October 4, 2016
Over the last few years, shareholder activism has continued to gain momentum in geographies that have previously experienced little to no activist campaigns. FTI Consulting’s analysis shows more than 400 current activist campaigns that have spread across the globe as of July 31, 2016, with 32 percent of targets located outside of the United States, an increase of more than 15 percent from 2015. Based on these statistics, it is clear that activists are becoming increasingly comfortable operating in overseas regulatory environments, a trend that should be monitored closely by companies around the globe.
To measure the potential risk, FTI Consulting created an index to track activism threat level by country and map key activists residing in each location. Our findings show that the countries with the highest risk of an upsurge in activism are Canada, Australia and the United Kingdom. This risk can largely be attributed to changing economic factors, including a strong U.S. dollar, undervalued asset prices and increased global scrutiny of corporate governance standards in each country.
Notable activist investors, such as ValueAct, Elliott and Starboard, are becoming increasingly global, with activist investments now spanning multiple countries around the world. For example, Elliott has engaged in activism in 13 separate countries – nine of which were active campaigns in the last two years.
Japan and China are also experiencing a rise in activism. While Chinese activism tends to be short focused, Japan’s increase is a result of recent changes in its corporate governance rules. In 2015, the Japanese government introduced a new corporate governance code aimed at making Japanese companies more attractive to investors by requiring firms to appoint at least two outside directors.
The threat of U.S.-style shareholder activism is no longer confined to the United States. In fact, this threat is a growing trend. Companies of different sizes, sectors and geographies have been targeted by activists, both publicly and behind closed doors, presenting boardrooms around the globe with fresh impetus to better understand and prepare for shareholder activism.
In North America, board representation continues to be the most plausible activist campaign focus. Our analysis shows that 2016 has been a year of increased control campaigns as activists push for board representation. NB: our analysis excludes by-law amendments, as they are often automatic fillings from passive investors.
Activists are keeping a close eye on commodity prices to determine when to invest in Energy and Materials companies located in resource-rich North America. New technology has disrupted these markets, but we expect activists to begin bargain hunting for strategic sales and/or spinoffs.
In EMEA, activist investors are increasingly seeking the removal of current management or board members. One such example is the recent high-profile activist campaign launched by The Children’s Investment Fund, a London-based hedge fund, aimed at Volkswagen AG for its “excessive” executive pay in light of poor stock performance.
Activism threat levels are expected to keep rising across EMEA, particularly within the Energy, Telecoms and Banking sectors. Due to shareholder-friendly regulations, the UK should remain an attractive jurisdiction for activist investors. That said, there has been a notable increase in activist activity in Germany as shareholders are becoming more supportive of activist agendas. While activism is currently down in France for 2016, possibly in response to impending changes to say-on-pay regulations, we expect increased activity in mid-2017 once those changes take effect.
In Asia-Pacific, Australian activism largely revolves around board and management removal. However, a majority of remaining activism in the region is focused on capital allocation and fraudulent conduct. Many investors continue to push for increased disclosure as the region moves towards best practices in governance and transparency.
Australia stands out as having a particularly permissive corporate governance framework. Domestic institutions have shown themselves willing to back an increasing amount of well-formed activist campaigns led by both overseas activists and an emerging group of smaller domestic activists. This jurisdiction is likely the least restrictive in the region for activists and, as such, activism should continue to grow. After the introduction of its new corporate governance code, Japanese shareholder activism will likely continue to rise as well.
The Strategic Communications segment of FTI Consulting conducted secondary research to map the regulatory environment of 14 critical activist investor jurisdictions. The Global Shareholder Activism Map contains activist campaign data as of July 31, 2016, sourced from Activist Insight. The map examines nearly 4,000 activist campaigns, and excludes campaigns aimed at amending bylaws, as they are often automatic fillings from passive investors.
FTI Consulting developed an index to indicate country-specific activism threat level, which encompasses current campaign trends, corporate governance changes, and the overall likelihood of future activism investment. Country insights include: summary overviews, disclosure requirements, shareholder rights, and company defense advantages/disadvantages. FTI Consulting’s Global Shareholder Activism Map will be updated regularly to reflect the most recent developments by country and highlight new trends in global activism investing.