The expansion of corporate activism in the U.S. is placing new pressures on boards as they face demands not only from shareholders but also from employees, customers, and regulators to address a broad set of environmental, social, and governance (ESG) issues.

Companies are increasingly bolstering their social and climate-related disclosures even amid an anti-ESG backlash. In sectors that are more environmentally scrutinized, boards are recognizing the importance of transparency, using climate and social reporting to pre-empt potential criticism and align with stakeholder expectations​.

Corporate Activism and the Push for Transparency

Shareholder activism is far from new, but in recent years it has gained unprecedented momentum. Global shareholder movements, especially from regions like Asia and Europe, are also impacting U.S. companies, bringing an increasingly international dimension to corporate governance. For U.S. boards, this means preparing to address not only domestic but also international stakeholders who are vocal about ethics, sustainability, and transparent governance. U.S. boards that don’t proactively address these global concerns risk facing public criticism, declining stock performance, and even reputational damage.

Amid this climate, many companies are mindful of the political landscape. Between September 15 and October 31, the word “election” was mentioned one hundred times on earning calls of S&P 500 companies. The 2024 presidential election results could significantly impact ESG regulation in years to come. Some organizations are proceeding cautiously, waiting for clarity on whether stricter ESG standards will be enforced under future leadership. Others continue to enhance reporting to satisfy public demand for transparency regardless of potential political shifts.

Strategies for Boards Facing Activist Campaigns

The U.S. Securities and Exchange Commission’s universal proxy rule, which empowers shareholders to vote on individual board members, has opened the door to more targeted campaigns. As activists focus on holding specific board members accountable, boards can prepare for these changes by focusing on three strategic actions:

1. Proactive Stakeholder Communication: By fostering open dialogue about their ESG commitments, boards can establish credibility and lessen the impact of activist pressures. Many boards now regularly engage with shareholders on sustainability issues, providing updates on corporate values and governance frameworks that align with public values. Companies that address stakeholder concerns proactively often see fewer activist campaigns, thanks to the trust built through ongoing engagement.
2. Strengthening Transparency: Despite anti-ESG sentiment in certain circles, companies are increasingly expanding their disclosures. The percentage of S&P 500 companies disclosing workforce demographics, for instance, has risen significantly—from just 5.3% in 2019 to 82.6% by September 1 of this year, according to data from DiversIQ. Similarly, the proportion of large-cap U.S. companies providing environmental impact data has surged, with 85% reporting greenhouse gas emissions last year, up from 54% in 2019, based on insights from ESG advisor HIP Investor. Expanding ESG reporting not only helps boards align with regulatory expectations but also strengthens their position with stakeholders. Adopting accessible and detailed reporting on ESG topics enables boards to demonstrate accountability, a quality valued by both domestic and global stakeholders.
3. Adapted Board Composition to Meet Stakeholder Expectations: Recently, Southwest Airlines underwent board changes after a strong activist shareholder campaign, adding board members to align with stakeholder priorities and making changes to the executive team. It was the end of a month-long bitter feud in the boardroom.

Boards must stay vigilant of changing dynamics within the board and increased corporate activism to proactively guide the process of potential restructuring of leadership and/or board. With the universal proxy rule enabling activists to target specific board members, having directors with relevant expertise in areas like cybersecurity, diversity, and sustainability is critical.

Navigating the Evolving Activist Landscape

Corporate boards are under pressure to adapt to the changing landscape of corporate activism and rising demands for ESG responsibility. Boards that align with shareholder expectations, engage proactively with them, and adopt transparency as a core value will be better equipped to respond to activism effectively. In doing so, boards can not only avoid the pitfalls of activism but also position themselves as leaders in ethical governance.

As corporate governance continues to evolve, the boards that prioritize adaptability and accountability will lead their companies through a landscape shaped by both activist demands and stakeholder expectations.

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