According to a review of shareholder activism by Lazard (the Lazard Review) that examined global activism trends in the first half of 2020 (H1 2020), economic uncertainty brought on by the COVID-19 pandemic, coupled with heightened awareness of widening socioeconomic inequalities around the world, has altered shareholder activism activity globally. We highlight some important trends to watch as companies and shareholders continue into the second half of 2020.

Resurgence of Poison Pills

As stock prices plummeted in March, many U.S. companies moved quickly to adopt poison pills (also known as shareholder rights plans). A recent study found that for companies that were highly exposed to the crisis and suffered great financial losses, such as companies in the passenger airline, apparel and tourism industries, the adoption of poison pills generally had a positive effect on their stock prices. This uptick in the use of poison pills may allude to a growing market acceptance of using this tactic to stave off opportunistic takeovers and activist interventions, especially where companies have an otherwise viable business model were it not for the pandemic. Conversely, companies with low-to-moderate exposure to the crisis that adopted poison pills saw their stock prices drop. The researchers noted this may have been due to the fact that these companies were benefitting from the overall stock market surge in the last decade and the crisis is now exposing them as underperforming companies. Despite the resurgence of poison pills, this method is not advisable for every company and companies must carefully evaluate the adoption of poison pills based on their own particular needs. Furthermore, as we noted earlier, it is unlikely that we will see a similar trend in Canada due to legislative safeguards that limit the protections afforded by poison pills.

Activity Shifts to Europe and APAC Regions

The Lazard Review also highlighted the increased levels of activism in Europe and the Asia Pacific (APAC) region during H1 2020. European campaigns were strong at the beginning of 2020 and have picked up again in June, with targeted companies concentrated in sectors that were most negatively impacted by the COVID-19 crisis, such as the industrial and consumer sectors. Meanwhile, levels of shareholder activism in the APAC region are bolstered by record activity in Japan, which has been driven by increased involvement of U.S. and regional activist investment firms. In H1 2020, Japan has already seen 19 new activist campaigns, which equals the total number of campaigns seen in Japan in all of 2019. On the other hand, the U.S. experienced a year-over-year decline of roughly 40% in activist campaigns.

Change in Activist Focus

Further, the Lazard Review discussed a decline in activist campaigns that were focused on M&A from 47% in 2019 down to 34% in H1 2020. It appears that activist campaigns have increased their focus on board composition. Campaigns related to a change in a company's board of directors represented 34% of all campaigns in H1 2020. In the same period, 20% of campaigns sought operational improvements, while 7% of activist campaigns focused on changing a company's management team. While the decrease in M&A-related activism is due in part to continued uncertainty in the M&A environment, it may also be attributed to the desire of shareholders for strong leadership to navigate these unprecedented times.

ESG at the Forefront

According to the most recent Edelman Trust Barometer Special Report: Institutional Investors, 91% of Canadian institutional investors surveyed believed that maximizing returns to shareholders can no longer be a corporation's only goal. It appears that evaluating a company's performance against ESG KPIs is becoming increasingly important, as approximately 67% of the investors surveyed chose to invest more in companies that were excelling against ESG KPIs. The survey further highlighted that a third of investors wanted companies to demonstrate what steps they were taking to address real-world issues in society. Now more than ever, with the COVID-19 pandemic demonstrating the disruptive force of a global health crisis as well as a growing cry for climate action and social change, investors will likely pay more attention to a company's ESG commitments and performance.

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