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Shareholder Activism in 2024: Three Trends to Watch

Chambers Shareholder Activism

The world of corporate shareholder activism is poised for significant changes and challenges. Activist shareholders have been a driving force in shaping the corporate landscape, pushing for reforms and steering companies toward better governance and profitability.

In 2024, we expect three key activism trends to emerge, each with far-reaching implications for both investors and corporations.

  1. Activists Will Call More Frequently for Companies to Be Sold

One of the most prominent trends we anticipate in 2024 is an increase in activist demands for companies to be sold or divested. While shareholder activism has traditionally involved demands for changes in corporate strategies, governance, or capital allocation, we are witnessing a shift toward more aggressive calls for outright sales of companies. Armed with extensive financial analysis and a deep understanding of the industries they target, activists are increasingly likely to make the case that breaking up or selling off certain divisions or subsidiaries would create more value for shareholders.

Furthermore, growing expectations for falling interest rates, disinflation, and a favorable M&A environment may incentivize the market for such divestitures. Companies will have to respond strategically to these demands, carefully evaluating whether an activist-agitated sale or spin-off of assets aligns with all shareholders’ interests.

  1. Activists Will Come Up with Better and More Qualified Candidates for Board Seats

In recent years, activists have demonstrated a growing capability of identifying and nominating highly qualified candidates for board seats. This trend is expected to gain momentum in 2024, as activists seek to gain influence and steer companies in directions they deem more favorable to shareholders.

Activists historically have believed that their ability to effect change within a company often hinges on their representation on the board of directors. As a result, and in the wake of the now-mandatory universal proxy card, they are becoming increasingly selective in their choice of director nominees. These candidates are expected not only to possess extensive industry knowledge, but also to demonstrate a willingness to challenge the status quo and advocate for shareholder interests.

To secure the support of institutional investors and proxy advisory firms, activists are likely to focus on nominating individuals with proven track records, diverse backgrounds, and a strong commitment to best practices in corporate governance. This approach strengthens their credibility, and enhances their chances of winning shareholder votes.

As a consequence, companies facing activist campaigns will need to be prepared to engage constructively with these nominees and consider their qualifications seriously. This trend will likely lead to more competitive board elections and heightened scrutiny of existing directors’ performance.

  1. Because of 1 and 2, 2024 Will Be Busier Than 2023

The combination of increased calls for company sales and the nomination of highly qualified board candidates will make 2024 a busier year for corporate shareholder activism compared to 2023. Activists are poised to become even more assertive in their campaigns, backed by a growing track record of success and support from institutional investors that are increasingly willing to listen to their arguments.

This heightened level of activism will put pressure on companies to engage with their shareholders, address potential weaknesses, and be more receptive to dialogue with agitating shareholders and reasonable demands for change. It will also encourage boards of directors to adopt a more proactive approach to shareholder engagement and governance practices to preempt activist campaigns.

Additionally, strong economic indicators, including robust corporate earnings and a generally favorable market environment, will incentivize activists to be more active in seeking opportunities for value creation. As companies experience sharper scrutiny and calls for change, they will be prompted to reevaluate their strategic plans and operational efficiency, potentially leading to better long-term performance.

Every Season Is Activist Season

This year promises to be a pivotal year in the world of corporate shareholder activism. And similar to what we witnessed last year, every season will be activist season in 2024.

The landscape may be evolving as activists increasingly call for material corporate transactions, nominate more qualified candidates for board seats, and intensify their efforts to influence corporate strategies. Waiting until it’s too late is not a recommended strategy. Companies must be prepared to engage constructively with activists and prioritize shareholder interests to navigate the evolving shareholder activism landscape successfully.

With strong economic indicators and an increasingly competitive environment, 2024 is likely to surpass the level of activism witnessed in 2023, making it a year of considerable significance for corporate governance and shareholder value.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.