Are Sri Lanka’s corporates ready to meet rising shareholder activism?

In 2023, cloud software giant Salesforce became the target of a historic, multi-front campaign led by a swarm of high-profile activist investors, including Elliott Investment Management, ValueAct Capital, Starboard Value, Third Point, and Inclusive Capital. They cited Salesforce’s slowing revenue growth, bloated cost structure, and history of expensive, dilutive acquisitions like Slack and Tableau as the raison d’être for their actions. They demanded an immediate pivot from aggressive expansion to operational efficiency, margin expansion, and disciplined capital allocation.

Faced with escalating pressure and the threat of costly public proxy contests, CEO Marc Benioff and Salesforce’s leadership responded with swift corporate transformations. Salesforce initiated sweeping workforce reductions, cutting 10% of its staff and downsizing its real estate footprint to dramatically curb operating expenses. To demonstrate stronger corporate governance, the company refreshed its Board of directors, appointed ValueAct CEO Mason Morfit to the Board, and disbanded its dedicated strategic M&A committee to restrict further buyout sprees. Furthermore, Salesforce launched aggressive share buyback programs and eventually paid out its first-ever quarterly dividend, funneling billions of dollars directly back to shareholders. The collaborative restructuring paid off rapidly as Salesforce reported surging operating margins and robust free cash flow, driving a sharp rally in its share price. Satisfied with the swift operational pivot and improved financial performance, firms like Elliott withdrew their proposed Board slates. For me, this event stands as a textbook example of how concentrated activist pressure can rapidly force a tech giant to transition from a growth-at-all-cost mindset into a high-margin, disciplined profit engine.

Now a mainstream

Shareholder activism is now a mainstream, year-round force reshaping global corporate governance. Activist campaigns are surging, targeting companies across all sectors and size categories. No brand or market cap is too large to remain insulated from aggressive investor scrutiny. Driven by a desire to unlock shareholder value, institutional funds and boutique activist investors are increasingly using strategic leverage to demand immediate operational, governance, and financial transformation. 

At its core, shareholder activism exists on a delicate balance of risks and rewards. On the positive side, proponents argue that activist investors function as vital external catalysts for underperforming companies. By targeting bloated cost structures, stagnant management, or poor capital allocation, activists have succeeded in revitalising stagnant operations. These campaigns often force long-overdue corporate restructurings, accelerate beneficial M&A deals, improve Board diversity, and demand stricter executive accountability, generating substantial short-to-medium-term returns for shareholders. Conversely, critics contend that activism often prioritises short-term stock performance over sustainable, long-term strategic growth. They argue that pushing for immediate cash payouts, aggressive cost cuts, dividend hikes, or rapid asset breakups guts essential R&D budgets and erodes long-term institutional stability. Furthermore, public proxy fights divert tremendous time, capital, and leadership energy away from core business operations.

At its core, shareholder activism exists on a delicate balance of risks and rewards. Shareholder activism is now a mainstream, year-round force reshaping global corporate governance. Activist campaigns are surging, targeting companies across all sectors and size categories. Shareholder activism in Sri Lanka remains in a nascent, evolving stage compared to western markets

To survive and thrive in this climate, corporate Boards must stop being reactive. Modern executives must perform rigorous “activist” audits on their own operational portfolios, proactively engage in open, ongoing dialogue with top shareholders, and articulate clear, long-term value-creation narratives. 

Shareholder activism in Sri Lanka remains in a nascent, evolving stage compared to western markets. While aggressive institutional proxy battles and activist hedge fund campaigns are rare on the Colombo Stock Exchange (CSE), investor activism is increasingly manifesting through legal protections, regulatory interventions, and organised minority shareholder pressure. Historically, corporate ownership in Sri Lanka has been concentrated within family-owned conglomerates and tightly controlled voting blocs, which have often limited the power of retail and institutional minority investors to influence executive decisions or Board compositions. However, statutory frameworks, primarily the Companies Act No. 7 of 2007 and Securities and Exchange Commission governance directives, have empowered shareholders with mechanisms such as derivative actions, minority buyout rights, and legal remedies against oppression or unfair practices. 

Activism in Sri Lanka 

Activism in Sri Lanka currently centres on minority protections during mergers, capital restructurings, and transparency issues. Recently, minority shareholders of Associated Motor Finance PLC (AMF) pushed for minority safeguards during the company’s mandatory amalgamation into L B Finance PLC. After the company offered Rs. 55 per share to buy out minority investors and delist from the Colombo Stock Exchange, dissenting shareholders rejected the cash consideration as inadequate. Exercising statutory rights under Section 93 of the Companies Act No. 7 of 2007, minority investors formally demanded that the Board purchase their shares at a fair and reasonable value. Despite these objections, LB Finance finalised the merger, resulting in AMF’s share cancellation and license revocation. 

In early 2024, Japan’s SG Holdings Global announced plans to delist its Sri Lankan logistics subsidiary, Expolanka Holdings PLC, offering a voluntary buyout to minority shareholders at Rs. 185 per share. Minority shareholders mounted strong opposition, alleging that the exit price significantly undervalued Expolanka given its substantial global asset base, past earnings performance, and long-term potential. Activist retail investors characterised the transaction as an opportunistic buyout that disadvantaged local minority owners. The grievance led minority investors to file legal actions in court seeking to halt or reassess the offer terms. Following Securities and Exchange Commission (SEC) approval and the conclusion of the voluntary exit offer, SG Holdings increased its shareholding to over 99.6%. Expolanka officially completed its delisting from the Colombo Stock Exchange in September 2024. 

The above events underscore how Sri Lankan minority investors are leveraging statutory buyout mechanics and regulatory appeals to demand price fairness and transparency during corporate restructurings.

A common misconception about shareholder activism is that it targets broken or fundamentally bad businesses

Additionally, minority investors in Sri Lankan corporates frequently utilise judicial remedies under minority protection statutes to challenge majority decisions perceived as prejudicial. Courts have routinely seen applications for derivative actions and injunctions blocking major transactions or related-party transfers executed without proper shareholder consent or independent valuations. Retail investor activism also regularly flares during Annual General Meetings or through formal petitions to the Securities and Exchange Commission. Shareholders actively challenge Board decisions regarding delayed dividend distributions, executive remuneration, and inadequate disclosures on related-party transactions. As CSE listing rules evolve and institutional standards rise, shareholder activism in Sri Lanka is steadily shifting from passive resistance toward structured corporate governance accountability. 

A quiet reckoning 

A quiet reckoning approaches Sri Lankan Boardrooms. The days of treating capital as a passive commodity and Board seats as comfortable sanctuaries are coming to an end. For decades, legacy conglomerates and entrenched management teams have shielded underperforming asset bases behind voting blocs and historical prestige. But as economic pressures intensify and institutional oversight sharpens, corporate Sri Lanka must look inward and confront a hard truth: complacency is no longer an option.

When a company consistently fails to sweat its real estate, optimise its Balance Sheet, or unlock the true potential of its operations, it invites corporate predators and the sharp scrutiny of shareholder activism. Investors are waking up, recognising that persistent value gaps are not inevitable market conditions, but the direct result of operational inertia and unexamined strategy. Boards can no longer hide behind vague promises of long-term vision while current capital lies stagnant. To survive this impending shift, Sri Lankan Boards must undergo a soul-searching transformation. They must perform ruthless self-audits, adopt the mindset of an activist against their own inefficiencies, and prioritise genuine value creation over comfortable precedent. The market is opening, and accountability is demanding its seat at the table.

A common misconception about shareholder activism is that it targets broken or fundamentally bad businesses. Activist investors rarely seek out failing enterprises with structurally flawed business models or terminal decline. Instead, they hunt for high-quality, fundamentally sound companies that are severely underperforming their underlying asset base. Activists target the “value gap”, i.e., the discrepancy between a company’s current equity valuation and its full potential value if its operations and balance sheet are optimised. A firm possessing iconic brands, valuable intellectual property, prime real estate, or market-leading cash flows becomes an ideal target when hindered by bloated corporate overhead, inefficient capital allocation, or risk-averse management. Bad companies offer little margin of safety. Their deficient performance reflects terminal industry tailwinds or weak competitive moats. Conversely, an asset-rich but operationally sluggish company presents a lucrative canvas.

 The days of treating capital as a passive commodity and board seats as comfortable sanctuaries are coming to an end. Sri Lankan boards must undergo a soul-searching transformation. They must perform ruthless self-audits, adopt the mindset of an activist against their own inefficiencies, and prioritise genuine value creation over comfortable precedent. The market is opening, and accountability is demanding its seat at the table

By acquiring a targeted stake, activists leverage structural balance sheet inefficiencies to demand divestitures, margin expansion, share buybacks, or strategic realignments. Activists do not arrive to perform medical resuscitation on dying corporations. They step in to unlock latent potential, serving as aggressive catalysts that force ‘lazy’ management to divest noncore assets, pursue carve-outs, and separate businesses they believe would be worth more on their own. As observed by McKinsey, the image of activism is not just about Board seats, buybacks, and proxy fights. Those issues remain relevant, but the activist agenda increasingly addresses operational and portfolio choices that influence performance and company value. Activists are signaling investor preferences for more-focused companies. They are pushing for CEO performance, Board composition, and management accountability, 

Be proactive 

In this light, there is a need for Sri Lanka’s corporates to be proactive in preparing for and managing the increasing involvement of activist shareholders. I suggest that Boards have a bi-annual agenda item to discuss governance, strategy, and operating issues which are likely to attract the attention of activists. Independent directors can be asked to think like activists and prepare a note for Board discussion. As observed by Peter Drucker; “The best way to predict the future is to create it.” Rather than treating activism as an unexpected crisis, forward-thinking directors can identify, up front, the key issues which are likely to create shareholder disappointment. By incorporating this review into the regular Board calendar, Boards can transform a reactive defense into a disciplined mechanism for continuous self-improvement and shareholder value creation.

Operationalising this bi-annual Board agenda requires a structured, three-step approach. The review begins with a comprehensive vulnerability assessment, where management and independent advisors evaluate the company strictly through an activist’s lens to identify weak points in performance, governance, or capital deployment. Next, the Board evaluates investor perception by reviewing feedback gathered from top institutional and major individual shareholders over the preceding six months. This step highlights any emerging gap between internal management expectations and external investor market views. Finally, the Board refreshes its activist response playbook, ensuring that communication protocols, media messaging, and advisory retainer agreements remain fully updated and ready for rapid execution.

During this bi-annual exercise, the Board must direct its focus toward five critical areas tailored to the Sri Lankan corporate landscape. The primary area of scrutiny is capital allocation. Activists frequently target companies holding excessive cash reserves or underutilised real estate earning sub-par yields. Boards must proactively justify these retained earnings against clear hurdle rates or return capital to shareholders through dividends and share buybacks. A second critical focus is the conglomerate discount that often impacts Sri Lankan diversified entities. Complex crossholdings and non-core business segments can obscure underlying asset value, making it necessary for directors to conduct regular sum-of-the-parts valuation analyses and evaluate potential divestment or unbundling strategies.

Governance and Board composition represent a third key area of focus. Long director tenures, smacking of comfort zones, or a perceived lack of true Board independence invite significant activist pressure. Sri Lankan listed entities must continuously align their Board structures with updated regulatory frameworks, enforcing director refresh cycles and establishing strong independent oversight. Fourth, executive compensation must be scrutinised to ensure executive incentives are explicitly tied to long-term return on equity and total shareholder return rather than simple volume growth. Lastly, strategic communication and disclosure require attention. Opacity in corporate strategy and lagging reporting standards create information vacuums that activists exploit, making transparent communication essential.

To survive and thrive in this climate, corporate boards must stop being reactive. Modern executives must perform rigorous “activist” audits on their own operational portfolios, proactively engage in open, ongoing dialogue with top shareholders, and articulate clear, long-term value-creation narratives

Concrete outcomes 

To translate these focus areas into concrete outcomes, each bi-annual meeting must generate specific action items. The Board should mandate benchmarking of total shareholder return and price-to-book performance against domestic and regional peers over multi-year horizons. Independent perception audits must be conducted prior to these meetings to catch early signs of shareholder discontent. Additionally, directors should periodically conduct brief tabletop simulation exercises to assess response readiness across legal, regulatory, and public relations channels. By rigorously examining these core areas twice a year, Sri Lankan Boards can effectively eliminate the vulnerabilities that attract activist attention while building enduring trust with their shareholder base.

Companies spend way too much time trying to win fights against activist shareholders and not enough time asking a simpler question: What if the activists are right? Investors do not back companies to protect existing management structures or legacy strategies. They invest to earn a return that exceeds “risk free” plus “risk premium.” When activists appear, the response should not be to circle the wagons. Companies must objectively assess the thesis, adopt the ideas that make economic sense, and address the real underlying issues. When activist proposals fall short, i.e., quick payouts at the expense of long-term health, leadership should not just push back defensively. They must present a better, more compelling path to sustainable growth. When external critiques reveal legitimate operational weaknesses or financial drag, Boards must respond with swift corrective action. Preemption and preparedness are key. Open minds and a willingness to review are musts. 

Activism is expanding everywhere. It is on the rise. The best strategic move any Board or CEO can make today is simple. Conduct ruthless critiques of your own business regularly and fix the flaws before someone else points them out for you. Confronting investor pressure is not an exercise in defending the status quo. It is an opportunity to prove that leadership possesses a sharper, more effective roadmap for growth. Corporate leaders in Sri Lanka can no longer afford passive governance. Survival and success depend on preemptive self-evaluation: uncovering internal vulnerabilities, fixing systemic inefficiencies early, and clearly communicating why the current strategy remains the absolute best vehicle for sustained economic returns. Be braver in describing the future. Spend less time describing the past through boring annual reports. Start thinking like activists before they think about you.

(The author is currently a Leadership Coach, Mentor and Consultant and boasts over 50 years of experience in very senior positions in the corporate world – local and overseas. ww.ronniepeiris.com)