The vast amount of activist shareholder spending is still centered on industries like energy, technology and consumer goods. And the money wrapped up in those campaigns more than doubled between 2016 and 2017, when campaign spending hit $62 billion, according to a report by Lazard, a Bermuda-based financial firm.
But in recent years, activists have ramped up their attention on investor-owned health systems, although these providers still make up a tiny sliver of overall spending. In 2017, 7% of campaign spending went toward healthcare, compared with 5% between 2014 and 2016.
And the vast majority of activist spending in healthcare is still directed at pharmaceuticals and medical specialties. Of the $4.2 billion activists spent last year, only about $200 million went to a category that includes hospitals, according to Lazard. But for the hospital companies being targeted, it's no small matter.
An emerging trend intensified at the beginning of 2017 when historically passive investors started to take activist stances, said Kern McPherson, senior director of North American research for San Francisco-based Glass Lewis, a major proxy consulting firm that provides research and voting advice on more than 7,000 companies for more than 1,200 investors worldwide.
McPherson characterized the shift as long-term investors taking a greater interest in being stewards of their investments. A prime example is investors putting heat on pharmaceutical companies that make opioids.
Indeed, the numbers show first-time activism is spreading. About 53% of activists that launched campaigns across all industries in 2014 were first-timers, compared with nearly 60% in 2016, according to a report by the Chicago-based financial data firm FactSet Research Systems.
Activist shareholders tend to target companies whose performance is lagging to the extent that investors start to fear their return on investment is threatened, putting struggling companies like Tenet and Community Health Systems on activist shareholders' radar.
"If their business starts suffering, that's when you really start to fall into the crosshairs of investors," McPherson said, "and they will start scrutinizing your corporate governance and your pay more heavily than they did before."
Hospitals for years have faced pressure stemming from things like slowing admissions growth, rising expenses and, in some cases, heavy debt loads.
The Affordable Care Act provided a temporary reprieve in uncompensated-care costs, but there's some indication that benefit is wearing off. The ACA's initial effects on hospitals were more pronounced than industry analysts had expected, said Michael Waterhouse, healthcare analyst for the investment research firm Morningstar.
Even though that bump is winding down, hospitals still benefit from the silver lining of relatively low inflation, he said.