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Universal proxy card could turbocharge activists

Illustration of a hand placing a ballot in a box surrounded by abstract shapes.

Illustration: Gabriella Turrisi/Axios

This year's proxy season may see more activist investors making noise, thanks to SEC rules that took effect Aug. 31.

Why it matters: The new rules make it easier to get dissident directors nominated and for activists to target individual directors — which means we could see a spike in campaigns.

What's happening: Shareholders can vote for dissident director nominees on a single universal proxy card — foregoing the old system in which dissident shareholders sent their slate of candidates through a separate, two-card system in a bid to wage a proxy contest.

What they're saying: “What universal ballot does is it reduces the cost to run a campaign and it increases the ability of a dissident director because they're coming on the management card,” says Juan Bonifacino, managing director of Stifel's shareholder advisory and activism practice.

  • The new rules allow investors to “fine-tune who they're picking and really target exactly who it is they want as representatives,” he says, rather than voting down a full slate.
  • “That ends up being helpful for activists as they run their campaigns."
  • A Stifel report on this year's proxy season named consumer among the most targeted sectors in 1H 2022, with "high activity in the leisure and consumer staples retail segments."

Of note: Bonifacino says that while this won’t profoundly impact big names like Elliott or Icahn, it will be a game changer for the “sometimes occasional activists."

  • These include portfolio managers not guided by an activist mandate that may have strong convictions about where they think the company needs to go.
  • The new rules will likely open issue-specific nominations, like environmental and social issues, he adds.

Yes and: “It also changes the power dynamics of activist campaigns,” Bonifacino says.

  • Typically campaigns are settled because companies don't want the cost and distraction of a public fight while activists don't want to incur excess costs.
  • But with an activist’s name on the company’s card, the company may be more willing to let it go to a vote, Bonifacino says — which could result in more contested elections.
  • On the flip side, this could lower the chances for an activist to win a controlling slate and exact complete change of control in a proxy contest.

Be smart: “Companies should be proactive about identifying the risks they have” from dissident shareholders, Bonifacino says.

  • They should be actively communicating with their shareholder base to make sure that their views are being heard, which better positions them "if an activist does come knocking,” he says.

The bottom line: Activist campaigns are ultimately a referendum on the board and management's plan for the company, Bonifacino says.

  • If we do see an increase in activist campaigns coming from the universal proxy, “this will become a more prominent feature in terms of making sure that the companies are prepared,” Bonifacino says.
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