Is your supply chain ready for activist investors?

While the pandemic disrupted supply chains in myriad ways, it also disrupted the considerable momentum activist investors have garnered over the last decade. But, as supply chains get back on their feet, so too will activist investors. Amidst a spate of regulatory repeals and ongoing supply chain struggles, we will likely see a rebound in activist campaigns—especially those centered on supply chain reforms.

What is investor activism?
Investor activism refers to actions by stockholders aimed at bringing about material change in a company’s operations and outcomes. Investors buy shares in the company then launch a campaign to pressure management to make changes. Those changes can involve issues ranging from operations efficiency and asset utilization to sustainability performance and board composition. Ideally, the changes yield performance benefits and stock price gains, though some activist campaigns center more on advancing environmentalism or social issues.

Investor activism has become commonplace over the last decade. Activists launched campaigns against 896 companies in 2019. That number fell to 810 in 2020 and declined further in early 2021, but investor activism is poised to roar back in 2022. Its resurgence could be bad news for companies whose supply chains continue to underperform; they may soon find themselves in activist investors’ crosshairs.

Supply chains under fire
As supply chain disruptions took center stage in news cycles, supply chain issues also became a central theme in activist campaigns. Activist investors targeted semiconductor manufacturer Intel and logistics service provider Forward Air for their handling of supply chain disruptions. Supply chain issues were also at the heart of activist campaigns against footwear retailer Genesco, animal pharmaceutical firm Elanco and department store chains Macy’s and Kohl’s. Activist investors targeted Kohl’s twice in 2021—the first campaign criticized its inventory practices and the second demanded that it separate its underperforming e-commerce division from its brick-and-mortar operations.

Recent changes by the Securities and Exchange Commission (SEC) should embolden activist investors in 2022. The agency repealed three Trump-era legal bulletins in November, after a flurry of requests from Disney and Apple to avoid votes on investor proposals concerning possible human rights violations in their supply chains. The repeals make it easier for shareholders to force companies to entertain proposals on environmental, social and governance issues. Activist investors will likely target companies over a broader range of issues, some of which were ‘off limits’ in the previous regulatory regime, such as forced labor in the supply chain.

Good news for supply chain talent 
There is some potential good news here. The repeals may also make it easier for activists to gain seats on company boards. While some executives and board members will be ousted by activist investors, their loss should be a gain for supply chain experts. Board diversity is a central theme in activist campaigns and supply chain expertise is “a great opportunity for more diversity” of experience amidst recent disruptions.

As new cycles inform activist investors’ demands in 2022 and beyond, there is reason to anticipate great opportunities for proven supply chain talent.

About the authors:
Jessica Darby is an assistant professor in the department of supply chain management at the Harbert College of Business at Auburn University. She can be reached at [email protected].

Ron Gordon is the Communications Specialist in the Supply Chain Management Research Center at the Sam M. Walton College of Business at the University of Arkansas. He can be reached at [email protected].