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What will shareholder activism look like in the COVID-19 era?

Tobi Carter Richards  Tax & Accounting Senior Specialist Editor, Thomson Reuters

· 9 minute read

Tobi Carter Richards  Tax & Accounting Senior Specialist Editor, Thomson Reuters

· 9 minute read

Though companies undoubtedly have their hands full with trying to survive the COVID-19 pandemic, they should be mindful of whether they’re effectively navigating the crisis and whether their response plans position them for growth beyond the pandemic.

Shareholders will likely be asking these sorts of questions, and companies don’t want to become the target of shareholder activism.

The novel coronavirus (COVID-19) pandemic continues to cause destruction along its path, and the way that companies respond to this crisis could invite shareholder activism. It’s unquestionable that COVID-19 has companies scrambling to stay afloat as they make efforts to evaluate the impact on employees, customers, communities and business relationships and to mitigate costs. Still, their response plans will be under scrutiny, and any shortcomings may attract activists looking to hold companies accountable for missteps.

By the time the World Health Organization (WHO) declared COVID-19 a pandemic in March, many proxy statements had already been filed, and the subject of COVID-19 generally cropped up only in the context of annual meeting procedures, with some companies having moved to virtual-only meetings. Since then, however, COVID-19 has grown more and more severe, prompting shareholders to become more vocal.

For those of you thinking that you’ve dodged a bullet because the window of time for shareholders to submit proposals for your 2020 annual meeting has passed, remember that the window hasn’t necessarily passed for certain of your peers and others, particularly those without a calendar year-end, and that your corporate strategy may be influenced by activist campaigns elsewhere. Also keep in mind that shareholder activism isn’t just common in the months before your annual meeting when activists build up their interest in your company and submit notice of their proposals. Activists are also known to use post-annual-meeting methods to campaign for their cause, including communications with boards of directors and management, special meetings, written consents and social media campaigns. And finally, don’t lose sight of the fact that the 2021 proxy season is not far away and will likely be impacted by COVID-19.

Shareholder activism talking points amid and beyond the pandemic

Shareholder activism in the age of COVID-19 will likely lean towards pushing for better governance so that companies are positioned to weather the storm of the pandemic and any long-term effects. Some topics of discussion high on shareholders’ agendas will likely include (1) human capital management practices, (2) executive compensation, dividends and stock buybacks, (3) shareholder rights, and (4) board structure and effectiveness—all in line with the updated guidance that proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis recently issued in light of the pandemic.

1)   Human capital management

The COVID-19 pandemic has exposed several business vulnerabilities, a major one relating to the supply chain. We’ve seen this all too well in the form of business disruptions and delays brought about by working conditions that contribute to the spread of the virus. This really drives home the value of the workforce and the need for better human capital management (HCM), which is meant to address all aspects of managing the workforce, from employee recruitment, retention and talent development to employee engagement and corporate culture.

Shareholders are interested in how companies are prioritizing and managing their people, and they want to see a discussion in proxy statements around the board’s oversight role and human capital risks. Companies should keep these topics front and center in conversations with stakeholders and recognize the value of HCM expertise when recruiting board members. In fact, the SEC issued a proposal in August 2019 seeking to modernize corporate reporting by adding as a topic for disclosure human capital resources, including any human capital measures or objectives that management focuses on in overseeing the business.

PepsiCo, HP, Chevron, Target and The Home Depot are among companies engaging in that discussion, and we’re likely to see shareholders push for similar disclosures at companies where the discussion is lacking. For example, a shareholder proposal to be voted on at Brookfield Asset Management’s annual meeting on June 12, 2020 asks that the company assign oversight responsibility for HCM to a board committee and that the committee’s charter be amended to allow for the review and monitoring of the company’s HCM policies and strategies, as well as its health and safety policies, practices and disclosure in the context of emerging risks to the workforce (available on Thomson Reuters Checkpoint).

We’re also likely to see shareholders rally against company proposals that seem to fly in the face of HCM practices. For example, an activist shareholder urged Uber investors to vote against the company’s pay plan at the May 11, 2020 annual meeting since it includes a $100 million compensation package for the CEO, despite business taking a nosedive on account of the pandemic and the plan to lay off 3,700 workers. That same activist shareholder criticized McDonald’s for poor workplace protections in the throes of COVID-19, and urged investors at the May 21, 2020 annual meeting to vote against the chairman of the board and the chairman of the compensation committee for overseeing a $44 million payout to the former CEO, who was ousted last year after a relationship with a coworker was disclosed. Though the activist’s efforts were unsuccessful, we’re likely to see plenty of shareholder activism aimed at challenging companies on their HCM practices.

2)   Executive compensation, dividends and stock buybacks

You may have noticed CEOs and other executives across industries taking voluntary pay cuts in response to the pandemic (see my blog post titled The Coronavirus pandemic: Executive pay cuts a sign of the times). You may also be aware that companies accepting federal loans or guarantees under the March 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act) are bound by pay-cut and other restrictions on executive compensation, along with restrictions on stock buybacks and dividends (see my blog post titled Companies and auditors, what does CARES Act relief mean for you?).

With that said, we’re likely to see more shareholder concern around say-on-pay and capital management in these strained times, with activists frowning upon increases to companies’ executive compensation packages or companies’ failure to roll back already substantial packages, especially if done at the expense of employees, as was the case in the Uber and McDonald’s scenarios mentioned earlier. And dividends and stock buybacks, though considered routine capital management measures during normal times, are taboo nowadays and wouldn’t be well-received by activists, especially if accompanied by a reduction in the workforce.

3)   Shareholder rights

While most proxy contests focused on voting out directors and replacing them with an activist’s slate happen at the annual meeting, activists have been known to carry out these proxy contests even when the annual meeting window has closed by calling a special meeting or acting by written consent.

More than 300 S&P 500 companies allow shareholders to call a special meeting, with the most common stock ownership threshold set at 25%. The Home Depot, Bank of America and Ebay are among companies that have granted this right, and for each, the percentage of outstanding shares needed to call a special meeting is somewhere between 10 and 20%. Shareholder action by written consent isn’t as common among S&P 500 companies because many are hesitant to grant the right, partly because it’s thought to be undemocratic in that it disenfranchises minority shareholders. Cigna, Bank of New York Mellon and Sprint are some of the companies that have granted shareholders the right to act by written consent.

As both of these tactics are accountability measures that empower shareholders to take action in a timely manner without having to wait for the next annual meeting, we’re likely to see shareholder activism aim at expanding these rights so that shareholders have more avenues to hold companies’ feet to the fire during this pandemic-related turmoil. As an example, a shareholder proposal to be voted on at Ebay’s annual meeting on June 29, 2020 asks that the company adopt the right to act by written consent. And at Lowe’s annual meeting on May 29, 2020, both a shareholder proposal to reduce the stock ownership threshold for calling a special meeting from 25 to 10% and a company proposal to reduce that threshold to 15% were up for vote. Either way, pressure is on to expand upon the right.

4)   Board structure/effectiveness

The absence of age and gender diversity among company directors is risky, especially because men and people aged 65 and older are much more likely to succumb to COVID-19 or to become severely ill. And let’s not forget that directors generally sit on multiple boards. So one sick or deceased director at a company can have repercussions at that company, not to mention at the other companies where the director serves as a board member.

Shareholder activism will look to eliminate this sort of ripple effect. We’ll likely see more and more shareholder and company proposals calling for age and gender diversity and for directors to reduce their board seats.


Shareholder activism is alive and well these days and seems to be turning its attention to vulnerabilities in your operations that are exposed by COVID-19. You should form response teams to engage with shareholders or develop other governance practices that encourage a constructive discourse as opposed to a hostile one, always being mindful, of course, of Regulation FD (available on Thomson Reuters Checkpoint). Also, stay abreast of any further guidance issued by ISS and Glass Lewis regarding the current and upcoming proxy seasons. Doing so will help you to stay accountable.

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