Before the letter arrives: Why shareholder activism is a governance verdict
In brief
Shareholder activism is a governance test that increasingly determines whether strategic and transactional optionality is preserved or lost, not solely an in-the-moment crisis.
The uncomfortable truth for boards is this: activism is often a critique of the status quo. It may point to dissatisfaction with the company’s strategy or performance, or with how clearly both have been communicated to the market. This critique may already – and in many cases likely does – exist in parts of the shareholder base, but may not have surfaced in a crystallised, undistilled form until the activist broadcasts it privately or publicly. When there is that disconnect between what the board and management seem to understand and frustrations of the investor base, credible activists have space to step into the vacuum – not always as ideal stewards, but catalysts of change.
At the London M&A Forum, Freshfields Partner Julian Pritchard led a discussion that brought this tension into sharp focus. During a straw poll, almost everyone in the room agreed that activism can play a valuable role in the investor landscape. But, on a second straw poll, almost no one wanted to be leading a company on the receiving end of an activist campaign. That gap reflects lived experience. Activism is now an embedded feature of public markets – but it remains a potentially deeply destabilising event for boards and management teams because it demands significant time and resources, challenges authority and forces public discussions into areas of discomfort.
More than 50% of recent activist campaigns carry an M&A thesis, explicitly or implicitly: a sale, a breakup, a portfolio reshaping or a governance reset that makes a transaction possible. Activism is not about governance in the abstract and more about who controls the company’s strategic choices – and when.
Anticipating the approach
Boards often speak of being surprised when an activist investor comes knocking. In reality, the conditions for activism may be observable well before a position is disclosed: a valuation gap that persists, an equity story that no longer lands, a strategy explained defensively rather than directionally, or a shareholder base that has shifted towards holders with less patience for execution arcs. As Ben Grindley noted at the London M&A Forum, boards should rarely be genuinely surprised by an activist approach: the early warning signs are usually there in performance, valuation and shareholder relations, and there is often also a tactical sense in the market that someone is circling.
This is where governance and clear communication with the market, not surveillance, becomes critical. When boards receive filtered, incomplete or sanitised feedback on shareholder sentiment, the first time they confront the truth is often when an activist is publicly announcing it to the market.
The cornerstone of defence isn’t exotic. It’s a well understood long-term strategy and the ability to articulate it. If shareholders don’t understand where you’re driving or why, that creates the opportunity for an activist to gain a toehold of support.
Elizabeth Bieber, Partner and Head of shareholder engagement and activism defense
In other words, “we didn’t see this coming” is rarely just about market intelligence. It often reflects a combination of signals being missed or discounted, competing interpretations of shareholder sentiment, and how effectively those insights were surfaced and tested at board level.
Of course, activism can also emerge opportunistically, particularly in markets where valuation gaps or structural shifts create openings for intervention.
The first 48 hours
When the activist makes its approach, the initial message is often framed politely: “we are one of your largest shareholders; we would like to engage.” The initial tone is irrelevant, as it is rarely representative of what is to come.
The first 48 hours is the moment the board either demonstrates authority – internal alignment, strategic engagement, disciplined decision-making – or signals that it has not yet fully understood the challenge posed by the activist. Activists escalate when they detect complacency or premature dismissal, not necessarily when they detect disagreement. That is why the worst response is reflexive dismissal. Where there is any real seriousness to the approach, the board needs to engage with it honestly.
There are many companies where management knows and would be willing to tell the board, but the boardroom culture makes that harder. Creating a culture where that information can rise and be dealt with objectively is critically important.
Elizabeth Bieber, Partner and Head of shareholder engagement and activism defense
Boards need to quickly gain clarity on four issues.
- What is the activist's core thesis?
- Is it coherent?
- How will our shareholder base view this thesis versus our proposed strategic direction?
- Do we truly have the support of our most significant shareholders?
Knowing the answers to the above questions is critical to devising the right strategy for responding to the activist.
The activism spectrum: same label, radically different risk level
One reason boards struggle with activism is misclassification. “Activist” is treated as a single category. It is not. Activism spans fundamentally different investment hold time periods, sophistication levels and objectives.
Some activists are short-term and event-driven, comfortable with public confrontation and focused on transactions that can crystallise value quickly. Others take concentrated, unhedged positions and seek to influence companies over years, sometimes by joining boards. As Harlan Zimmerman, Senior Partner, Cevian Capital, noted, activism is a broad spectrum: at one end are funds looking for something that can be done quickly; at the other are investors willing to take significant stakes, avoid hedging or leverage and hold for years. A short-horizon activist compresses time and narrows choices. A long-horizon activist is more likely to focus on rewiring accountability and governance. Both are called activists. A company’s engagement strategy for each category should be entirely different.
This distinction matters because misreading the activist can result in boards responding with the wrong tools, which could increase the risk that the company aggravates the activist and encourages more hostile and public behaviour, or results in the board settling too quickly with an activist that did not pose a serious challenge.
For long-horizon activists in particular, the assessment of whether to run a campaign turns on three criteria Harlan identified:
- Fundamental value – is the stock currently underpriced?
- Value creation potential – how much value can be unlocked through activism (transactional or operational)?
- The influence dynamic – the likelihood of the activist being able to actually effect change, whether by influencing the board or garnering sufficient shareholder support.
The first two criteria are objective and easily verifiable; the third is more of an art than a science.
Why activists go public
The pivot from private engagement to public is often treated as inevitable. In reality, the majority of activist engagement takes place behind closed doors; the pivot to public happens when an activist is frustrated by a perceived lack of progress, and public pressure becomes the tool to change the influence dynamic.
For boards, the implication is not that public escalation must be avoided at all costs. It is that preserving strategic agency matters more than preserving privacy. Concessions may be appropriate. What matters is that they are made deliberately, coherently and on terms the board can defend as long-term value-enhancing.
Success: Measured in years, not headlines
The end of an activist situation is often framed as victory or defeat: did the activist go away, did the company “win” the vote, did management survive. Success, for a board, is not a binary; it is an outcome that the company can live with two, three and five years later.
Success hinges on reaching positive engagement where you avoid the battle if you can, weigh the trade-offs you’re willing to make and think critically about the long term. Even if you end up in a full-fledged fight, there will be an after – and the costs of that battle are significant.
Elizabeth Bieber, Partner and Head of shareholder engagement and activism defense
For activists, the definition of success exists along the same spectrum. For short-term, hedged, event-driven players, success can be detached from the company’s long-term health. For long-term, unhedged activists, value creation over time is the return.
This matters because it changes the board’s negotiating posture. With a short-term activist, the board should assume compressed time and a narrower menu of outcomes. With a long-term activist, the board should assume a greater focus on governance, trust and operational credibility.
What this means for boards and dealmakers
During the discussion, one particular message stood out. Activism rarely introduces new ideas. It more often exposes where there has been a failure to produce a clear, credible strategy backed by accountability.
That does not mean activists are always right, or that boards have failed. But it does mean that activism tends to crystallise questions the market is already asking – or is prepared to consider.
Three implications follow.
First, activism readiness is part of good governance, not a defence plan. Boards need high-quality intelligence on shareholder sentiment and a culture that allows uncomfortable information to surface early. If the first articulation of a sensible critique arrives via an activist letter, the board is already behind.
Second, activism is intertwined with the M&A thesis. Many campaigns are ultimately about forcing a change in strategic options – selling, breaking up, or revisiting the core strategy. Boards that treat activism only as a shareholder engagement issue, rather than acknowledging it can also be a deal-shaping risk, often find their range of options narrowing under pressure.
Third, the decisive moment comes earlier than most boards expect. Public campaigns may play out visibly, but outcomes are shaped by the quality of preparation: whether the board already understands the critique, has stress-tested its options and can explain – with evidence – that its current strategy deserves time.
The companies that manage activism best are not those that defeat it theatrically. They are those that respond with discipline – engaging seriously with the critique, evidencing their choices and sustaining shareholder confidence.
In this environment, activism readiness is no longer a defensive playbook but a standing governance capability. Boards that surface hard truths early preserve strategic agency; those that defer them often find their strategic flexibility eroding, particularly once the debate moves into the public domain.
