Informal activist settlements gain ground but raise concerns

Informal settlements with shareholder activists are gaining traction as companies seek faster and less disruptive ways to resolve activist campaigns, research suggests.

Analysis from US law firm Skadden, Arps, Slate, Meagher & Flom suggests these arrangements can offer a practical alternative to formal agreements, particularly where both sides see potential alignment on strategy or governance.

Data from the recent proxy season suggests this preference for speed is becoming more pronounced across the US market. In its Proxy Season Review 2025, Diligent Market Intelligence said companies are increasingly wary of the costs and distractions of drawn-out proxy fights and are more willing to settle quickly with activists, often before campaigns become public.

‘The first half of 2025 showed that US activists are not just reacting to market conditions but actively shaping their strategies to capitalize on emerging opportunities,’ said Josh Black, editor in chief at Diligent Market Intelligence.

‘While many found advantageous settlement terms, others broke with tradition by going the whole way to a vote or pursued withhold campaigns. Notably, the proportion of seats secured through settlements reached a five-year high of 92 percent, with the average settlement time dropping to 16.5 days in the second quarter, demonstrating the effectiveness of their strategies.’

Diligent’s analysis also points to a faster cadence for resolving board seat campaigns amid market uncertainty. The average time to settle at US-based companies fell from 19 days in the first quarter of 2025 to 16.5 days in the second quarter, reinforcing the view that both companies and activists are prioritizing quick outcomes over prolonged, public confrontation.

Unlike formal settlements, informal arrangements are not restricted by binding contractual provisions such as standstill agreements or voting commitments. Instead, they tend to rely on a mix of public signaling, market expectations and reputational incentives.

A company can announce specific governance changes, such as board refreshment or a strategic review, while the activist indicates support by stepping back from escalation, for example by not nominating directors or pursuing a proxy contest.

One of the main advantages is efficiency. Informal settlements can be reached more quickly than negotiated legal agreements, which usually require extensive drafting, negotiation and disclosure. This can reduce advisory costs and limit disruption to management and board operations. It may also help avoid long public disputes that can create uncertainty for investors. In some cases, companies may see an informal approach as a way to retain greater control over messaging and timing.

However, the lack of enforceability is a key concern. Without contractual obligations, there is no formal way to prevent an activist from restarting a campaign if expectations aren’t met. As Skadden’s analysis notes, these arrangements depend heavily on trust and credibility. Boards need to assess whether the activist has a history of adhering to informal commitments and whether there is a genuine alignment of interests. Where an activist has a history of escalating campaigns or changing positions, an informal settlement may create more risk than stability.

There is also the challenge of ambiguity. Informal settlements are often less clearly defined than formal agreements, which can create differing interpretations of what has been agreed. For example, a company may believe it has addressed key concerns through governance changes, while the activist may view those steps as insufficient or only a starting point. This misalignment can resurface later, potentially under more contentious circumstances.

Boards also need to consider how informal settlements will be perceived by other shareholders. Institutional investors increasingly expect transparency and accountability in how companies respond to activist pressure. If an informal arrangement appears to grant a single shareholder greater influence without clear justification, it may raise governance concerns. At the same time, if the outcome reflects broadly supported changes, other investors may view the resolution positively regardless of its form.

Preparation remains a key factor in determining whether an informal settlement is viable. Companies that maintain regular engagement with shareholders, conduct ongoing board and strategy evaluations and anticipate potential activist critiques are better positioned to respond constructively.

Ultimately, informal settlements are becoming a standard feature of the activism playbook, not a niche alternative and the faster they are reached, the more discipline boards need to apply. When choosing an informal route, directors should insist on clarity around the company’s commitments, the activist’s expectations and the triggers that would reopen the dispute, and they should pressure-test whether reputational incentives are truly enough to keep both sides aligned. If that clarity and alignment can’t be achieved, a more formal agreement may be the more defensible governance outcome.