Shareholder Activism in the time of Coronavirus

By Anthony Hughes, SEC Newgate and Julien Artero , Kalita Partners

As the Coronavirus spreads across the world, it is having some far-reaching effects, economies are being hit and company valuations across the board have taken a dive (the oil price war notwithstanding). In a ‘business as usual’ bull market, companies’ potential weaknesses can be shielded or hidden, but when the market turns downward they tend to be more exposed. Indeed, shareholder activism typically increases in market downturns. With plummeting valuations, and many companies struggling as a result of the current situation, it will be easier for activists to build positions and expose potential weaknesses. Many companies and management teams may therefore find themselves under more pressure than ever to demonstrate value and effective leadership.

In the corporate world it is AGM season with thousands of planned general meetings stretching from now until to July. However, as a result of the Coronavirus many people and countries have started ‘social-distancing’ measures which has put a stop to most large gatherings. This has had the knock-on effect of AGM’s being postponed in Europe and in the US many companies (e.g. Amazon, Starbucks) are taking their AGMs online.

This presents an interest situation. Activists and more vocal shareholders would argue this is a worrying trend, especially if it’s a trend that sticks, because in a virtual environment companies have much more control than in a live face to face environment. Companies can much more easily avoid protests and avoid answering the questions they don’t want to answer – making management less accountable to shareholders.[i] Whilst AGMs may not be a hugely important part of the shareholder activist playbook they could be viewed as symbolic of a company’s wider attitude to communicating with shareholders and are used to affect sentiment.

How this combination of factors will shake out in terms of shareholder activist activity levels is unclear, but the increased market volatility is likely to create more opportunities for activists not less. What is clear is that, more than ever, maintaining effective communications with stakeholders and especially shareholders and being prepared for potential crises and attacks is paramount. Preparedness is crucial especially as companies will be less able to devote as much time to defending themselves with so many other considerations to worry about in the time of coronavirus.

Indeed, Blackrock recently asserted that despite Coronavirus it would continue to press companies on their governance and accountability, voting against the most senior non-executive director at companies that have failed to name a non-executive and preferably independent director who is accessible to shareholders.[ii]

By reviewing their activist readiness and crisis communications plans, organizational and committee documents, the format of annual shareholder meetings, shareholder proposals, communications around the rotation of board committee members and through proactive engagement with key shareholders, companies can discourage activist activities that could disrupt operations in an already challenging environment. Companies should also keep a more watchful eye for movements in the shareholder register - often the first sign of attack by an activist.

[i] James McRitchie

[ii] Financial Times – ‘BlackRock to target companies on governance despite coronavirus’

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