A specter is haunting corporate America. Heads of activist hedge funds, such as Paul Singer and Dan Loeb, are more active than ever. According to data analysed by the investment bank Lazard, activist funds launched 252 campaigns globally in 2023, surpassing the previous record of 249 set in 2018.
S&P Global calculates 961 campaigns, with the rating agency also including sustainability issues raised by climate activists. And bankers and Wall Street analysts agree that the number and scope of campaigns is likely to increase further – which spells trouble for boards of directors.

„In the US, activist shareholders are now targeting significantly larger companies“, says Jonathan Rouner, Head of Mergers & Acquisitions, International, at Japanese investment bank Nomura in New York. „We have seen campaigns of various sizes at Disney, Apple, and Unilever, which activists would not have dared to pursue in the past.“

The battle at the Mickey Mouse conglomerate attracted plenty of attention. After more than a year of public skirmishes, Disney defeated activist Nelson Peltz, who had pushed for two seats on the board. He accused the directors of not providing sufficient incentives for management to act in the interests of investors.

One specific criticism put forward by Peltz resonated, which is the lack of succession planning for CEO Bob Iger, who plans to step down at the end of 2026. Even the proxy advisor Glass Lewis, which sided with Disney in the dispute with Peltz, told Börsen-Zeitung that the company's past efforts to replace Iger were „far from perfect“. The turmoil surrounding Disney illustrates the „risks associated with inadequate succession planning“, they added. The incentives for activists increase when inadequate long-term arrangements coincide with „disturbing performance, weak strategy implementation, and suboptimal financial control."

Peltz managed to enlist the support of two influential shareholders, the largest US pension fund Calpers, and investment firm Neuberger Berman, by consistently highlighting this vulnerability. The powerful proxy advisor Institutional Shareholder Services supported Peltz's inclusion on the Disney board. And billionaire Elon Musk, who is in a feud with Iger, also backed the hedge fund manager.

Market observers expect activist focus to shift from purely increasing shareholder return – primarily through sales of assets and business units – to other issues. „Last year, 80% of global campaigns took place in the US, and almost two-thirds of them focused on CEO succession, board composition, and other personnel-related issues“, explains Rouner from Nomura. „The rest revolved around capital return to shareholders, M&A strategy, and operational aspects.“

Companies like Elliott Management have also changed their image. „Unlike the old corporate raiders, who operated on the fringes of Wall Street, today's activists are accepted shareholders, and part of the financial mainstream“, says Rouner. They generally act much less aggressively. Only a third of campaigns in 2023 resulted in voting conflicts at shareholder meetings. Even one of the once-feared corporate raiders, Carl Icahn, recently won two board seats at Jetblue without a fight, after building a nearly 10% stake in the budget airline.

„Trian's recent defeat at Disney will additionally deter other investors from high-profile disputes with management teams“, Rouner predicts. Such disputes come with risk attached, since they can undermine an activists' influence. If hedge funds initiate a voting conflict and then suffer defeat, they may find much less backing from major institutional shareholders in subsequent attempts.

In addition, campaign costs at companies attracting strong public interest can skyrocket. According to documents filed with the US Securities and Exchange Commission in January, Disney, Trian, and the smaller activist investor Blackwells, who also unsuccessfully sought seats on the board of directors, in total planned to spend over 70 million dollars to win shareholder votes. A proxy campaign conducted with such high expenditure is unprecedented, even in the US.

Nevertheless, if a fight takes place, activists have better odds in the US due to new voting rules. Previously, shareholders only had the choice to vote for the entire list of a company's board recommendations, or for the list proposed by an activist. Now, all candidates appear on one ballot. Shareholders can use the „Universal Proxy Card“ to make a mixed selection, which experts say increases the likelihood that hedge funds will at least secure individual seats on boards.

Meanwhile, Nomura expects this subtler form of activism to spread further across every major industry – and internationally as well. „With private funds sitting on a large amount of available capital, they have been increasingly active in campaigns in Europe and Asia over the past ten to fifteen years“, notes Rouner. According to Lazard, these two regions contributed most to the increase in global campaign numbers in 2023. And the law firm Skadden Arps has observed a new focus on German targets.

Rouner also points out an additional development in the activist cosmos: some firms are no longer content to exert pressure as minority shareholders, but are considering takeovers. This was recently experienced by the department store chain Macy's, after the board rejected an offer from investment firms Arkhouse and Brigade Capital. „Currently, this represents a small proportion of activity, but it will grow“, predicts Rouner.

It appears that the spectres haunting not only corporate America, but also the international markets, are becoming increasingly frightening.