Below you see the excerpts from the Harvard Business Review Journal’s article discussing ESG trend as a new opportunity for activists to change the boards. Read the text and answer the questions afterwards.

Shareholder Activism and ESG: What Comes Next, and How to Prepare (Liekefett, Gregory and Wood, May 2021)

The recent successes of shareholder activists against Big Oil in this proxy season are one of many signs of mounting and effective pressure from investors on public companies to enhance their performance and disclosures on environmental, social, and governance (ESG) criteria.

As ESG rises in prominence among investors, activist shareholders have at their fingertips new and potent themes from ESG’s repertoire of concepts and criteria to use in campaigns to change control and strategy at companies. By integrating criticisms of ESG failures into campaign narratives, activists may gain additional traction with institutional investors at the ballot box.

In addition to usual themes including calling for enhanced director independence, separation of the CEO and board chair roles, declassification of the board, and other measures to increase shareholder rights, activists may probably developed a new tool to influence the board.

Boards are being expected to focus on those aspects that only a board can perform, such as oversight of management, setting executive compensation, and supervision of auditing and internal controls, not still ready to defend itself from new challenges.

Successive editions of sustainability reports issued by companies over a course of several years will provide investors with an ability to compare ESG performance of individual companies over time and to compare companies’ performance. Over 90% of S&P 500 companies and 65% of Russell 1000 Index companies already produce a sustainability report. SEC has signaled that it will likely develop additional requirements for ESG-related disclosures of public companies.

While environmental and climate-related topics are currently the most likely among ESG topics to be integrated into activist campaigns, a further stage in ESG-themed activism is the incorporation of social- and social-justice-related concepts into activism strategies. Throughout 2020, leading institutional investors highlighted research showing that diversity in the boardroom and the workforce contributes positively to a company’s performance. Nasdaq Stock Market has proposed listing standards designed to increase board diversity.

Q1 Which tactic could you propose for a ESG activist in order to have successful influence on the board. Be detailed and argumentative in your explanations providing examples if necessary.

Q2 Is shareholder’s activism beneficial for minority shareholders? Explain your position listing advantages and disadvantages, provide examples if required.

Q3 What in your opinion the motivation of ESG activist shareholders, do they act as regular activists lobbying their own interest or have true desire to improve the boards? Be detailed and provide examples to prove your reasoning.