Growing Power of Shareholder Activism in Europe

Shareholder activism is on the rise in Europe.

Over the past decade, we have seen a wave of #shareholder engagement that is redefining how companies are run and what corporate governance means.

#shareholderactivism refers to the practice of shareholders acting collectively to influence corporate decisions. Shareholders can influence everything: from executive pay and environmental policies to board composition and dividend payments. This can be done by voting on resolutions, filing lawsuits, or exercising other shareholder rights.

In this short article, I will explore how shareholder activism has become an important part of European #corporategovernance and examine some of the recent successes achieved by shareholders in Europe. We will also discuss the potential risks and rewards associated with this strategy, as well as how it can be used effectively by European companies. Finally, we will consider what the future might hold for shareholder activism in Europe.

Overview of Shareholder Activism in Europe

Shareholder activism in Europe has risen over the past few years, with the pace increasing by 67% in the first half of 2022.

This has been driven by several factors, including activist shareholders becoming more powerful and a growing awareness of corporate governance issues among institutional investors.

The year 2022 saw a record number of European campaigns (exceeding 1000) as #activists sought to influence board decisions by calling for strategic changes at companies ranging from #airlines to #oilandgas producers.

Activists have also become increasingly sophisticated in their tactics, using data-driven analysis, engagement teams, and digital campaigns to pressure companies into making changes.

As a result of these activities, shareholders have experienced relatively successful results in Europe this past year, with more than 60% of campaigns resulting in positive outcomes for activists.

This success has resulted in greater attention being paid to corporate governance issues, leading institutional investors to increase their scrutiny of companies’ operations and policies. It is likely that shareholder activism will continue to exert a powerful influence on companies in Europe for years to come.

The Increasing Focus on ESG Investment Standards

Shareholders in Europe have recently witnessed a surge in shareholder activism, leading to a record-breaking number of campaigns in 2020. A closer look at these campaigns reveals an increasing focus on ESG (Environmental, Social, and Governance) issues.

From equal pay and #diversity initiatives to #climatechange and #sustainability targets, European shareholders recognize the importance of engaging with companies on #esg issues.

This form of shareholder engagement has become increasingly common in the continent’s activist campaigns and is expected to be crucial in #sustainableinvesting in 2023.

In light of this growing trend, it is essential for shareholders to be aware of the various ESG standards that companies are expected to meet.

European companies should disclose their approach to key ESG topics such as climate change, social progress, #governance practices, #humanrights and #environmentalprotection. By making this information available, shareholders can better understand how their investments are managed and assess whether they meet their ethical requirements.

EU Regulations to Bolster Shareholder Activism

In 2009, the European Parliament passed a study that detailed the possible economic consequences of large shareholder activism. Since then, substantial changes and developments in rules and regulations relating to shareholders have made a noticeable impact on shareholder activism in Europe.

The EU has recognized that shareholders of listed companies must make more active use of their rights, which has led to increased spin-off activity.

Regulations have been put in place to encourage greater participation by shareholders when it comes to voting on matters such as company acquisitions, mergers, and strategic decisions.

These regulations include the Shareholder Rights Directive, which was adopted in 2007 and amended in 2017. This directive establishes minimum standards for information disclosure by listed companies and measures to facilitate the exercise of shareholders’ rights, such as proxy voting. It also requires companies to explain explicitly if they do not comply with these measures.

Overall, EU regulations are designed to bolster shareholder activism and help ensure investors can make informed investment decisions.

Analyzing Recent Successful Cases of Shareholder Activism in Europe

Shareholder activism saw a leap forward in Europe in 2020, with a record number of campaigns from activists across the continent. These successes can largely be attributed to European firms' willingness to take investor input more seriously and to restructure their management accordingly.

Notable successes include:

• German real estate investor Deutsche Wohnen, increased its dividend payment and promised higher returns to shareholders after pressure from activist fund TCI Fund Management.
• Activist investor Cevian Capital’s campaign for Airbus led to an increase in dividend payments by 24%, resulting in an increase in share prices by 13%
• Activist investor Elliott Management’s successful attempt to replace the board at Dutch paints and coatings company AkzoNobel - resulted in a rise of the share price of 21%.

These and other successes prove that shareholder activism can be an effective driving force behind the positive change for Europe’s firms.

Examining Failed Attempts at Shareholder Activism in Europe

Europe has seen its fair share of shareholder activism in recent years, but not all of these campaigns have succeeded. Examining activist shareholders' failed attempts can help us better understand the complexities and nuances involved in such campaigns.

Examples of High-Profile Failed Campaigns

One example is 2020 failed attempt at a hostile takeover of Societe Generale, France's third-largest bank, by French investor Paul Singer's Elliott Management Corporation. Despite offering an unsolicited €10 billion bid for the company, the offer was rejected by Societe Generale.

Another example is hedge fund TCI's attempt to remove Volkswagen CEO Herbert Diess in 2020. The campaign was eventually unsuccessful due to a lack of support from other major shareholders and German laws protecting minority shareholders from hostile takeovers.

These high-profile cases demonstrate how difficult it can be for activists to succeed in influencing corporate policy, even when they have significant financial backing.

What Are the Prospects for Shareholder Activism in Europe?

The prospects for further shareholder activism in Europe remain strong, and investors expect to see even more campaigns this year.

Large shareholders with board representatives make measuring the total scope of shareholder activism across Europe difficult. But despite these challenges, there are still plenty of reasons to be optimistic that shareholder activism will continue to gain traction in the region.

For starters, many large companies are seeking more advice on how to stay ahead of their activist investors.

Additionally, European regulators have been taking steps to protect minority shareholders and encourage more participation from them in corporate governance matters. This enhanced focus on corporate governance should open more doors for activist investors and provide them with additional avenues for voicing their concerns.

Overall, it's clear that European markets are becoming increasingly receptive to shareholder activism, and investors should expect continued growth in this area over the coming months and years.

To finish...

The power of shareholder activism in Europe continues to grow, with ESG issues often the focus of the engagement.

While there has been some success, like with Unilever, other engagements have yet to reach their desired outcome.

With the 2019 EU regulations, institutional investors must disclose their engagement activity, which may lead to more transparency and recognition for European shareholder activists.

In any case, it will be interesting to watch how Shareholder Activism in Europe continues to evolve in the coming years.