a buffer in transitional periods where women directors may exit boards to the detriment of diversity levels.
In the U.S. gender diversity on boards has increased, but lags behind more concentrated European markets. In a review of 2020, The Conference Board notes that the representation of female directors in the S&P 500 Index increased to roughly 25% in 2020, compared to 19.5% in 2016. All S&P 500 companies feature at least one woman on their board.
Female directors make up 23.8% of the total population of directors at Russell 3000 companies, with 5.8% of companies currently featuring zero female directors according to Activist Insight Governance.
Investor voting policies are more lenient in the U.S. compared to both the U.K. and Europe, resulting in disparities between gender representation levels. The successful implementation of the Hampton-Alexander Review in the U.K. and various European governmental laws requiring boards in countries such as Norway to feature at least 40% female representation have spurred boards to respond quickly to the demands of investors, yet there is no U.S. equivalent to such rules, leading to laggardness. Should investors tighten their policies surrounding board diversity at U.S.-listed companies, boards would have little choice but to act, and quickly.
Rebecca Sherratt, Corporate Governance Editor, Insightia