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Skip to main contentMarch 14, 2025
The problem: A new crop of activist firms is rising to challenge companies on both financial and non-financial matters.
Why it matters: Leaders are feeling the impact of activist campaigns, with an increasing number of CEO resignations.
The solution: Change defense strategies and tactics to address the new face of activist investing.
At first, it didn’t seem like much to worry about. The company was performing well, so when a relatively unknown hedge fund acquired a small position in its stock and began criticizing its leadership and board on social media, the firm’s management saw it as a bid for attention rather than an actual challenge. But as momentum grew and other investors started voicing support in mainstream business-news outlets, what looked like a minor nuisance mushroomed into a full-fledged activist campaign—one the company didn’t even know it was fighting.
The face and nature of activist investing is changing, presenting an entirely new set of challenges, and experts say many firms aren’t prepared. The field of challengers of course includes large firms helmed by superstar fund managers overseeing hundreds of billions of dollars. But a new crop of independent investment firms and smaller activist funds are driving campaigns to all-time highs. The number of independent investment firms registered with the Securities and Exchange Commission grew by 18.5% from 2018 to 2023, and now totals more than 15,000.
Last year, a record 160 different investor groups, including 45 first-time activists, launched campaigns against companies. Today, thanks to social media and the rise of independent journalism, any investor with a (somewhat) compelling message can attack a company and get attention. “Anyone sitting on a couch who wants to become an activist can be one,” says Daniel Yunger, a partner at strategic communications firm Kekst CNC who leads client engagements in M&A, activism preparedness, and proxy campaigns.
To be sure, 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; and nowadays, they’re as likely to attack a company for its sustainability practices or DEI initiatives as they are for its financial performance and capital allocation, says Peter McDermott, head of the corporate affairs practice in North America for Korn Ferry. Regardless of its motivations, McDermott says, any activist campaign can be an existential threat, resulting in a leadership change, challenge to board seats, or even a sale or breakup of the company. “Many firms are not as well prepared as they should be for how the activist-investor landscape is changing,” he says.
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In all, activist investors launched 243 new campaigns globally last year, an 18% increase from 2023 and the highest figure since 2018, according to investment bank Barclays. Twenty-two percent of those campaigns were launched by first-time activists, marking the first time newcomers accounted for a greater share of challenges than the top ten activist firms.
More concerning for boards and management, the focus of activists’ demands has shifted from dealmaking and financial performance to strategy and leadership changes—CEOs particularly. Twenty-seven CEOs resigned because of activist pressure last year, a 69% increase from the four-year average. “New kinds of activist investors require firms to find new ways to prepare and engage with them,” says Sarah Wills, CEO of Concordant, a policy and communications advisory firm, who has previously held leadership positions in corporate affairs and communications at Cardinal Health and GE Healthcare.
For boards, management, investor-relations, and corporate-affairs teams, that means success isn’t in winning a proxy content but in preventing one. To be sure, firms are getting 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 firms’ “playbooks” to uncover frequently used tactics and build “knowledge pipelines” to defend vulnerable areas. He says firms are forming response teams so that they are prepared and consistent in how they address activists’ concerns. “Firms are looking more to make peace than go to battle,” he says.
The change in strategy appears to be working. While activist campaigns are up, proxy fights are down. Data shows that firms are reaching deals with activist investors faster and more quietly than in years past, with nearly two-thirds of campaigns ending in a private settlement within an average of only 34 days. Historically, the breakdown between public and private settlement has been fifty-fifty, with the time to reach an agreement averaging around 70 days. At the same time, the number of board seats won by activists in settlements has remained steady at 1.8 per campaign.
McDermott says developing relationships with activist investors and working alongside them is one way management and firms can reduce hostile actions, particularly from newcomers. “Getting to know these firms and letting them know their concerns are heard is a much better strategy than ignoring them and acting like they don’t matter,” he says.
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Any activist campaign is a distraction. The time and focus required to address activists’ concerns can also be expensive for a company’s leadership team, says Tierney Remick, vice chairman and co-leader of Board and CEO Services at Korn Ferry. The challenge for leaders and boards is distinguishing between those activists who are sincerely looking to unlock value and those who aren’t. “It’s important for companies to understand if the objective of the activist is on short-term financial gain or long-term strategic interests,” says Remick.
One of the mistakes firms often make during activist campaigns, say experts, is underestimating the distraction an activist campaign can create among the employee base. Leaders focus on telling their story to investors, the analyst community, and the media, says Wills, while telling employees that it is business as usual—when clearly it is not. Employees read the news, she says, they see what people are saying about the situation, and they have their own emotional reactions.
At the same time, recruiters may be calling to try to poach top talent; investors and reporters will often reach out as well, seeking inside information about what’s going on at the company. This can not only be very distracting but can also lead to a vicious cycle of lower productivity, issues with recruiting and retention, and underperformance. That’s why it’s important for leaders to build up credibility and trust among employees on an ongoing basis, says McDermott. Keeping employees focused during an activist campaign is challenging, and firms and leaders that aren’t transparent with them may find themselves going into battle from a position of weakness.
Conversely, authentic leaders—those who constantly communicate the firm’s purpose and values to employees and show that they care about their well-being—are able to convey a sense of strength and stand their ground. “Having strong internal communications can help firms withstand a challenge or outside voice, because employees know they can trust management,” says McDermott.
For more information, please contact Peter McDermott at peter.mcdermott@kornferry.com.
