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Reports that shareholder activism had died from COVID-19 appear greatly exaggerated, at least according to board seat campaigns tracked by Activist Insight Online.

To be sure, it’s quieter than in past years. Fifty-nine companies in the U.S. have faced activist demands for board representation this year as of April 27, the lowest number since the same period of 2013, and down from 87 in 2019.

“You don’t want to look like an asshole launching a proxy with the virus here,” one activist lawyer noted, asking not to be quoted by name. Mounting a campaign at a time when meetings with other shareholders are limited by lockdown orders, and annual meetings are largely being done online, is also discouraging new campaigns.

But of the actions that have been launched so far this year, a smaller percentage are being settled or withdrawn than in past years. In fact, as of April 28, 40 U.S. companies faced unresolved demands for board representation, a higher number than in three of the past six years, including 2019 when there were 36 outstanding demands at the same time of year.

Most of the ongoing action is among smaller companies, with 31 involving companies with market capitalizations of less than $500 million, though some may have been worth considerably more prior to COVID-19, a significant increase from the 24 comparable campaigns ongoing this time a year ago.

The number of ongoing cases involving larger companies fell from a year ago, possibly as a result of larger caps outperforming smaller rivals during the ongoing crisis. The likes of eBay and Twitter have managed to mollify activists, and the S&P 500 is down a little over 10% year to date, while the Russell 2000 is off around 20%.

Going all the way

At least at this early stage in the U.S., more demands for board representation are going to a vote, indicating a high level of conviction on the part of both activists and companies. As of April 28, five demands for board representation had been decided by a vote, the highest number since 2017. Only one such demand went to a vote during the same period of 2019. And another campaign, between Tegna and Standard General went to a vote Thursday, with the company retaining all its seats. So far, the outcomes of these votes have been split equally.

Starboard Value remains the most active. Jeff Smith’s fund has subjected five companies to demands for board representation so far this year. That’s a sharp slowdown from 10 companies at this point last year or eight in 2018, but not too far off the fund’s long-running average. Starboard has confirmed plans to run proxy contests at Mednax and GCP Applied Technologies, while Commvault and Merit Medical remain in its crosshairs.

Conviction

The reasons for continuing to fight in the midst of a pandemic vary.

In some cases, it’s the belief that target companies have deep-seated problems that need to be fixed now, irrespective of COVID-19 – a view that becomes more intractable when the demand is for a majority of the board. Starboard’s campaign to replace eight out of 10 directors at specialty chemical company GCP, despite management complaints that it will distract it from dealing with COVID-19, was validated earlier this week when the company’s largest shareholder, 40 North Management, declared its support for Starboard’s campaign. In a scathing letter, it said that the company’s inability to prosper even before the pandemic showed that management was “incapable of making sound strategic and tactical decisions.”

In other cases, COVID-19 has prompted activists to change long-standing recommendations on how target companies operate. Before COVID-19 crashed the stock market, Wynnefield Capital had been calling on business development company MVC Capital to liquidate assets and return capital to shareholders. But that idea may be off the table for now, Wynnefield’s chief investment officer Nelson Obus told Activist Insight Online in an interview. “The idea of liquidating the portfolio at this point makes no sense at all, we’d be faced with discount bids all along the way,” he said.

Instead, the activist, which has nominated three independent directors, wants MVC to refocus on reducing the discount to net asset value either through share buybacks (the stock is down almost 30% year-to-date), or through a merger with another business development company in order to achieve scale and reduce costs.

Experienced hands

Management teams may also have greater conviction – especially if they can rally shareholders, and proxy advisers, with a simple message that the pandemic requires experienced hands. At Tegna, activist Standard General indicated readiness to settle for just one seat, with the caveat that it be given to the fund’s managing director Soohyung Kim. But statements of support from other shareholders and proxy advisory recommendations decidedly in favor of the incumbent slate may have convinced management that it could win a vote, which it did.

Going forward, activists are sure to be watching how companies handle themselves amid the upheaval caused by COVID-19, returning to old names who have fallen behind, and taking new positions in promising targets in expectation that the economy will recover later in the year. As Third Point’s Daniel Loeb wrote in his first quarter letter to investors, “we will need to stay focused on opportunities sprouting on the other side of the valley.”