2023 Proxy Season Review: Evolving Activist Tactics and New Regulations Shaping Shareholder Activism
With 2023’s proxy season concluded, H/Advisors Abernathy’s shareholder activism, proxy insights and ESG advisory teams review a season that may have seemed more placid on the surface than expected, with a lower level of public activism than in recent years. Below the waterline, however, significant changes have been occurring that are likely to shape proxy engagement for years to come.
Increase in Settlements and Divestiture Demands as New Activists Target Boards
Amid the uncertainty brought by new Universal Proxy Card (UPC) regulations, the number of public activist campaigns in the United States fell this year, according to FactSet data, as much of this proxy season’s shareholder activism was conducted behind closed doors. More activist engagements settled early this proxy season and, continuing a trend seen in 2022’s proxy season, a significant number of public campaigns were conducted this year by emerging or occasional activists. These activists present a fresh challenge to boards because they can be more aggressive, hostile and unpredictable as they work to build their reputations and establish credibility.
M&A continues to be a central thesis of activist campaigns, though to-date in 2023 the focus has evolved toward increased activist demands for divestitures, break-ups and spinoffs. In this context, it is imperative that boards and management teams have an in-depth response plan prepared and tested in order to be best prepared for shareholder activism.
Year One of the Universal Proxy Card Brings Change to Boards
Those activists that have gone the distance appear to have enjoyed greater success in the first year under new UPC rules, winning at least one board seat in approximately 80% of proxy fights that went to a vote, up considerably from the recent average success rate of approximately 33%. The influence of proxy advisory firms ISS and Glass Lewis seems to have become even greater in the UPC era. In only one case did shareholders elect a director against the recommendation of ISS at a contested shareholder meeting this year.
Boards – and individual board members – are proactively undertaking refreshment initiatives. Under the UPC regime, investors and proxy advisors are applying greater scrutiny to individual director qualifications, skills and experience, forcing boards to evaluate their composition, ensure a better understanding of each director’s role and evolve from defending the board as a whole to defending each director as an individual. Directors must become better communicators about their individual story and the valuable contributions they make in the boardroom.
Significant Declines in Shareholder Support for ESG Proposals
While the number of shareholder proposals continues to set records, shareholder support for these proposals, particularly those relating to E&S measures, fell considerably during 2023’s proxy season. Major institutional investors have clearly stated they will not support overly prescriptive environmental and social shareholder proposals and the number of anti-ESG proposals submitted by shareholders has markedly increased.
How can companies and boards navigate this complicated picture?