Corporate Affairs Leaders: should you fear activists?

Last week, our Activism and Strategic Communications experts Victoria Palmer-Moore and Angus Booth, joined Carolyn Esser, Chief Corporate Affairs Officer, Darktrace and David Platero, Partner and Portfolio Manager at Bluebell Capital Partners for a panel discussion at the 2024 Corporate Affairs Summit in London.  

We’ve captured their key takeaways on how to prepare for and navigate activist situations. 

Key Takeaways:  

• Contrary to popular belief, many activists should not be seen as "the enemy." The primary objective for many is value creation.  
• Be prepared by leveraging investor relations, IT, and corporate affairs teams to regularly review shareholder registers, website traffic, and search rankings for irregularities or patterns that might signal activist activity. 
• When engaging with activists, it's important to understand their position and approach—those with long vs. short positions will have very different motivations.  
• Be fleet-footed, ready to respond quickly, and transparent to all relevant stakeholders, from employees and customer teams to analysts and the public. 

Should you fear activists?

The global context shows a renewed focus on activism campaigns in the UK and worldwide. Activist investors mounted campaigns at a record number of companies globally during the first six months of 2024. In the UK, this trend is particularly driven by the strength of U.S. markets and the perceived undervaluation of UK companies.

Contrary to popular belief, many activists should not be seen as "the enemy." Their primary objective is often value creation. They frequently focus on bringing observations, ideas, and concerns to the table that could result in positive outcomes for the company, thereby delivering greater value for shareholders. 

How can you spot and prepare for an emerging activist situation?

In today's corporate landscape, characterized by rising global activism, increased scrutiny on sustainability disclosures, and growing union power, being prepared for potential activist situations is crucial. 

To anticipate and prepare for activist situations, companies should focus on key areas: 

• Align investor relations and corporate affairs teams, and regularly review shareholder registers for irregularities that might signal activist activity. 
• Utilize IT teams to monitor website traffic and search rankings for unusual patterns. 
• Conduct vulnerability assessments and maintain a pipeline of potential directors. 
• Review business strategy, portfolio, profitability, stakeholder relationships, board composition, and corporate governance regularly.
• Designate a management point person for rapid response during activist attacks.

Companies must remain vigilant and proactive in their approach to identifying and addressing potential vulnerabilities before activist investors can exploit them. This preparedness is no longer optional but vital to modern corporate strategy and risk management. 

How can you engage and establish a dialogue with activists once a campaign is underway?  

When engaging with activists, it's important to understand their position and approach. For activists with a 'long' position, there is often an opportunity for constructive discussion and dialogue behind closed doors. If these discussions don't yield the preferred outcome, the activist might go public to engender more shareholder support or seek a board seat.

However, activists maintaining a short position in the company may choose to go public immediately to 'wake up' the market and gain maximum exposure for their campaign, aiming to garner as much influence as possible in the shortest time.

When facing an activist situation, corporate leaders should consider the following advice: 

• Engrain 'muscle memory' by carrying out simulations or exercises that embed steps and procedures that can be quickly recalled and put into practice during a crisis. 
• Be fleet-footed and ready to respond quickly, react to changing dynamics in real time, and keep various stakeholders updated. 
• Don’t hide. Clearly explain the company's story and, where needed, its defense to all relevant stakeholders, from employees and customer teams to analysts and the public.