According to recent studies, the rate of successful shareholder activism is on the rise. While historically high when compared to the relative ownership percentage of those campaigning, new data from North America and Europe demonstrates a climbing success rate for activist campaigns.

Studies that measure shareholder activism often organize their success-rate analysis by either a success-per-shareholder-demand variable, which measures the amount of successful changes to a company against the amount of total activist demands, or based on overall "engagement outcomes",1 which measure success against the amount of total activist campaigns (which may contain multiple demands). Both indicators attempt to capture the amount of successful shareholder requests for changes to a company, including board of director replacements; changes to the pay-out policies, buybacks or increased dividends; restructuring of assets; takeovers;2 and changes to a company's expenditure policies on items like R&D.

One American study, taking data from 1,164 activist campaigns, determined that the average success rate per shareholder demand between 2000 and 2007 was 29%.3 Considering that almost all activist demands are brought by minority holders, 29% seems like a fairly high margin of success. When broken down into the stage of each demand, however, the same data reveals that while only 6% of the studied campaigns resulted in a successful settlement at the negotiation stage, 39% of demands resulted in a successful board representation changes, and 57% resulted in a successful proxy context.4

Recent data suggest that the current per-demand success rate is even higher. A 2015 international study of shareholder activism places the overall engagement-outcome-success rate at 47% per campaign, and a per-demand-success rate of 75% – which is higher because many of the successful campaigns contain multiple demands.5 These high success rates have risen over the last half decade, in spite of the fact that average activist ownership was a mere 8% of shares in the target firm at the time of the disclosure date.6 The Wall Street Journal's data echoes the international study's findings, posting a 73% rate for "as least a partial victory" of shareholder activists campaigns in 2014.

At least one academic has stated that the increase in shareholder activism has led to an increase in managerial efforts to negotiate settlements, and to avoid proxy contests altogether.7 If this is the case, it is likely the 6% settlement rate from 2007 may also be on the upswing. The climbing success rate of shareholder activism is a strong indicator that there will be much more of this type shareholder-corporate engagement in the years to come.

The author would like to thank Noel Dekking, summer student, for his assistance in preparing this legal update.

Footnotes

[1] Marco Becht, Julian Franks, Jeremy Grant and Hammes F. Wagner, The Returns to Hedge Fund Activism: An International Study, online: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2376271.

[2] Gantchev, N. (2013). The costs of shareholder activism: Evidence from a sequential decision model. Journal of Financial Economics, 107(3), 610–631;

[3] Gantchev, N. (2013). The costs of shareholder activism: Evidence from a sequential decision model. Journal of Financial Economics, 107(3), 610–631.

[4] Ibid.

[5] Marco Becht, Julian Franks, Jeremy Grant and Hammes F. Wagner, The Returns to Hedge Fund Activism: An International Study, online: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2376271.

[6] Marco Becht, Julian Franks, Jeremy Grant and Hammes F. Wagner, The Returns to Hedge Fund Activism: An International Study, online: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2376271.

[7] John C Coffee Jr., "The Lesson of DuPont: Corporate Governance For Dummies", online: http://clsbluesky.law.columbia.edu/2015/06/01/the-lessons-of-dupont-corporate-governance-for-dummies/#_edn1.

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