January 8, 2021 Proxy campaign outlook: What’s in the activists’ playbook for 2021?

By Bruce H. Goldfarb and Alexandra Higgins for IR Magazine

As new activist opportunities emerge, Okapi Partners says there is no substitute for knowing – and regularly engaging with – your shareholders

Looking ahead at 2021, corporate management teams will be facing a very different operating environment from the one that prevailed through most of 2020. While the availability of Covid-19 vaccines may allow the economy to return to something akin to normalcy, some changes accelerated by the coronavirus – such as working from home, increased digitization of commerce and shifts in consumer behavior – will leave a lasting impact on businesses. At the same time, a heightened focus on social justice, racial equality, climate change and other ESG issues will be reflected in corporate and investor decision-making.

Many of the changes in our economy and society will also find their way into the tactics used by activist shareholders in the coming year. In addition to the traditional proposals that have long been part of the proxy campaign playbook, activists will increasingly focus on newer factors that impact shareholder value, including a company’s ESG policy and performance, its approach to cyber-security and even how effectively it addressed the challenges of Covid-19.

ESG issues

ESG issues have played a central role in activist campaigns in recent years, and we believe the number of ESG-related proxy proposals will only increase in 2021. Investors generally have expressed greater interest in the ESG performance of companies in their portfolios: the assets under management of investment firms and other asset owners that have signed the United Nations’ Principles for Responsible Investment (UN PRI) totaled $103.4 tn at this time last year, while the number of signatories to the UJN PRI rose by 28 percent in the first quarter of 2020, following a 20 percent increase in 2019, according to State Street Global Advisors. With respect to proxy proposals, our own data shows that more than 850 shareholder proposals related to ESG issues were filed and 71 passed during 2020.

Companies are certain to face even more proposals on climate change, diversity and inclusion, racial justice, socio-economic inequality, health and safety and other ESG-related factors in 2021. It’s a safe bet that activists will also make some of these proposals part of their demands. Activist investors have targeted ExxonMobil for financial underperformance, for example, as well as climate change concerns. Some CEOs and boards of directors may be tempted to dismiss an activist’s focus on ESG as a cynical ploy to exploit the current zeitgeist. The fact is, however, that many investors – not just activists – view ESG factors as vital elements of a company’s performance, and a failure to address such issues as a significant risk to value.


In late 2020 the world learned of sophisticated cyber-attacks on several US government agencies and corporations, which were apparently facilitated by compromising an outside software provider used by many government and corporate organizations. This attack is just the latest and most dramatic example of the enormous threat to companies from cyber-security incursions, including (but not limited to) malware, spyware, data breaches, ransomware, financial cyber-crime and compromised business email. Global losses from cyber-crime in 2020 have been estimated at nearly $1 tn, up from $600 bn in 2018, according to research from the Center for Strategic & International Studies

In light of the rising tide of cyber-crime, it seems likely that activist shareholders will eventually focus on this issue as a major risk to value, much as they have done with ESG factors. Obviously, a company that has already suffered a cyber-security breach could be more vulnerable to an activist’s criticism on that score. According to a survey by PwC, less than a third (32 percent) of corporate directors think their board understands their company’s cyber-security vulnerabilities very well. Fifty-four percent say their board understands the risk ‘somewhat’ while 13 percent say the risk is ‘not very well understood’ and 1 percent say it is not understood at all. Therefore, it seems likely that activists may try to nominate candidates with cyber-security credentials to serve on the boards of target companies that lack such expertise.

Covid-19 response

With the benefit of hindsight, activist investors in 2021 may challenge how well management and the board responded to the Covid-19 crisis. Arguably, it may be hard to criticize a company for failing to anticipate such an unprecedented event. But activists might assert that management did not fully disclose the financial and operational impact of the pandemic, or did not take appropriate action to sustain the business through the crisis, keep employees safe and protect stakeholders. The SEC’s decision to file charges against a restaurant company for alleged ‘misleading disclosures about the impact of the pandemic on its business operations and financial condition’ suggests that activists may see this concern as a viable line of attack. 

The actual decisions of corporate executives and boards may not necessarily be the focus of such an activist campaign, but the disclosures and communications around those decisions will be closely examined. Executive compensation practices may also be scrutinized, to see whether management ‘shared the pain’ felt by employees and investors or made any adjustments to goals as a result of the pandemic.

Determining whether you’re a target

As issues such as ESG, cyber-security and Covid-19 response join the more traditional elements of activist campaigns, a logical question for corporate boards and managements is: how can we tell whether we’re going to be targeted?

A key part of the answer is to assess the same vulnerabilities of your company that a potential activist would. Compare your financial performance with your industry peers, and look for weaknesses that might be cited by an activist. Ask yourself whether there are aspects of the company’s operational capabilities that could be improved, particularly in terms of cyber-security. Look at your board of directors and assess whether the right skills are represented.

With respect to ESG issues, consider whether the company could be vulnerable to criticism in areas such as climate impact, diversity and inclusion or corporate governance. Even if the company is not a leader in these areas, having well-defined and well-articulated goals and policies may be helpful in responding to an activist challenge.

Finally, there is no substitute for knowing – and regularly engaging with – your shareholders. When activists are assessing their chances of prevailing in a campaign, they try to understand who the other shareholders are and what issues concern them. If your management and board have maintained an open channel of communication with shareholders, it’s less likely that an activist will uncover some heretofore undiscovered area of disagreement that can become the focus of a successful campaign.

Bruce Goldfarb is president and CEO and Alexandra Higgins is managing director at Okapi Partners

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