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Directors group advocates “open mind” about activism

The Lead Director Network, an organization of openmindlead independent directors and non-executive chairmen, recently published a paper on trends in activist investing and how boards deal with activists.  The paper notes that while activist investing can trace its roots to 1927, several trends are combining to elevate the amount of influence activists have in th market today.

Among the trends cited:

More money:  It is estimated that AUM in the activist sector has gone from $12 billion to more than $100 billion in the last 10 years.  SkyBridge Capital, a fund of funds, says that it has $4 billion of its $10 billion total committed to the activist sector.

Media interest:  Activists are using social media and traditional media as levers and they are exerting influence that is disproportionately large compared to the size of their stakes in a target company.

Going large: In 2009 there were only seven activist campaigns involving companies with market cap higher than $10 billion.  Last year there were 42.

Partnering up:  Institutional funds like CALSTRS are increasingly working with activists.  This powerful trend is a regular subject of this blog, most recently here.

Results:  The average return for the activist sector was double that of non activist funds last year.  In addition, ISS says that activists won 68% of contested fights for board representation in 2013.  This combination of outcomes should only embolden activists.

The change in the balance of power indicated by these trends (which include the top trends of 2013 identified by this blog) have led companies to  to realize that ” it is no longer enough to tell shareholders or proxy advisory firms that yo do not like the activists (or their ideas) and that management has a better plan.”

The paper concludes that “companies that maintain an open mind about activism and are willing to acknowledge their own mistakes may benefit from working with any shareholder focused on creating or unlocking value; it is the responsibility of boards and shareholders to determine whether a given activist and strategy qualifies.”

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