Canadian companies should prepare to face continued pressure from shareholder activists, says a new report from Toronto’s Kingsdale Shareholder Services.

The firm released a report today examining the 2014 proxy season, which examines various trends including elevated investor activism and heightened scrutiny of executive compensation in corporate Canada. It notes that shareholder activism continues to be robust in Canada, although the number of proxy fights in 2014 actually declined from 2013. The report suggests that the decrease reflects the fact that the easy targets have been used up; that strong capital markets are helping cover up companies’ weaknesses; and, that some firms have adopted defences pre-emptively to deter activists.

Moreover, the report says that there are more activist interventions taking place behind closed doors. The firm says that it has observed an increasing willingness to discuss settlements before anything becomes public. “With shareholder activists continuing to become more established, more sophisticated, and mastering new tactics more boards are appearing willing to talk,” says Kingsdale.

Nevertheless, the firm says that it expects activism to remain strong in Canada, particularly as U.S. activists look to Canada as a more appealing hunting ground than the U.S. market in certain respects, including what has been a more favourable regulatory environment, and a less crowded market for activists. “The U.S. market has been flooded with new activist hedge funds,” says the report, “many of whom will be elbowed out and spill over the border in search of spoils.”

Activists are also becoming increasingly influential, the report notes, “as they become viewed as an important potential collaborator for institutional investors and management who are more willing to engage”. It says this trend will likely continue to grow “as this generation of activist appointees on boards—who have witnessed firsthand the power and advantages of activism—have the opportunity to weigh in on more and more decisions.”

“This year shareholder activism continued at an elevated level with more companies thrown into a chaos that could have been avoided,” said Kingsdale CEO and founder, Wes Hall. With that in mind, the report calls on companies to prepare for the possibility of activist investor interest, and suggests they take a hard look at their own performance.

Additionally, the report notes that “gender diversity in the boardroom is set to become the next big governance issue;” as companies face increased pressure to increase the representation of women on their boards. And, it sees continued scrutiny on executive compensation, with companies increasingly using “say on pay” votes to engage with their shareholders; including the first “say on director pay” resolution.