Ousting CEOs doesn’t guarantee activist returns

Buybacks and dividends generate stronger shareholder outcomes, study finds.

Board seats, CEO departures and strategic reviews are often viewed as hallmarks of successful activist campaigns, but new research from JPMorgan suggests they do not consistently generate superior, long-term shareholder returns.

Some campaigns that ousted CEOs or launched strategic reviews were actually linked to negative alpha over subsequent one- and two-year periods, according to a study from JPMorgan’s EMEA Sustainable Investing Research team.

Instead, campaigns focused on increasing shareholder distributions through dividend increases and share buybacks, among other methods, produced the strongest long-term performance outcomes.

JPMorgan also found that takeover activity tended to generate positive returns, although the bank cautioned that acquisition interest may not always be attributable to activist involvement alone.

Operationally focused activist campaigns often create significant disruption, including management distraction, drawn out strategic reviews, and organizational upheaval which can weigh on revenue growth and returns on invested capital.

Furthermore, less-established activists often secure superficial concessions, with companies reverting to old dividend policies within two years. Many management teams seek quick resolutions to an activist campaign, conceding on minor points without affecting deeper changes.

The study included a host of other findings, including that serial activists generate stronger returns than their more passive peers.

The findings suggest investors should focus less on whether an activist wins a board seat and more on whether a campaign results in durable changes to capital allocation.

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