A record number of proxy fights and shareholder proposals have been launched in the first five months of 2022, as per the Harvard Law School Forum on Corporate Governance. Shareholder activists submitted 928 proposals―the majority ESG related. Firms fending off 73 M&A and board seat fights included brand names such as McDonalds, Humana, Peloton and Nielsen. Most interestingly, a substantial portion (34%) of those launching proxy fights were first-time activists.
The second half of 2022 could make the first half look like the good old days for companies. When universal proxies go into effect this September, activism will likely accelerate by making it easy for dissident board candidates to appear on the ballot and receive votes. The rule does not require an activist to hold a minimum number of shares to nominate a board candidate but does require board nominations from companies and activists to appear on the same ballot.
Activists have provided a critical check on the board and pushed companies to address climate change, pay gap and board independence issues. The universal proxy card will necessitate greater coordination and cooperation between activists and companies on proposals and that’s beneficial. Informed shareholders are likely to become engaged shareholders capable of managing their financial future. Engaged shareholders are also more likely to vote, helping companies achieve quorum and develop a bond with the companies in their portfolio.
These trends also bring challenges. Companies can begin to address these by assessing whether they are a likely target. For example, if they are underperforming, have long-standing boards, little diversity and ESG issues, they are prime targets for activists. They should try to uncover emerging campaigns by tracking who’s listening to earnings calls and requesting materials. They can also leverage tools to identify activists on their share register and monitor their campaigns and areas of focus.
Retail investors can be a company’s best ally in a proxy fight―they vote with management 80% of the time, according to Harvard Law School Forum on Corporate Governance. Unfortunately, retail shareholder voting is low (30% of shares voted in 2021) and decreasing. Fortunately, companies can leverage a variety of strategies and technologies to engage retail investors and motivate them to vote.
For example, Mediant Engage™ is designed specifically to stimulate retail voting via text reminders, Alexa voting, call center voting and endeavor letters. While virtual meetings have been a success, voting on these platforms has been problematic in the past for beneficial shareholders. Our Digital Legal Proxy makes voting easy by enabling retail shareholders with a Mediant control number to vote on any platform.
Activism isn’t going away, and that’s a good thing. Retail investors can be a company’s best friend in a proxy fight or when faced with a shareholder’s proposal. But only if they change their approach and technology.
For more information about shareholder engagement, contact us.