As noted in the Globe and Mail’s recent article, “In Canada’s boardrooms, activist investors are striking out” (subscription to the Globe and Mail required), Canadian listed public companies have continued to have success against activist investors. In fact, since January 1, 2015, Canadian listed issuers have a perfect record against “professional” activists in formal proxy contests, having won all six such contests to make changes to the board which were initiated by hedge funds or institutional investors. This success may be driven, at least in part, by issuers’ increased emphasis on advance preparation, including shareholder engagement. If issuers are more attuned to the views of their shareholders, it stands to reason that they will be in a better position to assess the likelihood of successfully defending against an activist in a formal proxy contest and pre-emptively settle those situations that they do not believe they can win. This explanation, while compelling, may be incomplete. With that in mind, I offer the following five observations based on a review of the public record of unsuccessful contests recently initiated by “professional” activists.

• Highly aggressive campaigns, in which an activist investor attempts to discredit management, have proven to be ineffective. For example, Meson Capital Partners focused its campaign against Aberdeen International Inc. on Aberdeen’s executive chairman. In particular the activists attempted to discredit the executive chairman by questioning his independence and claiming self-enrichment through alleged excessive compensation in their circular and subsequent news releases.
• Shareholders may be showing a preference for stability and a focus on the longer term interests of the issuer. In that regard, shareholders appear to be concerned about activists’ perceived focus on short-term measures, especially if the activist has only recently taken a position in the issuer. For example, Central Gold Trust’s strategy of basing its investment principles on long term, low risk, and low cost investments was at odds with the perceived interests and investment time horizon of Polar Securities Inc., a hedge fund investor, who initiated a contest against Central Gold in 2015. Compounding this issue was the fact that Polar Securities Inc. acquired a majority of their 5.7% interest in Central GoldTrust in the six months preceding its proxy contest.
• In the past year, shareholders have seemed unwilling to elect activist nominees that have limited public company experience. For example, LAIG Oil Investments’ nominees to the board of Crown Point Energy Inc. had limited experience as board members of public companies or prior industry experience.
• In the past year, outcomes have been strongly aligned with the recommendations of ISS and Glass Lewis & Co., suggesting that these recommendations have had significant influence in determining the outcome. In all cases but one in the last year, the successful issuer received a favourable recommendation from these proxy advisory firms.
• Issuers are showing an increasing willingness to proactively respond to shareholder concerns. For example, during the proxy contest launched against Taseko Mines Ltd., the activist, Raging River Capital LP, raised concerns about Taseko’s lack of director independence. Taseko’s management addressed this issue by adopting a shareholders voting policy that required shareholder approval in dealings with affiliated companies of the members of the board.

For the coming proxy season, it will be interesting to see if activists make adjustments and regain the upper hand, or if activists will continue to strike out.