Those acquainted with the musical show “Guys and Dolls” know that the key question on the lips of every wise-guy with a pair of shaved dice in his pocket is, “who’s got the action?”  Which leads us to a comment on those modern-day craps shooters, the activist shareholders.  But the activist shareholder landscape is changing….

First, activist funds have gotten far more interested in small-cap companies.  The problem there, for the companies, is that these are most unlikely to have a plan in place to deal with the activists; at least, so claims the National Association of Corporate Directors.  (Still, big fish attract big anglers:  Nelson Peltz’s Trian Fund just bought $2.5B of GE stock, though their exact agenda remains unclear.)

Another change is that we have come a long way from the corporate raiders of a generation ago (think Gordon Gecko).  Activists dig deeper, generally are more measured in tone, and try to improve performance by getting board seats and getting ideas adopted.

Bill McNabb of Vanguard (they run at last count $3.3B of other people’s investment funds) says he is approached continually by activists, seeking an ally.  They respond only to those whom they evaluate as having better track records.  But Vanguard itself has a history of modest activism, per McNabb; in 2014 his Funds sent 923 letters to companies commenting on Vanguard perceptions, 358 of which  suggested “governance structure changes.”

Governance advice from Vanguard: your board should have a shareholder relations committee to provide direct access to market perceptions; IR should support, not get in the way.  McNabb thinks that they have valuable data for the board.  Not clear why that data could not be conveyed to management as in the past, however, unless management itself is perceived as the problem….

Most counsel and governance experts like to concentrate communications with shareholders in very few hands to make sure the company’s message is consistently and accurately portrayed and to avoid violation of regulation FD (leakage of confidential information).  But the ground-rules are changing here, as shareholders seek more direct methods of peaceful input.