USA Law and Practice Contributed by: Kai Liekefett, Derek Zaba, Ram Sachs and Evan Grosch, Sidley Austin
capital based on the notion that active engagement can deliver superior returns uncorrelated with the broader market. These funds have developed various reputations along the spectrum of activism. The most prominent activist funds frequently engage in public, high-pressure fights. These activists’ agen- das are more likely to include M&A, such as the sale of an entire company or certain divisions, and other means of quickly returning value to shareholders such as stock buybacks. Newer funds may be further incentivised to take aggressive and well-publicised positions in order to build stature among the inves- tor community. Even more established funds will use aggressive campaigns to reaffirm their “fearsome” reputation. Other funds have focused on private engagement and may see themselves as “constructivists” aligned with long-term shareholders. Such investors typically focus on longer-term strategic and operational changes with an eye towards building a sustainable business. These funds may develop more collaborative relationships with companies, straddling the line between activists and advisors. Institutional or other traditional large shareholders are unlikely to publicly lead an activism campaign. This tendency has solidified in recent years as institutions have evolved further into “passive” products that track the broader market or a specific index, and away from “active” products that select specific companies for investment. Nonetheless, institutional investors continue to show a willingness to vote for activist nominee director slates or shareholder proposals. 11.6 Proportion of Activist Demands Met Many activist engagements remain private, and as such, the universe of public information does not incorporate the full scope of demands. Based on public data, in 2024, activists agitating at US companies sought 249 board seats and obtained 125 board seats. In the first half of 2025, activists sought 155 board seats and obtained 76 board seats. These
board seats were largely obtained through settlements and not by shareholder vote. 11.7 Company Prevention and Response to Activist Shareholders Companies can take proactive steps to minimise the risk of shareholder activism. The most important – and obvious – step, is, of course, increasing the company’s stock price. Strong financial performance and shareholder returns are key to deterring activists. Specialist legal advisors can provide recommenda- tions on “best-in-class” improvements to governance practices and documents. Financial advisors can help boards assess activists’ typical financial theses, such as increased capital return and M&A options. Consistent responsiveness to shareholders can pre- vent a future campaign, where: • an effective investor relations programme can reveal investor priorities and sentiments in advance of an activist outreach; and • ongoing investor communications should address and rebut potential activist attack theses; this task becomes even more important if and when the company faces short-term turbulence. The board should engage in regular self-assessment to ensure effective composition and function, where: • in recent years, activists have increasingly attacked individual directors as part of an activist campaign, claiming that such directors do not add appropriate skills or experience to the board; and • boards engaging in meaningful refreshment are frequently in stronger positions against sharehold- ers agitating for change. After an activist approaches the company, the course of action depends on the particular context and cir- cumstances. In general, a company should take the following steps: • identify an internal working team to evaluate and manage engagement with the activist;
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