The prevailing wisdom is that activist investors can drive corporate short-term behavior singlehandedly. The prevailing wisdom is wrong. At just 0.3% of total global equity assets under management (AUM) in 2018, activists depend on the support of long-term investors for their influence. Without clarity on long-term shareholders’ views, companies perceive short-term pressure coming from their investors and assume the activists speak for the entirety of the shareholder register.

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Having a strong investor/corporate dialogue well before an activist campaign arises is the way to encourage companies to proactively improve the drivers of long-term value creation—such as bolstering their governance, honing strategies for growth, and engaging with long-term investors. Strong long-term performance is the best way to limit opportunity for an activist campaign. Indeed, rather than being a spectator, long-term investors have a significant role to play alongside companies to counteract short-term activist behaviors. It is well within the power of these long-term investors to either amplify or dampen the short-term impact of activism, serving as essential players of the activism ‘game.’

In the activist game, long-term investors often determine the final score.