The first full proxy season following the introduction of Rule 14a-19, which requires the use of universal proxy cards in contested director elections, passed more peacefully than many expected.
Shareholder activism was expected to increase from September 2022, when the new rule made it easier for dissident board candidates to appear on the ballot and receive votes. In fact, the 2023 proxy season saw no increase in the number of proxy contests compared with the previous year. Some evidence showed that universal proxy aided activists by making it easier to support at least some of their candidates, with the 2023 proxy season seeing more outcomes in which the activist won a partial slate.
With only 13 election contests in the 2023 season, it is too soon to say if universal proxy has tipped the scale in favor of activists. Nevertheless, issuers can expect continued pressure on matters such as climate change, pay gaps and board independence issues. According to EY, the landscape for proxy voting has become more complex and nuanced, with a higher number of ESG-related proposals receiving less support compared with proposals on director pay receiving higher support.
The universal proxy card necessitates 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.
More change is in store for the shareholder proposal process, as the Securities and Exchange Commission considers amendments to Rule 14a-8, which would make it more challenging for companies to exclude shareholder proposals, and a working group under the Financial Services Committee of the U.S. House of Representatives considers reforms to the proxy voting system for retail investors.
The best advice is to engage with retail investors outside proxy season to understand their views on the company’s strategy, performance, reporting, and governance. A more nuanced proxy environment means more shareholder engagement is needed to understand what drives investors. 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.
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