A New Playbook on Activist Investors

The board knew what was coming before the activist even asked for the meeting. The investment firm had followed the same playbook in every campaign, and from the moment it took a position in the stock, the board had been watching closely. So, the directors took a new approach to a potentially public fight: They reached out to the activists in advance. 

An increasing number of activist campaigns have become yet another “breaking point” or pressure point for CEOs today. But now, a growing number of boards are stepping in early, looking to make peace instead of watching their CEO do battle. 

In all, activist investors launched 949 new campaigns  globally through the first half of 2024, nearly matching 2023’s record-setting 1,151. Company performance, which used to be the basis for these moves, hardly figures into the calculation anymore—activists show up at healthy companies just as often as they do at turnaround candidates. “The worst thing for a CEO is to have an activist show up and be surprised,” says Joe Griesedieck,  vice chairman and managing director of  Board and CEO Services at Korn Ferry. 

 Historically, CEOs have responded to activists in one of two ways: by digging in for a fight, or ignoring them entirely. That’s not the case anymore, though. Given the pressure CEOs are under, boards are taking on a larger role in dealing with activists. “Instead of getting into a zero-sum game, boards realize it’s better to find mutual wins,” says Jane Edison Stevenson, global vice chair of Board and CEO Services and global leader of Board and CEO Succession at Korn Ferry. 

 To be sure, boards have gotten savvier about countering activists’ strategies and tactics, and in many cases, they’ve been able to head off campaigns before they start. Dennis Carey, vice chairman and co-leader of Board Services at Korn Ferry, says boards are studying activist trends and building “knowledge pipelines” to defend areas vulnerable to attack. Data shows that most activist attacks focus on unlocking value, changes to leadership or the board, and ESG issues. Carey says boards are forming response teams so that they are prepared and consistent in how they talk to activists about their concerns. “Activists don’t know what actions boards have already considered,” he says. 

 So far, the new approach appears to be working. While activist campaigns are up, proxy fights are down. Data shows that 42% of activist campaigns ended in a settlement last year, and most of those were agreed to before the launch of a proxy fight. At the same time, the number of board seats won by activists in settlements has remained steady at 1.8 per campaign. Even more unusual, there are numerous examples of activists winning board seats by working collaboratively instead of combatively with management. 

 Still, with growth slowing, activist investors aren’t going away anytime soon. Changes to SEC rules that make it easier to mount activist challenges, coupled with an abundance of cash-rich firms, have increased the number of potential threats for CEOs and boards. That makes it even more important for boards to distinguish between an activist sincerely looking to unlock value and one who’s just trying to aggressively target short-term gains, says Tierney Remick, vice chairman and co-leader of  Board and CEO Services at Korn Ferry. “Who is there to create value, and who is there to create a distraction?” asks Remick.

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