The 2023 proxy season was marked by a number of notable developments in the activism landscape. After a downturn in shareholder activism throughout the COVID-19 pandemic, Canada experienced a resurgence in 2023 with a record number of activist campaigns. Activists used novel tactics enabled by recent legislative changes and garnered support from institutional investors to an extent not seen in recent years. In this post, we will take a closer look at these and other developments in the realm of shareholder activism, including industries frequently subject to activist campaigns, trends in ESG-related activism, and the impacts of amendments to the Canada Business Corporations Act (CBCA) in 2022.

Increase in shareholder activism campaigns

According to Kingsdale Advisors’ 2023 Proxy Season Review, Canadian companies were targeted by 69 shareholder activist campaigns in 2023, a 97% increase over 2022. Lagging post-pandemic recoveries and uncertainty in the M&A market were contributing factors for the increase in demands and dissent in board and transaction-related activist campaigns. While the materials sector, which includes mining, remained the subject of most activist campaigns (19 in 2022 to 20 in 2023), there was a significant uptick in instances of activism compared to 2022 in many industries including healthcare (6 to 12), financials (0 to 8), and real estate (1 to 5). In its review, Kingsdale cautioned that companies in every sector should be prepared to be the subject of activism, which may entail implementing or testing activist response plans.

The surge in activism campaigns coincided with activists garnering increasing support from institutional investors. Kingsdale’s Review found that in 2023, the top 100 global investment managers voted, at least partially, on the side of activists in Canada nearly 57% of the time, a significant increase from the 2019 to 2022 period where this statistic was less than 50%. This development demonstrates that institutional investors do not automatically support management and may be open to supporting activist agendas.

ESG-related activism

There has been a significant increase in support for ESG-related shareholder proposals as a tool to voice concerns related to ESG topics. According to Kingsdale’s Review, there were 52 ESG-related shareholder proposals opposed by management in 2023. While that was fewer than the number of such shareholder proposals in 2022, the average investor support for such proposals increased. Notably, support for social-related proposals increased from an average of 6.0% to 17.8%. This serves as a reminder for companies to continue placing emphasis on ESG-related initiatives and to continue monitoring the ESG landscape. For more information on what companies should be considering in the context of ESG in the 2024 proxy season, please see our other publications on the topic:

Effect of the 2022 CBCA amendment

On August 31, 2022, the CBCA was amended to allow shareholders to vote “for” or “against” each nominee director at an uncontested shareholder meeting (instead of “for” or “withhold”). If a director receives more votes “against” than “for”, they will not be elected to the board and must leave office within 90 days (or the day on which their successor is elected or appointed, whichever is earlier). This is in contrast to the former regime where there was no option to vote “against” a nominee director and only companies listed on the Toronto Stock Exchange were required to adopt a majority voting policy. Typically, under such a policy, if a director received less than a majority of votes, said director had to tender their resignation and the board was required to accept the resignation absent exceptional circumstances. In practice, the determination of whether exceptional circumstances warranted rejecting the resignation would ultimately fall to the board, which left open the possibility of directors remaining on the board without the support of a majority of shareholders. In contrast, an “against” campaign under the new CBCA rules provides a mechanism to oust directors from the board with more certainty; if the director receives less than a majority vote, then that director is not elected.

A critique that has been raised as a result of the CBCA amendments is that dissident shareholders may use an “against” campaign to target directors for removal at the last minute. Whereas a more conventional activist campaign for board change would typically require shareholders to give advance notice of director nominations pursuant to the issuer’s advance notice by-law, an “against” campaign may not trigger a notice requirement under such by-law, which could leave the CBCA issuer at risk of being unaware and unprepared to respond at its shareholder meeting.

Takeaway

Shareholder activism is evolving. The trends we saw in 2023 showcase the wide range of demands that shareholders make when launching activist agendas and the expanding arsenal of tools they have to engage in activism. Companies must adapt to an environment of increased activism, identify vulnerabilities and take preparatory measures to respond in the event that they become targets of activist campaigns.