From beekeepers to giant pension funds, activist shareholders are being silenced by the coronavirus
Since the COVID-19 outbreak, the world's biggest companies have been forced to cancel annual shareholder meetings, or take them virtual. That's silencing activist investors, big and small.
Christoph Koch didn’t get into activist investing to boost his stock portfolio. He did it for his honeybees.
In the spring of 2008, the German beekeeper nearly lost his livelihood when his bees started dying—at first in small numbers, then in big bunches. Up and down Germany’s Upper Rhine valley, honeybees perished by the millions. It became national news, triggering an investigation that pinned the likely cause of death on the pesticide clothianidin.
Even before the die-off, most beekeepers and farmers knew all about clothianidin, a bestselling insecticide developed by Bayer Crop Science, a division of the German agrochemical giant. It’s designed to keep crop-munching pests out of the cornfields. A growing body of scientific research, though, says the pesticide does real harm to pollinators like honeybees too. Clothianidin is the neonicotinoid family, so named because it’s chemically similar to nicotine, and some pollinators get hooked on it, studies show.
By the spring following the great bee die-off, Koch had become a Bayer shareholder and started protesting at annual shareholder meetings (AGMs, as they’re called) in Bonn. In subsequent years he got inside, where he addressed the board directly at the AGMs.
Each year Koch makes the strip to Bonn to confront the company that he says killed his bees.
In recent years, he’s escalated his broadsides against Bayer management. Last spring he took to the podium to criticize the company for its $63 billion merger with Monsanto, saying it’s neither good for Bayer’s bottom line nor for the health of Europe’s honeybees.
Beekeepers are a huge activist force in Europe. And for good reason. According to the European Commission, insect pollinators—in particular, the honeybee—are an economic marvel, contributing 22 billion euros in value to Europe’s agriculture sector. With so much on the line, Koch’s presentation at the Bayer AGM was eagerly awaited. When it was his turn to speak, he urged fellow shareholders to vote out the board. “Ladies and gentlemen,” he implored, “be brave and show the red card!”
He was hardly the only Bayer investor who was in a foul mood last year. Outside the AGM meeting hall, all manner of protesters showed up. There were other aggrieved beekeepers, teenage Fridays for Future climate activists, and shareholders disgruntled by the stock price. The Roundup weed-killer lawsuits were sinking the share price, and change was in the air. “It was the biggest protest I’ve ever seen. And I’ve been protesting there for years,” Koch told Fortune.
In the end, shareholders issued a rare vote of no confidence against Bayer CEO Walter Baumann, but he clung to his job.
Koch figured the 2020 meeting, scheduled for late April, would be the perfect time to pile on the pressure.
He never got that chance: This year, annual shareholder meetings are, by design, off-limits to shareholders.
Shareholder activism in the age of COVID
The coronavirus has effectively muzzled activist protests. Since the work-from-home revolution took hold, there’s nobody in those glass buildings to protest anyhow.
And, by order of social distancing rules, AGM meetings (those that haven’t been canceled) have nearly all gone virtual, presided over by a few company executives and their IT staff. In Germany, a last-minute federal law required companies to change the rules for AGMs.
Koch and his fellow Bayer activist shareholders weren’t completely muted. Bayer allowed shareholders to submit questions to the board in advance; 245 were read aloud at the AGM. But speechifying, a tradition at shareholder meetings, was nowhere to be found on the agenda.
“I know shareholders would have wanted their chance to speak” as in the past, said Tino Andresen, a Bayer spokesperson. “But we did answer all their questions. Two-hundred-forty-five is quite a big number.”
Dissatisfied with the new rules, Koch posted a trio of protest videos to YouTube. Combined, they have generated less than 500 views. He was hoping for a bigger bang.
“They did respond to my question,” he said, “but it’s not what I had in mind.”
Shareholder rights
Annual shareholder meetings are a vital date on the corporate calendar. In many parts of the world, for example, companies need to schedule a shareholder resolution to vote on keeping the board of directors intact, or any matters that involve shareholders’ stock ownership—from raising new capital to executing buybacks. “In Germany, without a shareholders’ resolution, there would be no dividend for the year. You also need a shareholder vote to authorize the management to repurchase treasury shares,” says Staffan Illert, a Düsseldorf-based partner at Linklaters.
In normal years, it’s convenient to hold such weighty votes at an AGM, when a quorum is present. AGMs are also a big deal because they give influential shareholder groups the occasion to press for change: to push, for example, for a greener business model, to promote gender and racial diversity on the executive team, or to advocate for a reshuffle of a less independent-minded board.
COVID-19 has largely silenced this kind of stakeholder activism, though. Companies are experimenting with more interactive Q&As, but when you’re trying to push for meaningful change, Zoom hardly cuts it.
“In order to allow for shareholders meetings to happen at all this year, substantial cuts in shareholder rights, including the right for information and the possibility to file counter-motions, needed to be made,” said Illert. “Hence, there is substantial criticism from shareholders and shareholder associations. I would be surprised if the kind of virtual arrangement that we’re seeing this year would become a standard for the future.”
Still, the effect has been a powerful one. According to Lazard, nearly all forms of activist investor campaigns have collapsed since the outbreak of the pandemic. “As corporate behavior and priorities change in this new market paradigm, so too will activists’ ability to publicly agitate for change,” Lazard wrote in its most recent activist investor report.
Some activists appear more willing to give companies a pass this year, but they’re still wary that some pandemic-era restrictions, matched with the zeal to take more big events on the corporate calendar virtual, could become a new standard.
Being there “does make a big difference”
In the U.S., which has a longstanding tradition of faith-based activist investors, Sister Nora Nash, director of corporate social responsibility for the Sisters of St. Francis in Philadelphia, says she’s making the best of the situation. “So far, so good” is how she describes her experiences with virtual AGMs. On the plus side: She’s been able to sign in and register her question at a battery of meetings, including sometimes multiple per day.
But she adds, “We would prefer not to have virtual meetings, because it does make a big difference.”
Nash is a steady presence at such meetings. She pushes companies on their labor practices, human rights records, and environmental standards. Being in the room brings an extra urgency, she finds. Nash typically mingles with board members before and afterward to get a “different perspective” from the company and other shareholders. Such interactions strengthen long-running relationships, she says. Most of that is lost in a virtual AGM.
Christopher Cox, associate director at Seventh Generation Interfaith Coalition for Responsible Investment in Milwaukee, sees a different danger in social-distancing activists out of the room. It has the effect of exacerbating the shareholder-management divide. Transparent, responsive companies will go out of their way to make the process fair, he says. The rest will take advantage of how a digital format can minimize even the most urgent calls to action.
“It would seem that a company that does not want to face its shareholders can find in a virtual meeting all the tools at their disposal to make sure a shareholder is not heard,” Cox says.
That’s especially troubling as labor concerns over mass furloughs and layoffs amid the pandemic mount, he says. But it’s also a reminder that corporate executives would do well to open their ears to new ideas and raising their standards—wherever they come from.
“Executives of corporations are wise if they allow for the voice of the shareholder,” he says. “They seem to think only really wealthy folk have good ideas.”
But small-time agitators-for-change and Wall Street heavyweights are on the same page in one key area: No companies will get a pass on good governance this year, or ever. “Companies can still demonstrate that they have effective leadership,” BlackRock‘s global head of investment stewardship said in March at the height of the pandemic. “In times of crisis that becomes more apparent, not less apparent.”
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