Nov 19, 2021 - Economy

SEC changes the rules for activist investors

A bunch of swivel chairs with a red background

Illustration: Brendan Lynch/Axios

Public company shareholders no longer need to pick sides when an activist investor tries to assume board control, as either/or votes will look more like mix-and-match.

Driving the news: The SEC yesterday adopted a rule whereby shareholders voting by proxy can pick individual directors, rather than being required to vote for an entire slate of nominees. This will be done via the introduction of what the SEC calls "universal proxy cards."

  • Most outside shareholders vote via proxy.

Between the lines: This change will give investors more say and flexibility, in keeping with the SEC's ethos under Biden/Gensler (not surprisingly, this rule change was first floated under Obama). It also could make it easier for activists to gain a foothold in the boardroom, but possibly harder for them to assume board control.

  • The new rule also requires some additional disclosures and explanation on proxy cards, and a requirement that activists solicit shareholders representing at least two-thirds of the voting power (although that solicitation can simply be via passive postcard, so it's a pretty toothless guardrail).

Look ahead: Expect to see more activist campaigns, now that the bar has been lowered for them to acquire at least some boardroom influence.

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