September 13, 2017

Activism: Changing the Face of Corporate Boards?

Unprecedented levels of shareholder activism in recent years have resulted in significant changes to the composition of many public company boards.  This recent IRRC study looked at the impact that activism has had on board demographics among S&P 1500 companies.  Here are some of the key findings:

– Activism drives down director ages. Dissident nominees & directors appointed via settlements were younger, on average, than board appointees in connection with shareholder activism.

– Dissident directors & board appointees were general younger than their counterparts across the broader S&P 1500 index.

– While dissident directors generally reflected a wider range of ages, insurgent investors & incumbent boards both favored individuals in their 50s when picking candidates – a preference that was shared by the broader S&P 1500 index.

– Activism does not promote gender diversity. Less than 10% of the directors of companies included in the study were women. The rate at which women were selected as dissident nominees or board appointees in contested situations increased over the course of the study, but it trailed the rate of increase among the S&P 1500.

– Activism does not promote racial or ethnic diversity. Less than 5% of directors at companies in the study were ethnically or racially diverse. This also trailed the broader S&P 1500 universe.

– Activism boosts boardroom independence. Directors at companies in the study were generally more independent than their counterparts at other S&P 1500 companies.  Dissident nominees and board appointees were likely to be more independent than directors appointed unilaterally by the board in response to activism.

The study also found that prior board experience wasn’t a prerequisite for dissident nominees – only about half were members of other boards. Interestingly, the study did find a number of overboarded “usual suspects” showing up repeatedly on dissident slates – raising questions about their independence from their activist sponsors. Financial professionals & corporate executives accounted for the bulk of board nominees or appointees in activist situations.

John Jenkins