Activists' Pyrrhic victory on proxy voting rules
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Activist investors were strong supporters of the SEC's changes to the way shareholders elect corporate directors. Then, when they finally got their wish last proxy season, the proportion of seats they won steadily dropped.
Why it matters: The new system, known as the Universal Proxy Card, or UPC, turns out to have been much more management-friendly than anybody expected.
How it works: Up until August 2022, shareholders were given two choices in contested elections: Either vote for management's slate of directors, or vote for the activists' slate instead.
- Now, with the UPC, all nominees appear on a single ballot. Shareholders pick and choose which directors they want.
By the numbers: Most activist campaigns get settled or dropped before they get to a shareholder vote.
- But so far this year, when U.S. fights did go to a vote, activist board nominees won only 11% of the seats targeted. That's a huge fall from 2023 when that figure was 65% — a sign that the UPC system has turned out to hurt activists much more than management.
- Activists won a total of 74 board seats worldwide in the first half of the year when the vast majority of shareholder meetings are held. Nearly all of those seats were in the U.S.
- That's a 31% drop from the same period in 2022, before UPC was introduced.
Between the lines: The one-ballot system has put the focus more on the nominee and less on the campaign. Shareholders are simply picking the nominees they think are the most capable. This proxy season, they sided with management.
- The UPC system still makes directors nervous. The idea that a long-serving director's name appears near a younger, activist-backed nominee is scary even to respected board members.
The bottom line: A single ballot means the end of much of the gamesmanship and clever marketing tricks from the old multi-card method has gone away.
- The change represents the correct way to select a board, even if it gives certain sitting members heartburn — and doesn't seem to have helped activists at all.
