Put simply, activist investing (or shareholder activism) is the act of investing your money into publicly traded companies held on the stock market, and then using your shares to influence their corporate governance.
As opposed to the passive act of refusing to buy shares in specific companies, activist investing looks to leverage shareholder power to drive change.
This approach has the potential to effect real change, even within the largest corporations.
Activist investing is nothing new, US-based Carl Icahn’s been doing it since the eighties, while Paul Singer’s Elliott Management hedge fund was started in the late seventies has gone on to become one of the most prolific activist investors on both sides of the Atlantic.
Even the end of the international apartheid movement in the nineties can, in part, be credited to shareholder activism.
Last year, activist investment advisor Engine No.1 challenged ExxonMobil, unseating three of its board members for failing to sufficiently adjust its strategies in response to the climate crisis.
READ: Exxon, Chevron and Shell forced to rethink as sophisticated activism gets a foothold
It was a big win for shareholder democracy and an exciting display of how an activist investing approach can work.
I hope that this is only going to grow throughout 2022.
For institutional investors, fighting for change at a corporate level is set to become easier – catalysed by the support of some of the world’s largest institutional investors including BlackRock (NYSE:BLK), Vanguard and State Street, and spearheaded by recent policy expansions.
For example one of the largest asset managers recently announced that beginning in 2022 they are taking the first in a series of steps to expand the opportunity for clients to participate in proxy voting decisions where legally and operationally viable.
These voting choice options will first be available to institutional clients invested in index strategies – within institutional separate accounts globally and certain pooled funds managed by BlackRock (NYSE:BLK) in the US and UK.
This is down to the ever-growing importance of environmental, social and governance (ESG) issues for investors.
In 2022, we expect 148 companies are expected to be targeted by activist investors, based on recent research, which would be a 10% increase on last year.
Power is starting to shift - but needs a bigger push
While good corporate governance has historically been a primary focus of shareholder engagement, nowadays investors are increasingly turning their attention to ESG and demanding evidence of ‘environmental and social engagement’.
As a result, managers are now expected to actively demonstrate how they are satisfying this demand.
We’re also in the midst of a retail investor boom. Look no further than the Reddit effect on Gamestop and you will see an example of how the power is shifting.
Big corporations are tuning in to this shift and responding to the pressure.
In comparison to the growth of the voice of institutional investors, we cannot ignore the failure of public markets when it comes to recognising the interests and concerns of retail investors.
According to Broadridge’s ProxyPulse report, in the 2020 proxy season, just 28% of individual investors voted their shares, meaning that votes at AGMs were left mainly to institutional investors.
Last year there was just one shareholder proposal on Coca-Cola’s proxy statement at its AGM. This was around sugar and public health, which the company suggested investors voted against.
We think it is questionable that one of leading global plastic polluters did not have a single proposal around its pollution impact.
It’s difficult to believe that none of Coca-Cola’s shareholders care about the company’s pollution impact. By not addressing one of the public’s greatest concerns (plastic pollution) it suggests that, by leaving influence to institutional investors, something isn’t quite working in the public markets system.
This is where private investors come in.
Given the opportunity, retail investors could be the ones to push, propose, and vote for these changes.
We know they care about these issues and are ready to invest - just this year thousands have shown interest in supporting our campaigns on Apple, Amazon and Coca-Cola, and tens of thousands of dollars have been invested in these campaigns.
Retail investors want their voice to be heard at a company level – but more needs to be done to make their shareholder rights fully accessible so their concerns are represented at annual meetings.
To allow this to happen an enormous amount of structural change is needed, but we are confident that investment platforms and stockbrokers will adapt.
READ: Private investors become more active in company AGM votes, says UK platform
Already, they are making it easier for retail investors to provide evidence of their shareholding, and educating investors on how they can submit and vote on proposals, to ensure their voice can finally be heard.
We can expect more of this to come.
It is an exciting time for retail investors across the UK jumping on the activist bandwagon. If you combine the voice of institutional investors with that of retail investors and the public, just think what could be achieved.
About the author: Antoine Argouges is the founder and CEO of Tulipshare