How Boards Should Engage With Activist Shareholders

Board Effectiveness and Board Performance

March 2025

Activist shareholders are no longer fringe players on the global corporate stage. Their growing influence has made them a force that executives and boards can no longer ignore. For chairmen, CEOs and directors of large public companies, the question is not if they will encounter activist shareholders, but when and how.

Over the past decade, nearly 2,000 companies worldwide have been targeted by activist investors. By 2024, an additional 189 companies are expected to face similar campaigns – an indication of the continued momentum behind activism¹. While the volume of campaigns in the U.S. and Europe has remained steady, Asia has reached record highs, reflecting a broader globalization of shareholder activism. Activists are increasingly focusing on board composition, strategic and operational optimization, and governance issues. In fact, more than 68% of campaigns challenged at least one of these areas, creating new imperatives for boards to reassess their preparedness and response strategies².

However, the relationship between boards and activists need not be purely adversarial. Large institutional investors and proxy advisory firms now often support certain activist proposals when they are aligned with longer-term value creation and robust ESG standards. A well-prepared and proactive board can turn Activist Shareholder Engagement into a catalyst for deeper strategic insights, operational improvements, and increased shareholder value.

Understanding the Rise of Activist Shareholders

Activist shareholders have moved well beyond their former status as sporadic agitators. In today’s rapidly evolving business landscape—marked by heightened competition, disruptive technologies, and relentless pressure for shareholder returns—activism has flourished. While it once carried a predominantly confrontational tone, many activist engagements now adopt a more nuanced approach, often welcoming collaboration if company leadership demonstrates genuine willingness to address strategic or governance shortcomings.

Regulatory changes, such as expanded proxy access, have lowered the barriers to launching shareholder campaigns in major financial markets. Meanwhile, heightened public scrutiny—driven by media coverage and the growing influence of institutional investors—allows activists to gather support faster than ever. Public campaigns (where activists openly challenge a company’s strategy or leadership) and proxy fights (where shareholders vote on board seats or policy shifts) have become commonplace, especially when broader stakeholder concerns like governance reforms or ESG priorities are at stake³.

Today’s activist shareholders employ a wide range of sophisticated tactics:

Public campaigns via open letters and strategic use of social media.
Proxy fights for board seats or policy changes.
Wolf pack alliances with multiple institutional investors.
Behind-the-scenes engagements and settlement agreements.
Litigation and regulatory actions, often bolstered by data-driven white papers that shape market perception in real time.

Several distinct activist “profiles” dominate the current landscape:

Hedge fund activists (e.g., Elliott Management) focus on restructurings or M&A.
ESG- or impact-focused activists (e.g., Engine No. 1) champion issues like climate action, often backed by major institutional investors.
Short activists (e.g., Hindenburg Research, Muddy Waters) publish exposés on alleged financial misrepresentations, triggering rapid market and regulatory consequences.
Pension funds (e.g., CalPERS) seek governance improvements, generally behind closed doors.
Prominent individual investors (e.g., Carl Icahn, Chris Hohn) leverage personal reputations to build shareholder coalitions.
NGOs and advocacy groups acquire small stakes to push for policy or social reforms.
Hybrid activists blend classic financial goals with ESG or governance demands, appealing to both short-term and long-term investors.

Boards must recognize the breadth of actors and tactics at play. By understanding how activist engagements are evolving—and why—they can better anticipate pressures, craft proactive communication strategies, and sometimes transform activist inquiries into catalysts for positive organizational change.

Why It Matters for Boards

The expanding toolkit of activist shareholders underscores a profound shift in corporate accountability. Boards today face diverse and highly organized stakeholders who can galvanize change through both public pressure and private persuasion. Understanding these methods—and the variety of activists who might deploy them—enables Chairmen, CEOs, and Board Members to develop proactive strategies rather than merely react when a campaign surfaces. By recognizing potential vulnerabilities early, crafting clear communication plans, and cultivating constructive dialogue with key shareholders, leadership teams can mitigate disruptive conflicts and potentially transform activist pressures into opportunities for thoughtful strategic refinement and enhanced shareholder value⁴.

Setting the stage for engagement is the next logical step. Having clarified why activist shareholders emerge and what impact they can have, forward-thinking boards proactively assess vulnerabilities, refine their strategies, and establish robust communication and governance mechanisms well in advance—rather than waiting for a crisis to trigger a scramble.

Preparedness & Vulnerability Assessment
A key starting point for Activism Defense is recognizing that the ‘battle’ may begin quietly. Activist funds often monitor companies long before going public with concerns. Regular screenings of your organization’s capital structure, ESG ratings, and overall market perception serve as an early-warning system—highlighting areas where underperformance or governance gaps could attract activist attention.

Identify Potential Pressure Points: Conduct comprehensive reviews of financial performance, strategic direction, and governance policies. Is there a poorly integrated acquisition dragging down results? Has the board lagged in implementing diversity or sustainability targets? These vulnerabilities can quickly become rallying cries for activists
Stay Ahead in “Peacetime”: The best time to assess and address potential weaknesses is when external pressures are minimal. Make vulnerability assessments a routine part of board meetings or annual retreats—rather than waiting for a crisis to force a reactive approach.

Self-Assessment & War Gaming
Once potential vulnerabilities are identified, boards must address them directly. Self-assessment goes beyond ticking boxes; it involves a critical examination of everything from strategic alignment to board composition. This deeper review helps board members anticipate typical activist demands and refine their activism defense strategies and programs accordingly.

Knowing the Typical Activist Playbook: Familiarize yourself with common activist approaches—such as calls for board refreshment, demands for spin-offs, or pressure to overhaul ESG practices—and assess how your organization might be exposed.
War Gaming Simulations: Conduct scenario planning or “war gaming” exercises to test how your leadership team would respond under activist pressure. These simulations often uncover blind spots and communication gaps that can be resolved before real-world challenges emerge.

Continuous Strategy Updates
A static strategy is an easy target. Forward-looking boards regularly update their strategic roadmap—integrating not just financial metrics but also innovation, digital transformation, and ESG considerations. By demonstrating agility and a willingness to improve, leadership teams can reduce the allure of an activist campaign.

Shareholder & Stakeholder Analyses
Robust shareholder engagement allows companies to address concerns early, demonstrate accountability to all investors, and foster sustainable shareholder relations.

Map Your Shareholder Base: Review the shareholder register to identify potential activists or like-minded funds that could join an activist campaign.
Engage Key Stakeholders Early: Proactive Shareholder Engagement involves meeting with institutional investors, proxy advisors, and potential allies—explaining the company’s strategy, addressing concerns, and building goodwill. Consistent dialogue can defuse tensions long before activists seize the narrative.

The ESG Factor
ESG is no longer a peripheral issue. For a growing number of investors, it is a central consideration in evaluating long-term viability and ethical governance. Boards that fail to address climate impact, social responsibilities, or transparent governance structures may find themselves an easy target for activist funds aiming to enforce ESG changes.

Communication Plan & Role Allocation
When activist pressures mount, clarity in messaging and responsibility is critical. Develop a detailed communication playbook that spells out who speaks when, and on what topics. The Chair might handle high-level strategic queries, while the CFO addresses financial specifics. By establishing these roles in advance, companies avoid confused or contradictory statements that feed activist narratives.
By developing a structured Activist Shareholder Engagement strategy, boards can mitigate disruptive conflicts

External Advisors: A Board Advisor Is a Key Strategic Role
High-stakes activist campaigns often demand a multidisciplinary advisory team. Legal counsel navigates the regulatory landscape, ensures compliance, and shapes defense strategies, while financial advisors provide objective valuations, capital structure insights, and M&A perspectives. In parallel, communications specialists craft the messaging that resonates with investors, the media, and employees—critical for maintaining credibility in the public eye.
Yet one of the most pivotal roles in any robust Activism Defense plan belongs to a dedicated Board Advisor. Unlike general consultants who may focus on transactional or tactical matters, a Board Advisor specializes in the nuanced dynamics of board decision-making under activist pressure. Drawing on extensive experience in governance and crisis scenarios, they anticipate board-level concerns, guide the Chair, CEO, and directors toward unified positions on contentious issues, and help prevent public discord or erratic messaging. Just as importantly, their neutral perspective bridges internal communication gaps, ensuring that urgent discussions happen in a timely, organized manner.

Beyond these core responsibilities, an effective Board Advisor also:

Coordinates other external advisors—in close collaboration with the Chief of Staff—to ensure each discipline’s expertise is effectively deployed.
Maintains an overview of long-term strategy and vision, aligning them with short-term actions to keep the company on track for sustainable growth.
Implements board-related changes stemming from activist campaigns (e.g., board refreshment, evaluations, compensation adjustments) and oversees major transformations or M&A initiatives with a deep understanding of the board’s role in these events.

Over the longer term, a seasoned Board Advisor also helps foster shareholder relations management and refine governance frameworks so that transparency, accountability, and robust oversight become hallmarks of the organization. In doing so, boards address immediate threats more effectively while emerging stronger and more resilient in the face of future challenges.

Preparedness isn’t a one-off exercise—it’s an ongoing process. Work with your trusted Board Advisor for continuous monitoring. Schedule quarterly or biannual reviews to revisit vulnerability assessments and update action plans. Make strategy retreats an annual priority, focusing on both short-term performance and longer-term transformation. Over time, this integrated monitoring approach helps boards detect emerging pressures, adapt proactively, and maintain credibility with key stakeholders.

Best Practices in Activist Shareholder Engagement

Engaging proactively with activist shareholders can turn potential conflict into a path for strategic improvement. Rather than viewing activists solely as adversaries, leading boards treat them as critical stakeholders whose insights may unlock additional value. The following best practices reflect a cooperative approach—one that integrates short-term demands with long-term corporate goals.

1. Listen First, Don’t Stonewall
Early engagement shapes an activist’s perception of your board’s openness. Rather than dismiss concerns, boards should actively listen, clarify misunderstandings, and acknowledge valid points. We at RefineValue recommend a serious Activist Shareholder Engagement dialogue from the outset to prevent adversarial escalation and set the stage for constructive collaboration.

2. Foster Transparency and Trust
Transparent communication about company strategy, risks, and challenges greatly reduces suspicion. Establishing credibility through regular updates and candid discussions of performance gaps makes it harder for activists to claim management is unresponsive or secretive. By sharing pertinent data (under appropriate confidentiality), you can address activist concerns directly and underscore your commitment to long-term value creation.

3. Align on Common Goals
Activists generally seek to enhance shareholder returns—an aim the board shares. Identifying mutually beneficial outcomes often helps bridge differences. Aligning on core objectives, such as improving capital allocation or accelerating strategic initiatives, can transform activists from external critics into allies for sustainable growth.

4. Negotiate Board Representation
Granting board seats can defuse tension and incorporate fresh perspectives. Yet boards should ensure nominees respect fiduciary duties and uphold governance standards. Settlement agreements typically feature a “standstill” period that prevents further agitation and clarifies how activist-backed directors will collaborate with the broader board—ensuring stability even as new voices join the decision-making process.

5. Crisis Management (Situation Room)
When activism escalates into a proxy fight or public campaign, a “situation room” approach helps maintain control. Assemble a dedicated team (core executives, legal counsel, IR, and external advisors) to coordinate rapid responses. Consistent messaging and streamlined decision-making are vital for protecting corporate reputation and shareholder confidence, especially under media scrutiny.

6. A Structured Negotiation Process
Engagement often culminates in a formal settlement. We at RefineValue recommend a clear roadmap:

Understand the Demands: Clarify the activist’s proposals and underlying rationale.
Gather and Share Data: Provide relevant details (under NDA if needed) to validate or refute claims.
Find Common Ground: Prioritize achievable reforms that preserve long-term strategy.
Finalize Terms: Outline board representation, strategic commitments, and standstill clauses in a written agreement.
Monitor and Follow Through: Track milestones to ensure commitments deliver tangible results and maintain stakeholder trust.

Building a Resilient Governance Framework

A robust governance framework does more than fend off activist pressures—it propels companies toward long-term success. By focusing on diverse board composition, proactive stakeholder engagement, and continuous monitoring, large publicly listed companies can fortify their strategic direction and credibility in the eyes of investors.

1. Diversity & Competence-Oriented Board Composition
A diverse, skills-based board instills confidence among shareholders and other stakeholders. Research suggests boards that integrate expertise in technology, digital strategy, and ESG are better positioned to manage change and demonstrate modern governance practices. Diversity itself can serve as a protective measure, reducing activists’ ability to claim the board lacks fresh perspectives or relevant capabilities. Independence and conflict-free oversight are equally important—directors should be free of narrow, management-driven affiliations, mitigating one of activists’ common criticisms.

2. Regular Board Refreshment & Evaluation
Proactive succession planning and periodic board refreshment counter the narrative that a board is stagnant or insulated. By consistently rotating directors and closing competency gaps, companies address potential criticisms long before activists call for a shake-up. Formal board evaluations—backed by a structured skill matrix—spotlight missing expertise and ensure the board evolves in step with market demands. This readiness to adapt shows stakeholders the board is committed to continuous improvement, not merely preserving the status quo.

3. Proactive Stakeholder Engagement
Beyond major shareholders, comprehensive Shareholder Relations also means understanding employee concerns, local communities, and NGOs. Maintaining open channels with employees, NGOs, local communities, and the media builds a stable “trust ecosystem” that not only protects corporate reputation, but also preserves long-term share value. By understanding these varied interests and preemptively addressing concerns, boards reduce the likelihood that activists can leverage third-party discontent—thus preventing disruptive campaigns before they gain momentum.

4. Continuous Monitoring & Analysis
From routine shareholder-register checks to deeper stakeholder sentiment tracking, continuous monitoring uncovers emerging issues before they escalate. Effective boards stay alert to changes in ownership composition, proxy advisor recommendations, or broader social sentiment. A well-articulated strategic plan—coupled with visible oversight—leaves fewer openings for activists seeking quick wins. By addressing potential friction points in real time, boards reinforce their commitment to sound governance and minimize the appeal of external intervention.

Key Takeaways

Prepare Early and Continuously
Why it matters: Activist funds often monitor companies well before they go public with demands. Regular risk assessments, “war gaming” exercises, and periodic strategy updates equip boards to spot potential vulnerabilities early. This proactive stance helps mitigate surprises and allows leadership to strengthen weak spots before activists exploit them.

Engage, Don’t Dismiss
Why it matters: Activist shareholders can evolve from adversaries into valuable contributors if approached with openness and transparency. The text emphasizes early, constructive dialogue, which builds trust, reduces antagonism, and may lead to shared goals—such as optimizing capital allocation or accelerating strategic initiatives. Through consistent Shareholder Engagement, boards can foster trust and credibility, reducing the likelihood of disruptive activism.

Embrace ESG and Stakeholder Perspectives
Why it matters: ESG is no longer optional. An inability—or unwillingness—to address sustainability, governance, or social issues can turn a board into an easy target. By proactively managing ESG risks and engaging diverse stakeholders (beyond just shareholders), boards reinforce corporate credibility, protect share value, and head off potential activist campaigns.

Refresh Board Composition and Skills
Why it matters: A board’s diversity and competence are powerful defenses against activist criticisms. Integrating expertise in areas like digital transformation or sustainability demonstrates proactive governance. Regular board refreshment, guided by structured evaluations, shows investors that the board is agile, forward-looking, and serious about continuous improvement.

Establish Clear Processes and Roles
Why it matters: In times of activist pressure—especially during proxy fights or settlement negotiations—clarity is paramount. Formal communication plans, role allocations (e.g., Chair vs. CFO), and external advisors (including a dedicated Board Advisor) can streamline decision-making, safeguard corporate reputation, and ensure that internal discussions remain unified. This preparation not only addresses imminent threats but also builds long-term resilience and credibility.