The new universal proxy card (“UPC”) rules took effect in 2022, making the 2023 proxy season the first in which both company and dissident nominees were listed on the same ballot, allowing shareholders to choose among the different candidates in a contested election. Despite widespread speculation that the new rules could lead to a boom in activism campaigns, the actual impact has been mixed. Overall, activism levels remained elevated, despite the challenging macro-environment of the past year. However, fewer activist campaigns went all the way to a shareholder vote and more settlements were reached.
One reason for the decrease in proxy fights and the increase in formal settlements between corporates and activists was the uncertainty on both sides about how voting dynamics would play out under the new rules. More public companies may have capitulated earlier because they believed activists could win at least one seat in a proxy fight.
This theory is supported by a review of proxy fights that occurred in the 2023 season. According to FactSet data, since the UPC was adopted, shareholders have elected at least one activist nominee in 67% of proxy fights that went all the way to a vote, up from 40% in the 2022 season. This year, there were also more cases of activists winning exactly one seat at the vote, despite fewer campaigns going to a vote.
While the sample size is small, these trends suggest that the UPC is making it easier for activists to win at least one board seat at target companies, a trend we expect to continue in the 2024 season as the rules become more familiar to activists. To prepare for the potential increase in UPC activism, public company boards and management teams should continue to “be their own activist” by regularly and proactively refreshing the composition of their boards of directors to ensure an optimal mix of skillsets, experience and diversity, and by reviewing strategic and financial alternatives to preempt the most likely activist demands for change.
