More Than the Sum of Its Parts: Board Members as Communicators in the Age of the Universal Proxy Card

By Eric Bonach and Jeremy Jacobs

In 2022, the landscape for shareholder activism was transformed by the SEC’s imposition of the Universal Proxy Card (UPC) on U.S. public companies. In a contested election, shareholders now vote among all the director nominees up for election on the same proxy card rather than choosing either the company card or the activist card. Some observers have speculated that because it reduces the expenses and difficulty of running a proxy campaign to unseat directors, UPC will fuel a huge surge in activism, especially by first time activists. Others expect the new regulations to have little effect on activism, with traditional activists still running the same kind of campaigns as in prior years. Early indications remain ambiguous.

One implication of UPC clear to all observers, and particularly to current board members, is that UPC makes it both possible and obligatory for activists seeking to elect anything less than a full slate to target sitting directors individually. As a result, where activist shareholders do emerge, an individual board member should expect direct attacks on their tenure, experience, business background and even personal life. Boards are (and should be) looking at themselves to identify opportunities for refreshment that might replace their most vulnerable directors whose qualifications might be most easily attacked before some activist does it for them.

An important and largely overlooked corollary is that boards need to become better at communicating about their directors, and that directors themselves need to become better communicators. Until now, companies have typically defended their directors as a whole Board, talking about how highly qualified, deeply experienced or diverse they are as a group. Individual qualifications have often been relegated to a skills matrix in the proxy and checkmarks in a PowerPoint chart. In the UPC era, this will no longer be sufficient.

Boards and board members should be thinking in peace time how they can proactively tell their individual story. Boards need to consider more modern, accessible ways to present member bios and individual qualifications. Simply updating the bios on the corporate website is not enough. One option is to produce videos of each individual board member describing what they bring to the Board, why they as an individual make the board more well-balanced, and what they look to accomplish during their tenure. If done effectively, these could humanize the directors, give investors a sense for how their Board members interact and engage with one another, and help make a case that the loss of this director would be bad for the company and bad for shareholders.

When facing a public campaign to unseat them, individual directors may also have to play a new role. Until now, once an activist campaign has developed into a proxy contest and both parties begin to actively solicit the votes of both their shareholders and the influential proxy advisory services, the Board’s most articulate and well-polished members would often represent both the Board as a whole and defend the directors up for re-election. Today, however, a new expectation is emerging that individual directors who have been targeted in a UPC proxy fight will also be expected to directly appear in meetings with the proxy advisory firms and with key shareholders.

This means that it’s not enough for directors to look around the boardroom and consider the business qualifications of each individual board member. Now they need to ask about each:

• Can this director represent the board well?
• Can they articulate our strategy confidently and coherently?
• Can they artfully describe their individual contribution to the board?
• Most importantly, when was the last time they actually did those things?

In this new milieu, all Board members should be trained in how to present the company’s message, answer difficult, personal and potentially uncomfortable questions, and articulate the counterpoints to an activist attack. While a Board should be greater than the sum of its parts, if those individual parts are not presented properly or effectively, the weak will drag down the whole.