Investor Activism Dons Different Mantle

New form embraces concept of shared values between businesses and stakeholders of sustainability, diversity and inclusivity.

Activism used to be associated with corporate raids and leveraged buyouts, immortalised by Bryan Burrough and John Helyar’s expose on RJR Nabisco. Their article, “Barbarians at the Gate” showcased how investor activists, through the acquisition of a large stake in a business, used their voting rights to compel the board and management to undertake corporate actions to their own advantage.

Demands for better governance 

In this new age of stakeholder capitalism, investor activism has evolved to take on a more compassionate form, less of a greed-driven takeover. Demands for greater transparency and disclosure around business practices have increased calls for corporate accountability. 

Today, stakeholder activism has taken on the mantle of sustainability, diversity and inclusivity. The new form of activism embraces the concept of shared values between businesses 
and stakeholders within the ecosystem. Shareholders are not the only ones clamouring for change; society at large has pushed to get its voice heard through pressure on institutional investors.

The Black Lives Matter movement in the US forced into the open discussions on governance and leadership diversity beyond gender. And the economic disruption caused by the spread of Covid-19 has sparked many boardroom conversations across the globe on the welfare of lower- wage employees. Businesses now have real skin in the game. 

Amazon's treatment of its workers made headlines when it was alleged to have failed to adequately protect its employees and provide a safe working environment. This was exacerbated by the media storm that followed when further allegations emerged that the company had fired the whistleblowers who raised this concern. 

JPMorgan's lead independent director Lee Raymond (former CEO of ExxonMobil) was forced to step down from the board at the end of 2020 when climate activists and investors focused attention on JPMorgan's poor record of responding to climate change. The activist investors included big names such as New York City's pension fund.

Growing activism in Asia 

While activism in Asia is traditionally perceived to be more muted than in the mature Western markets, things may be changing. With the increase in the flow of funds into the region, there is growing momentum for change – in part led by institutional investors who have committed to the UN-supported Principles for Responsible Investment. They have set their sights on many family businesses and state-owned enterprises in Southeast Asia, which are now finding it more important than ever to respond to the emerging demands for stronger governance and ethical business practices. 

Top Glove, the Malaysia-based glove manufacturer, which has seen its share price rise on the back of Covid-fuelled demand for its products, was flagged by investment firm BlackRock as having not done enough “to manage risks including the health and safety of workers living in its dormitories”. To make the point that it held the board responsible, BlackRock subsequently voted against the re-election of six independent directors during Top Glove's 2021 Annual General Meeting. 

As businesses grapple with the economic fallout from the wake of the pandemic, boards need to recognise that stakeholder primacy has gained traction and gone mainstream. This has, in turn, helped activism become a constructive force for good. So, instead of dismissing the entire lot as troublemakers, there is value for boards to reflect on the issues raised by activists and understand their points of view. If they are legitimate, it only makes sense to engage them and work together to find solutions that address their concerns. 

Proactively preparing for activism is something boards can do to minimise unexpected attacks. In particular, now that environmental, social and governance (ESG) issues are firmly on the boardroom agenda, boards need to plan and prepare to engage activists who are likely to scrutinise the company's sustainability and other business practices. Beyond monitoring and reporting metrics, it may also be worthwhile to simulate the board and management's response to such reactions through scenario planning.

From barbarians to crusaders 

That said, activism need not be confined to actions as overt as boardroom coups or shareholder revolts. Simply participating in public consultations, or even stepping up and getting more involved in corporate governance associations (like the Singapore Institute of Directors) can be some of the more subtle ways to effect change. 

Already the power of influence can be seen in the boardroom with boards starting to become more diverse and inclusive, through the efforts of like-minded individuals who have organised themselves around the belief that there is value in diversity among directors. A case in point is Goldman Sachs CEO David Solomon, who, during an interview with CNBC in January 2020, stated that the bank would help companies go public only if they have at least one diverse board member. 

Activism today is less about being anti-establishment than about being pro-cause. What we are seeing is an awakened generation's desire to be more actively involved in defining what their world will look like. Perhaps in time, activists would be seen less like barbarians at the gate but rather as crusaders for better governance.

Alvin Chiang is a member of the Advocacy and Research Committee of the Singapore Institute of Directors.

_{This article was first published in the Boardroom Matters column by the Singapore Institute of Directors in The Business Times in May 2021}