Activist Battles Can Destroy Shareholder Value
Activist battles are extremely destructive to shareholder value. We were recently engaged at a late stage on a file where the company did not employ the playbook below. By the time we arrived, they had already spent more than $100 million on outside advisors, lawyers, and proxy solicitors. Once the dust settles, the toll in terms of absolute costs, careers, and physical/emotional impact will be even higher. Setting these costs aside, the distraction to management and the board of directors is even more damaging to shareholder value. The time spent managing an activist battle prevents companies from rigorously executing their long-term value creation strategy and day-to-day operations. Unfortunately, all the outside participants in these events are consciously or subconsciously steering management towards all out war. It’s up to management teams to find trusted advisors to be the steady hand at the wheel.
Why Fight the Inevitable?
The Harvard Law School Forum on Corporate Governance recently reported that in the first half of 2025, activists’ success rate at U.S. companies soared to about 70% of campaigns winning at least one board seat (up from ~53% the year prior). Boards are finding the middle ground with activists more often. Furthermore, these settlements do not typically oust management or the board of directors. Accommodating an activist does not spell doom – it can be the beginning of positive change.
The Activist Resolution Playbook for Management
The best outcome for shareholders is often a swift, constructive settlement that addresses the activist’s concerns. Without a debilitating public battle. Yet, reaching that outcome requires executives to take a step back from the emotional rollercoaster of an activist attack. This playbook for management outlines strategies to de-escalate conflict with activist investors and work towards a win-win resolution. It should be reviewed along with our article on How Shareholder Activist Campaigns Evolve. MCI’s Activist Resolution Services are guided by this playbook.
In summary, the playbook outlines key activities and orientations for each stage of an activist investor campaign:
- 1. Monitor Entry and Preemptive Engagement
- 2. Activist Inbound Engagement
- 3. Maintaining a Positive Orientation
- 4. Keep Emotions in Check – Don’t Take the Bait
- 5. Keep Service Providers in Check
- 6. After the Open Letter – Engage to Cool the Temperature
- 7. Address the Substance of Activist Concerns
- 8. Offer Reasonable Compromises (Board Seats, etc.)
- 9. Learn and Adapt Post-Settlement
At its core, this approach calls for management to park their ego and defensive posture. Management should engage with the activist as a potential partner rather than an enemy. Make good-faith efforts to improve the company’s performance. Real-world evidence shows that when management teams follow this resolution-oriented playbook, they can often avoid the heavy costs and distractions of a proxy fight – and sometimes emerge as a stronger company.
1. Monitor Entry and Preemptive Engagement
The best time to resolve a dispute with an activist investor is before a dispute begins. Activists typically take a visible position in the company before attempting to engage management and the board. And this typically happens before they issue an open letter to the markets. A strong shareholder ownership surveillance platform or program can alert management to the entry of an activist. In addition, annual or bi-annual shareholder surveys can detect irritants before they become the source of activism. Early identification and preemptive engagement is key. If you become aware of a frequent activist taking a position in your company, it warrants carefully planned outreach.
2. Activist Inbound Engagement
If an activist reaches out privately or indicates a willingness to talk, management should seize that opportunity. Engage proactively in private discussions with the activist to understand their perspective and objectives. In the past two proxy seasons, nearly two-thirds of activist settlement agreements were reached before the activist ever went public. That means many activists prefer to negotiate outcomes quietly with receptive companies without causing a public stir.
Engaging early can also help establish a rapport. Personal meetings or calls between the lead activist and the CEO/board chair can humanize both sides. Activists often complain that companies refuse to talk; by breaking that barrier, you increase trust. Even if initial talks don’t produce an immediate agreement, you may gain insight into what the activist truly wants (sometimes it’s just a single board seat or a strategic review – not necessarily the removal of the CEO ). With that knowledge, you can craft a potential settlement that addresses their core concerns, and may also open discussions to true value-creating opportunities.
3. Maintaining a Positive Orientation
Management’s orientation towards an activist investor should be one of genuine enthusiasm. Yes, we’re serious. Given enough information, education, and context, you can turn an activist into a highly qualified unpaid advisor that will provide invaluable advice. This is exactly what we have achieved for a number of our clients, using input from an activist to guide the articulation of growth, capital allocation, and value creation strategies that resonate with the market. By genuinely listening and integrating their points in good faith, an activist can help your team unlock shareholder value and improve share price performance.
So, if you’re a CEO and an activist comes knocking quietly, invite them in (figuratively speaking). Hear them out in good faith. Many activists are sophisticated investors with genuine insights – treating them as a hostile enemy from the get-go might squander an opportunity. This doesn’t mean capitulate to every demand, but do give their ideas serious consideration, and allow for educational comparative analysis of ideas. For instance, if the activist thinks costs can be cut or non-core divisions sold, have your team analyze those suggestions objectively.
4. Keep Emotions in Check – Don’t Take the Bait
Once an open letter is released by the activist, the first rule of activist engagement is managing one’s own emotional response. Grace under pressure is key. Activists commonly use inflammatory rhetoric to provoke a reaction from management that makes them appear entrenched. While the first instinct of management and/or the board who feel personally attacked may be to lash out or dismiss the activist, this is precisely the trap the activist investor wants you to fall into. A management team that appears to be entrenched or dismissive is easier to discredit in public and in back rooms with other shareholders.
Management must park their emotions and maintain professional calm. Don’t poke the bear by being drawn into a public dispute waged in the media. Tit-for-tat insults or defensiveness will only escalate the conflict. As one seasoned advisor put it, a proxy battle is high risk, low reward for incumbents – so why indulge in behaviors that further inflame tensions?
Always consider how management looks from the outside: other investors will be watching management’s demeanor closely. If the CEO appears thin-skinned or in denial about problems, it validates the activist’s critique. Conversely, if management responds with measured, thoughtful communication, it builds credibility. In short, don’t take the bait of incendiary attacks. Pause, breathe, and approach the activist’s claims as you would a tough critique from a consultant or a major shareholder (which, in fact, activists are). This mindset lays the groundwork for productive dialogue.
5. Keep Service Providers in Check
Management teams facing an activist often enlist an army of outside experts to mount a defense. These include law firms or banks specializing in activism defense, proxy solicitation firms to rally shareholder votes, and public relations or investor communications firms to shape the narrative. These service providers can each play a constructive role in addressing an activist. However, they also have their own incentives, and those incentives don’t always align with shareholders’ best interests. Management teams must ensure their service providers are not intentionally poking the bear to run up their fees.
The reality is this: The longer and more drawn-out the conflict, the more these advisors stand to earn in fees. Like divorce lawyers, these service providers profit from prolonged acrimony. Once engaged, these outside firms often advise a hardline response to create the conditions for a prolonged dispute. While reputable firms certainly aim to serve their client’s interests, there is an inherent conflict of interest: a quick settlement with the activist would end the battle (and the service provider’s fee stream), whereas a fierce fight could go through a lengthy (and lucrative) annual meeting campaign or even litigation.
It is up to management to keep their service providers in check and prevent them from torching potential off ramps from the dispute with inflammatory language. If your service providers are playing to your baser instincts, endorsing your natural defensive reactions, and encouraging the use of inflammatory language, it’s time to get them out of the room.
6. After the Open Letter – Engage to Cool the Temperature
Even once the activist has gone fully public and is campaigning in the open, it’s still not too late to reach a resolution. The management playbook here is to always keep the door open to negotiation. Do not let pride or anger prevent behind-the-scenes dialogue. Often, even as harsh words fly in the press, company representatives and the activist’s team will be talking privately to reach a compromise.
Continue To Engage All Shareholders
During this period, management should continue engaging all shareholders as well. It’s important to communicate the company’s side of the story to investors, while avoiding personal attacks on the activist. Focus on your strategy and the positive changes underway, rather than name-calling. Presenting the organization’s current value-creating strategy is key to the discussion, and allows for further dialogue and opportunities with current shareholders. This balanced approach can increase the activist’s incentive to settle. If they see management is winning over shareholder opinion by being reasonable, they might prefer to negotiate a partial win than risk a loss at the vote.
Be Willing to Listen and Adapt
Crucially, management must signal that it’s willing to listen and adapt. One study of recent proxy seasons noted that boards have been more inclined to settle “quickly” given the higher risks under new voting rules. Indeed, in 2024 the average span between a public board seat demand and a settlement plunged to just 34 days, half the prior year’s length. This shows that when management is pragmatic, resolutions can be reached in a month or so, whereas historically these fights have lasted on average 2–3 months (Activist campaigns can also be a grinding multi-year war of attrition). The sooner it’s resolved, the sooner management and the activist (now perhaps a board member) can get to work on improving the company together.
7. Address the Substance of Activist Concerns
Engagement must be paired with action on valid issues. Nothing will make an activist go away except actual improvement at the company or proof of management’s strategy creating value. Management should candidly assess which of the activist’s critiques have merit. Are expenses too high relative to peers? Is the capital allocation strategy (dividends, buybacks, acquisitions) suboptimal? Is the board lacking certain expertise or diversity? By acknowledging any areas of weakness and outlining steps to fix them, management silences the activist’s platform and demonstrates positive shareholder engagement.
The key is not to do the minimum out of spite, but to genuinely commit to improvements that shareholders (including the activist) will appreciate. In many cases, activists shine a spotlight on issues that other long-term investors quietly worry about. By constructively tackling those issues, management can win back confidence. It’s also wise to communicate these actions to all shareholders: for instance, in investor calls or letters, explain, “We’ve heard your feedback (including from [activist name]) and we are taking the following steps…”. This demonstrates responsiveness and deprives the activist of a continuing rallying cry.
8. Offer Reasonable Compromises (Board Seats, etc.)
Board Appointments
Reaching resolution often involves a compromise. One common settlement is to offer the activist one or two seats on the board (sometimes through adding new independent directors that both sides agree on, or allowing the activist to nominate someone). While boards can be hesitant to “let the fox into the henhouse,” the reality is that adding a mutually acceptable director is often far preferable to a full-blown proxy fight. Over 90% of board seats that activists obtained in recent years have come via such negotiated settlements rather than contentious elections, which shows how prevalent and effective this compromise is.
Management should work with its nominating/governance committee and even consult large shareholders to identify high-quality director candidates who could satisfy the activist’s desires while adding bona fide value to the board. Sometimes the activist has a specific nominee in mind; other times they might accept an independent expert (say, a retired industry CEO or finance expert) that both parties respect. Activists typically will not stay on the board forever, and will eventually request another outside director to replace them once they are satisfied with the direction being taken by leadership. It is also time-consuming for them to be present for all meetings, and will want to see action be taken in a timely manner.
Other Concessions
In addition to board representation, other possible concession areas include: forming a special committee to review strategic alternatives (if the activist wants a spin-off or sale considered), committing to certain financial targets or capital return plans, or leadership changes in some cases. The guiding principle is to give enough to demonstrate openness to change. As long as the compromise doesn’t fundamentally derail the company’s strategy, it can be worth it to achieve peace. And remember, a settlement is typically framed as “by mutual agreement” – it doesn’t require an admission of fault by management.
Tactical Considerations
Another tactical point: it’s often wise to settle before things get truly nasty. If you can quietly settle before a public proxy contest is even announced, you avoid the spotlight entirely. Even if the activist has gone public, settling early in the proxy season (well ahead of the shareholder meeting) saves months of dueling and allows everyone to refocus on running the business.
9. Learn and Adapt Post-Settlement
Finally, once a resolution is achieved – whether through a settlement or even if the activist campaign fails – management should take the lessons to heart. An activist emerges for a reason. Even if you fended them off or reached a truce, use this as an opportunity for introspection. For example, if you agreed to add directors or change certain policies, follow through diligently and give those measures a chance to bear fruit. Communicate progress to shareholders to rebuild confidence.
If the activist joins the board (either themselves or via a representative), embrace them and integrate them as you would any new director. The “us vs. them” dynamic should end with the settlement. Many activists on boards turn out to be constructive colleagues who push for change but also collaborate on solutions. Treating an activist director with mistrust or freezing them out would only sow dysfunction and invite further conflict. Instead, welcome the fresh perspective – after all, this person likely advocated changes that a significant portion of shareholders wanted.
Proactive Steps to Avoid Future Activist Investor Campaigns
Consider proactive steps to avoid future activist run-ins. This includes:
- Improved investor communication;
- More frequent strategy updates; and
- Regular engagement with top shareholders to gauge concerns.
Companies that build credibility and address issues proactively are less tempting targets. As the Harvard Law School Forum noted in its article Dealing with Activist Hedge Funds and Other Activist Investors, a well-prepared, well-run company that engages in thoughtful “crisis preparedness” and has clear strategic execution can “prevail against an activist” or deter one from emerging. The best defense is a strong offense – meaning strong performance and governance diminish the appeal for activists to intervene.
Beyond strong performance and governance, the most important factor in control of public companies looking to avoid future shareholder activism is the quality of their investor relations program and communications on company strategy and performance. Shareholder activism is the product of complacent investor relations that has failed to:
- Appropriately manage shareholder expectations;
- Provide investors with a clear path to value generation; or
- Articulate the company’s performance and value generation through the lens of ESG frameworks.
Companies that have been on the receiving end of an attack by a shareholder activist, and companies that do not have a robust capital markets program, should renew their commitment to strategic investor communications. Otherwise, they will wind up in the crosshairs of an activist investor in the future.
The Upside of Resolution
Reaching a settlement with an activist is often portrayed as a grudging compromise by management. But data suggests it’s usually the optimal outcome. Shareholders tend to benefit from the changes activists spur (studies have shown that on average, targeted companies see improved performance in subsequent years). Avoiding a lengthy proxy fight means management and the board can return focus to running the business sooner. The cost savings are huge: instead of spending millions on proxy battles, that money (and time) can be redirected to strategic initiatives or operational improvements.
Conclusion: Turning Activist Showdowns into Productive Outcomes
The activist resolution playbook for management centers on engagement, openness, and timely compromise. Management can steer the situation toward collaboration by avoiding the hostility trap. These traps are set by both activists (to provoke) and sometimes overzealous advisors (to prolong the fight). Think of an activist as a catalyst: potentially disruptive, yes, but also capable of sparking needed change. The board’s role is to channel that spark constructively.
North American companies in recent years have increasingly adopted this resolution mindset. As a result, activist campaigns have grown shorter, and more settlements are being achieved behind closed doors. The benefits are clear:
- Dramatically lower costs;
- Less distraction for leadership (with a lower emotional toll); and
- Often a bump in stock price as markets interpret a settlement as a sign of improvement ahead.
Executives should remember that they ultimately work for the shareholders. An activist is, at the end of the day, a shareholder too. By finding common ground, management can turn a potential war into a partnership, or at least a manageable truce.
Summary
In summary, when faced with activist pressure, resist the temptations of pride, ego, and entrenchment. Instead, lead by engaging, listening, and adapting. This is the surest way to protect and enhance value for all stakeholders, retaining current leadership and turning a challenging situation into an opportunity for renewal.
If you’re dealing with an activist, don’t automatically gravitate to an activist defense. Let MCI Capital Markets support your engagement and move both parties toward constructive dialogue, value-creation and Activist Resolution.