Shareholder Activism: Protecting Energy Companies from the Growing Threat of Activist Investors
Over the past several years, energy-company shareholders have supported management teams and their massive capital expenditure programs in order to participate in the U.S. energy boom. Weak valuations and investment returns are now compelling investors to push back on spending, and demand sharp cost reductions, asset sales and lower executive compensation to make way for higher dividends and share buybacks.
This pushback — often culminating in the form of shareholder activism — is not likely to ease anytime soon, as oil and gas (O&G) companies continue to underperform the broader marketplace. To protect against future activism threats, more energy companies need to develop a proactive strategy during the “proxy offseason” to strengthen their relationships with key investors, proxy advisors and the often overlooked media.
The annual proxy-season battle between certain shareholders and corporations reached a tipping point in 2013, particularly in the energy industry. Since 2009, there has been a 78 percent increase in the number of companies facing shareholder proposals, and a 76 percent increase in the number of shareholder proposals making it onto the proxies of O&G corporations. The need for companies to have a well-thought-out engagement strategy to defend against potentially contentious proxy fights continues to grow.