The activist advantage: Why boards need a clearer story

Shareholder activism has dominated the news agenda for some time now, and many management teams across the UK are either in the middle of a battle for control or creating strategies to prepare for one. The narrative has been consistent, with discussions of performance, governance and capital allocation, but when an investor publicly challenges a company or its board, a new communications battle begins. 

Each side becomes tasked with explaining their strategy in the most persuasive way to shareholders, with the activist often having the advantage of being able to pick apart an existing, often long-term strategy that will take years to come to fruition. 

This issue has been particularly visible across the UK investment trust sector. Saba Capital’s now infamous campaign initially targeted seven investment trusts, arguing that poor performance against benchmarks and persistent discounts to net asset value justified significant changes, including replacing directors. All seven of those initial votes ultimately went against Saba, with efforts by the targeted trusts to mobilise retail shareholders contributing to the outcome. 

The significance from a communications perspective is not which side was ‘right’. It is that shareholders were presented with competing arguments about where value lay and how it could best be realised, and both sides needed to persuade them.

This is a challenge that has always existed for listed companies, albeit a little more subtly. Shareholders are always evaluating their holdings and are incredibly motivated to vote in the best interests of their investments. Regular engagement can help companies establish greater understanding of their strategy, capital allocation and long-term objectives, while giving boards insight into the concerns occupying shareholders. In a contested situation, those existing relationships and a track record of clear communication can become important assets.

But good communications cannot and should not prevent legitimate questions being asked. Activism may bring attention to genuine concerns around performance, valuation or governance. AJ Bell noted earlier this year that persistent discounts and patchy performance were contributing to activist pressure across the investment trust sector, with Saba Capital then holding stakes in 46 UK-listed investment trusts and other activists such as Metage Capital also emerging. 

Once a disagreement becomes public, the communications challenge changes considerably. An activist may be able to distil its argument into a remarkably simple proposition, “value is not being realised and change is required”. A board may have strong reasons for believing that its own strategy offers shareholders the better outcome, but this can be a much more complex argument to make and can often feel like disproving a negative, a famously difficult endeavour. 

This leads to an important principle: financial complexity does not reduce the need for simplicity; it increases it.

This is where financial communications, investor relations and crisis expertise intersect. The objective isn’t simply to rebut criticism, which only adds fuel to the fire. It is to establish a clear argument, gather the strongest evidence, build a network of advocates and communicate the company's position clearly. This communication also needs to be consistent across shareholders, analysts, journalists and other audiences, often whilst under significant scrutiny.

The investment trust campaigns also illustrate why understanding those audiences matters. Retail shareholder mobilisation played an important role in the first wave of votes against Saba, demonstrating that communications in a contested situation cannot necessarily be designed solely around the expectations of institutional investors. 

Ultimately, shareholder activism is about competing views of value and how it should be realised. But communicating those views clearly, credibly and to the right audiences can play a critical role in determining which argument wins support and gives trusts an opportunity to build a greater level of communication between themselves and their shareholders going forward.