Shareholder activism: On the increase in the UK

Shareholder activism is on the increase again in the UK, according to the latest figures^[1]. Activist shareholder campaigns are now a serious threat to companies, targeting all business sectors and increasingly, companies of all sizes. Activist attacks in the UK roughly doubled in the five years up to and including 2019^[2], with high-profile and well-orchestrated attacks hitting the financial headlines. After a temporary lull with COVID-19, UK activist campaigns are back in the spotlight^[3].

What are shareholder activist attacks?

At its simplest, shareholder activism is where an institutional investor, frequently a hedge fund, identifies an opportunity or strategic weakness in a target company that it can exploit. It then acquires a stake in the target in order to generate financial return. This is generally achieved by leveraging the share price and unlocking value with spin-offs and break-ups — returns for successful activists can be hefty.

Weaknesses that these investors exploit include corporate mismanagement, lack of diversity at board level, excessive costs, and excessive director remuneration. These shareholder activists are adept at modifying their tactics to suiting changing circumstances and most recently have started to use ESG as an entry point. Similarly, companies that underperformed during the pandemic as a result of failing to adapt may also be particularly vulnerable.

The activist then utilises its stake to make demands for change and influence how the company is run, in the process challenging existing management strategy and structures. Typical demands include the sale or disposal of part of the business; consolidation or breaking up of a company; the removal of a CEO or other board member; and other changes to corporate strategy. Campaigns often start with a private letter to the board, but move on to a full-scale public campaign designed to discredit managers and board members. A campaign can also develop into what is known as a “proxy fight” when the target company’s existing shareholders are mobilised by the activist.

In one recent campaign^[4], an activist took a 2% share in a company involved in property and used its position to object to a £1 million CEO bonus at a time when the company was in receipt of £4 million in COVID-19 recovery funds from the government. The demands for change were subsequently taken up by the largest shareholder and, following calls for a boardroom shakeup, the CEO was replaced. In another recent attack, a FTSE 100 company has been targeted by a USA hedge firm after a failed takeover of another company^[5].

For a company on the receiving end of an aggressive campaign, the experience is likely to be hugely disruptive and expensive. The target cannot hope to defend a well-financed and prepared campaign without the support of expert legal, public relations, and other professionals. In a recent survey ^[6] of senior executives at more than 500 European publically traded companies in the UK, France, Germany, and Italy, 68% reported concern at the rise in investor activism; 53% admitted the lack of clear strategy to deal with an activist attack; and 57% believed they would need third-party support when managing the risk. The burden can be particularly heavy for mid-sized companies: They are seen as easy targets, and they may lack the resources to defend a well-financed and professional attack.

Activist campaigns are expensive to defend, and not all aspects of a campaign are covered under traditional D&O policies. When activists attack companies, it is the company, as an entity, that has to bear the cost. By contrast, D&O insurance protects the directors against their liabilities as directors.

The importance of giving attention to this threat is clear. Factors that boards of public companies should be considering as part of an activist defence strategy include preparation and assessment of the risk, board agreement on a response plan, engagement with the right advisors, a PR and crisis management communication plan, robust legal defence and importantly, and financing for a defence campaign, including giving consideration to purchasing appropriate insurance.

^{[1] According to Insightia Shareholder Activism in 2021 report, January 2022, 47 UK companies were publicly targeted in 2021, as opposed to 41 the year before. On top of this, there has been a sharp rise in non-public campaigns.}

^{[2]Insightia Shareholder Activism in 2021 report, January 2022,}

^{[3] UK boards braced for new ‘golden age of activism’ in wake of Brexit and pandemic - Financial News (fnlondon.com); Activists eye targets in weak and vulnerable corporate UK | Financial Times (ft.com)}

^{[4] Foxtons to award chief near £1m bonus despite investor revolt | Foxtons | The Guardian}

^{[5] Pressure for shake-up expected at Unilever as activist investor buys stake in firm | Unilever | The Guardian}

^{[6] AlixPartners Attitudes to Activism survey, March 2019}

Article

Shareholder activism: On the increase in the UK

What are shareholder activist attacks?

Our authors

Stephanie Pestorich Manson

Matt Terry

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Shareholder activism: On the increase in the UK

What are shareholder activist attacks?

Our authors

Stephanie Pestorich Manson

Matt Terry

Related insights

Financial and professional lines claims continue to rise across Europe

Mental health and wellbeing risks in UK financial and professional service

Understanding professional indemnity insurance for accountants in Cyprus

Emerging trends in IP Litigation