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React or Not React? Upping Your Game in the Face of Shareholder Activism

June 6, 2022
By Patrick Yu

Shareholder activism is on the rise in Asia-Pacific (APAC) as companies and CEOs face unprecedented scrutiny from international and local investors looking for better corporate governance and transparency. In the first quarter of 2022, there were 76 public corporate actions, as compared to 50 in the same period of 2021, on corporates and issuers in the region, with Korea, Australia and Japan leading the way, according to Insightia’s Shareholder Activism in Q1 2022 report.

So, what do activist investors want?

For the most part, it’s board representation, governance and environmental issues that are the focus areas for activists. Gone are the days of shareholder activism that only took place in the U.S., driven by institutional investors or short-sellers. In APAC, we now have growing involvement from retail and institutional investors. Activist investors in APAC have indeed gained foothold.

APAC’s activist investors are also looking at new targets. APAC’s chaebols used to draw attention from such investors due to the excessive power wielded by families with controlling stakes, but we now see a lot of actions against corporate heavyweights and even small companies. Even the retail estate investment trusts in the region have recently emerged as a battleground for activist investors.

How do corporates and issuers better prepare for activist investors’ attack?

Your Winning Blueprint for Communications with Activist Investors and Shareholders

Take an outside-in approach: Focusing on common triggers for activist investors’ engagement may help the board cut through the noise. Consider taking an outside-in approach to listen to what the pressing issues are from activist investors. Corporates and issuers should actively monitor and stay on top of international standards and requirements related to corporate governance and climate disclosure across different jurisdictions as these are the areas that easily draw investors’ attention.

Know your friends and foes: Each and every investor and shareholder will have a unique set of needs. The one-size-fits-all approach no longer works. It’s important to understand what your audiences want and to focus on what their bottom-line is. Get to know their ulterior motives and track records, and how they normally work with corporates. Should you receive an unacceptable proposal from an activist investor, you will need to be able to explain why it is not acceptable to shareholders in a way that’s rational and persuasive, ideally while presenting an alternative option, instead of rejecting it.

Prepare, listen and engage: Remember that you need to prepare for the worst – something that generally involves plenty of preparation. Develop a long-term and holistic engagement plan with your shareholders, investors and other stakeholders so you are seen to be proactive in your communications and in listening to their needs. Earnings calls and annual general meetings are a basic requirement. Leadership profiling to update the company strategies and regular communications with investors via social and digital media will help to develop more meaningful relationships with them.

Stay true to your corporate values: Lastly, look beyond disputes when they arise and focus on your company’s core values in alignment with good corporate governance. Your employees also need to be fully briefed on this when the company is attacked by activist investors. Showing how to communicate with activist investors externally and internally will effectively help corporates create sustainable corporate values.