Skip to main content
Marsh logo

Article

Navigating shareholder activism risk in Canada

This article explores the core demands of activist investors, the rise of proxy contests, litigation risks, and critical considerations for directors and officers (D&O) insurance.
Person's name and title

By Michael Hunziker , 

SVP, FINPRO National Claims Leader, Canada

04/29/2026 · 4 minute read

Shareholder activism has emerged as a significant force in corporate governance, reshaping how companies respond to investor demands and strategic challenges. Activist investors leverage their shareholder rights to push for changes they believe will unlock value, often targeting companies trading below their perceived breakup value. While activist funds typically lead these campaigns, the voting power of pension funds and other institutional investors often determines the ultimate outcome.

For companies and their boards, understanding shareholder activism’s dynamics — and preparing for its associated risks — is essential. This article explores the core demands of activist investors, the rise of proxy contests, litigation risks, and critical considerations for directors and officers (D&O) insurance.

What is shareholder activism?

Shareholder activism occurs when investors use their ownership rights to influence company strategy and operations. Activists generally focus on companies they believe are undervalued or mismanaged, aiming to drive changes that increase shareholder value.

Activist demands typically fall into four key areas:

Placeholder Image

Board seats or executive leadership changes

Activists often seek to replace or add directors to influence company direction.

Placeholder Image

Strategic transactions

This includes pushing for mergers, divestitures, or taking the company private.

Placeholder Image

Capital reallocation

Activists may advocate for share buybacks or asset sales to optimize capital structure.

Placeholder Image

Operational shifts or governance strategy changes

They may push for adopting or abandoning environmental and governance initiatives.

Proxy contests: When activism escalates

Sometimes, company management agrees that activist proposals could improve performance and adopt some changes. However, when management resists, activists may escalate to a proxy contest. This process involves soliciting shareholder votes to change board composition or corporate policies, effectively challenging incumbent management.

Proxy contests can be intense, costly, and increasingly common. In Canada, proxy contests surged in 2025, with 67 activist campaigns recorded. These contests require significant resources and strategic planning from both activists and companies.

Litigation risks during and after proxy contents

Proxy contents often trigger litigation risks at multiple stages, including:

  • During the contest: Lawsuits may allege improper manipulation of meeting procedures or misleading disclosures. Plaintiffs often seek injunctions or court orders to enforce compliance with proxy rules.
  • Post-contest: If activists succeed, resulting board turnover can lead to lawsuits against former directors. New boards may pursue claims to recover compensation paid to predecessors or costs related to defending the proxy contest.

These legal challenges can be protracted and expensive, underscoring the importance of proactive risk management.

Protecting your leaders and business: D&O insurance implications

Given the high stakes, companies must carefully review and optimize their D&O insurance programs before a proxy contest arises. Standard D&O policies typically do not cover the direct costs of defending proxy contests. However, coverage may be triggered if activists escalate to litigation, especially if the policy includes a broad definition of securities claims.

Key insurance considerations for individual protection include:

Insured vs. Insured (IVI) exclusion

This exclusion can bar coverage for claims brought by one insured party against another, such as post-contest litigation initiated by a new board against former directors. Negotiating a narrow IvI exclusion with no waiting period and a carve-back for defence costs is critical.

Side A difference in conditions (DIC) insurance

Side A DIC policies provide coverage for individual directors and officers when the company’s policy is limited by IvI exclusions or other gaps. This coverage is vital for protecting personal assets.

Run-off

 

If a proxy contest win is possible, securing run-off coverage protects outgoing directors from lawsuits initiated by the new board after they leave office.

Practical steps for companies and directors

Effective preparation and strategic engagement are essential for companies and directors to mitigate risks associated with shareholder activism.

The best time to assess and enhance D&O insurance is before an activist campaign begins. Once a proxy contest is underway, securing optimal coverage becomes difficult or impossible.

Work with experienced insurance brokers and legal counsel familiar with shareholder activism to tailor coverage to your company’s risk profile.

Understanding the perspectives of pension funds and other large shareholders can help anticipate activism and potentially avoid proxy contests.

Maintain compliance with proxy rules and uphold transparent communications to reduce litigation risk during contests.

Shareholder activism presents both challenges and opportunities. While activist investors can drive valuable change, proxy contests and related litigation pose significant risks to management and boards. Proactive risk management — including a thorough review of D&O insurance programs — is essential to safeguard corporate and individual interests. Companies should act early, before activism escalates, to secure the best protection and navigate this evolving landscape with confidence.

For more insights on managing shareholder activism risks and enhancing your D&O coverage, contact your Marsh representative.

Contact us

Related insights

Business person walks up escalator in city

Article

Risk outlook for digital assets in 2026

03/24/2026
Businesss meeting on steps of government building

Podcast

Risk in Context Podcast: Protecting leaders from escalating D&O risks

02/24/2026
Modern tower buildings or skyscrapers in financial district

Article

Navigating joint venture risk and outside directorship liability

02/19/2026
FINPRO

Article

Risk considerations for Canadian mining companies uplisting to US markets

11/12/2025
View more