Shareholder activism: An emerging risk for D&O insurers

Last year was “a banner year” for shareholder activism, with at least 47 Canadian companies targetted by activists in 2023, “well in excess of even pre-pandemic levels of activity,” Davies law firm notes.

Directors’ and officers’ insurance underwriters will no doubt have an eye on this phenomenon going forward, as the D&O market in Canada shows signs of softening.

“We see little reason to expect this activity to abate in 2024,” Davies says in its Governance Insights 2024 report. “While scrambled macroeconomic indicators may have tempered the market for public M&A activity, continued uncertainty is unlikely to dissuade activists from taking on underperforming companies.”

Davies goes on to discuss the trend of activist “activist swarms,” of which Gildan Activewear, a Montreal-based clothing manufacturer, is cited as an example.

Lazard’s Capital Markets says there was a global expansion of the “swarming” phenomenon in 2023, “in which multiple activists — often with competing agendas — pursue the same target concurrently or in short succession.”

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In May 2024, Gildan Activewear’s entire board of directors resigned as well as its president and CEO. The outgoing board appointed Browning West directors to replace them, clearing the way for the return of former company CEO Glenn Chamandy.

After 10 years as CEO of Gildan, which was founded by his family, Chamandy was forced off Gildan’s board in December. His return to the board was backed by Los Angeles, California-based investment company Browning West.

The turnover of the Gildan board ended discussions about the sale of the company, as reported in the Montreal Gazette.

The emergence of activist swarms means “even shareholders who would not typically be viewed as having an activist posture are becoming more vocal,” Davies says.

For this reason, Davies warns companies to be proactively attuned to negative shareholder feedback.

“Public company boards should…proactively address criticism, given that negative feedback can be a harbinger of an upcoming activist campaign,” the law firm suggests.

Davies says company board members need to pay close attention to following the company’s process and rules for meetings that would address shareholders’ voting rights.

“The shareholder-friendly decision of the Ontario Superior Court in Sandpiper, which rejected a target board’s decision to substantially postpone a requisitioned shareholder meeting, may provide some hope to activists that the courts will provide a more sympathetic ear should they need to seek judicial recourse while pursuing a proxy campaign,” Davies cautions.

 

Feature image courtesy of iStock.com/akinbostanci