January 01, 2020
Stephen Fraidin comments on the major trends set to shape the upcoming year of activist investing.
Excerpts from "Informal Settlements, ESG Issues To Permeate 2020 Activism," Law360, January 1, 2020:
The end of 2019 saw several large campaigns settle informally, with more of a handshake agreement rather than a formal settlement between the company and the activist investor. That is a trend that is expected to continue into the new year, although it will likely be reserved for larger, more amicable campaigns.
“We’re going to see more of that kind of situation in 2020 as we get as what I would describe a more sophisticated understanding of what the activists bring to the party,” said Stephen Fraidin, a Cadwalader Wickersham & Taft LLP partner.
“That’s not to say there won’t be situations that go to a proxy contest and it’s not to say that there won’t be situations with the usual onerous standstills. But I think we’re seeing now a third, significant way to approach these things and that is no standstill and adopt the idea that the activist provided,” Fraidin said.
ESG issues have grown in prominence over the last year or two, with activists like JANA Partners even raising funds dedicated to investing in such matters. And the topic has been flagged as an area of interest in recent letters to investors by the heads of major institutional investors.
But it has also started to reach outside the investing world. Sen. Elizabeth Warren, D-Mass., who is also vying to become the Democratic presidential nominee, has argued that companies should be considering ESG issues for the benefit of society. Last year, she even pushed legislation that would require U.S. corporations to obtain a federal charter that aims to introduce formal ESG standards.
“There has been a lot of talk in academia and some talk among practitioners and politicians and what I’m going to call public figures, including presidential candidates, about the purpose of public corporations and whether the purpose is merely to be profitable and whether its also to do good for society,” Fraidin said.
That commentary is likely to further the discussion of ESG issues among activists and boardrooms.
“I think that is going to have an impact on some of the things that activists do and the impact may be favorable. I think by and large the 2020 activists are sophisticated enough or recognize that issues aren’t as simplistic as they used to be,” Fraidin said.