DealLawyers.com Blog

This Goodwin memo highlights how AI-related activism has quickly evolved from a focus on governance to a focus on how AI will impact company value.  As this excerpt explains, this pivot impacts not only what activists seek from companies, but how boards should respond:

A governance argument can be met with a proposed governance solution, for example, adding a director with relevant expertise, enhancing disclosure, or amending committee mandates. A valuation argument requires different types of analysis because it is a claim about what the business is worth and what the board should do to realize that value.

Two campaigns from the past year illustrate the point. In May, Findell Capital Management argued that the market had wrongly written off Figma, Inc. as an AI “laggard.” Three months later, Engine Capital told the board of EPAM Systems, Inc. that the market had priced the company as “a relative loser” amid fears of AI disruption and that the board should respond by either buying back stock aggressively or running a sale process.

Neither activist group was asking the board to improve its understanding of AI; each was claiming that the market had misjudged the company’s future and that the board should act on that view, whether through capital allocation, a clearer investor narrative, or a transaction.

The memo points out that this shift in emphasis by activists is sort of old wine in new bottles, because the solutions activists seek are straight from their traditional playbook – significant stock buybacks, strategic reviews and sales & spin-offs. It also offers advice to boards on how to prepare for this environment, including owning the narrative around the company’s AI initiatives and using engagement to understand investor sentiment about AI before an activist arrives.

– John Jenkins