Summary of Activism in 2023 and a Preview of Activism in 2024

Andrew Freedman is Co-Managing Partner and Chair of Shareholder Activism Practice at Olshan Frome Wolosky LLP. This post was prepared for the Forum by Mr. Freedman. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism (discussed on the Forum here) by Lucian A. Bebchuk, Alon Brav, and Wei Jiang; Dancing with Activists (discussed on the Forum here) by Lucian A. Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch; and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System (discussed on the Forum here) by Leo E. Strine, Jr.

While shareholder activism in the U.S. was robust in 2023, we fell just short of a breakout year in terms of the number of activist engagements and other metrics. As expected, many activists, particularly would-be first-time activists, stood on the sidelines in order to get a sense of what a full year under the universal proxy card (“UPC”) rules would look like. Similarly, some activists were hesitant to jump into the fray until the Securities and Exchange Commission (“SEC”) announced final rules governing its proposed modernization of the Schedule 13D reporting system. Nevertheless, shareholder activists proved to be highly impactful in 2023 in terms of their ability to influence boards, obtaining a record number of board seats since 2018.

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2024 Proxy Season Trends: Zenith or Nadir?

Arthur B. Crozier is Executive Chair, and Gabrielle E. Wolf and Jonathan L. Kovacs are Directors at Innisfree M&A Inc. This post was prepared for the Forum by Mr. Crozier, Ms. Wolf, and Mr. Kovacs.

The 2023 proxy season represented a notable departure from recent trends in prior proxy seasons, particularly with respect to proxy fights and voting on environmental and social (E&S) proposals. This article examines if those trends are likely to continue in 2024 and the possible impacts of recent judicial and regulatory developments on the ability of typical participants (issuers, activists, ESG and anti-ESG crusaders and other shareholder proponents) and unfamiliar or returning entrants (unions and trade associations) to gain access to the corporate governance machinery.

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PJT Partners 2024 Proxy Season Preview

Allie Rutherford is a Partner, Adrienne Monley is Managing Director, and Eric Sumberg is Director at PJT Camberview. This post is based on their PJT Camberview memorandum.

The 2024 proxy season will take place during a time of elevated activism activity, heightened geopolitical risk and greater scrutiny of how companies are managing through challenging markets. The following five trends will shape how companies and investors navigate annual meetings this Spring.

1. Investors Will Focus on Board Effectiveness as New Risks Emerge for Companies

Companies are contending with geopolitical uncertainty, challenging labor dynamics and the emergence of new risks and opportunities such as artificial intelligence (AI) and other disruptive factors. In this complex environment, investors are focused on how well boards are positioned to provide effective oversight and support value-accretive decision-making. For 2024, investors have articulated engagement priorities and policy updates emphasizing the importance of strong board composition and succession planning practices and have signaled continued interest in understanding how boards identify and oversee material risks.

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Tornetta v. Musk is the Rule of Law at Work

Holger Spamann is the Lawrence R. Grove Professor at Harvard Law School. This post is based on his recent op-ed. Related research from the Program on Corporate Governance includes Executive Compensation as an Agency Problem and Pay without Performance: The Unfulfilled Promise of Executive Compensation both by Lucian A. Bebchuk and Jesse M. Fried; The Growth of Executive Pay by Lucian A. Bebchuk and Yaniv Grinstein; and The CEO Pay Slice (discussed on the Forum here) by Lucian A. Bebchuk, Martijn Cremers, and Urs Peyer.

In an op-ed in the Wall Street Journal on February 22, Gov. Jeb Bush and Joe Lonsdale have it exactly backwards when they complain that Tornetta v. Musk “imperil[s] the rule of law.” Messrs. Bush and Lonsdale misrepresent the case as “arbitrary enforcement” in violation of “equality before the law.” The aspects of Tornetta that Messrs. Bush and Lonsdale complain about, however, are just business as usual in U.S. corporate law. Tornetta does exactly what Messrs. Bush and Lonsdale want courts to do: it applies “equal justice” even to the most powerful, most vocal CEO alive.

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2024 Proxy Season Preview: Looking for a Silver Lining

Merel Spierings is Senior Researcher for the ESG Center at The Conference Board. This post is based on an upcoming Conference Board report, which was developed using data from ESG analytics firm ESGAUGE and produced in collaboration with Russell Reynolds Associates and Rutgers Center for Corporate Law and Governance.

Companies and major institutional investors are interested in finding common ground with each other as they deal with a random assortment of shareholder proposals this year amid ardent pro- and anti-ESG pressures. This article touches on the key developments we should be watching heading into the new proxy season.

With shareholder proposals becoming more prescriptive and costly to implement, investors are willing listen to companies’ explanations of the cost-benefit analysis of proposals.

Last year’s record number of shareholder proposals led to “proposal fatigue” among major institutional investors and corporations alike – and proposals’ deteriorating quality led to declining support. Rather than being discouraged after two years of declining average support, however, shareholders submitting proposals are responding by adjusting their proposals (e.g., trying somewhat different angles to an issue they raised before) or adopting new issues (e.g., by piggybacking on a more successful proposal submitted by someone else in a previous year). As a result, along with topics such as Artificial Intelligence, the 2024 proxy season is seeing a proliferation of new types of shareholder proposals, including on the clean energy (“green versus brown”) financing ratio at financial institutions; treating shareholder nominees for the board on par with company nominees; imposing new resignation obligations on directors failing to obtain a majority vote for two years in a row.

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Rebellion extinction: Does Exxon mark the end of shareholder engagement?

Georgia Stewart is CEO of Tumelo. This post was prepared for the Forum by Ms. Stewart. Related research from the Program on Corporate Governance includes Social Responsibility Resolutions (discussed on the Forum here) by Scott Hirst and Stockholder Politics by Roberto Tallarita.

In an era where the corporate world is increasingly held accountable for its social and environmental footprint, a striking confrontation is unfolding, one that could redefine the very nature of stewardship.

This conflict, epitomised by the recent legal battle between Exxon Mobil and its shareholders, is an acute example of the evolving complexities for corporate-governance professionals.

Gone are the days when the Friedman doctrine reigned supreme, where the sole responsibility of a business was to increase its profits; when alignment among company directors, asset managers and asset owners was straightforward and clear. When there was a singular focus throughout the whole investment chain on share price. As the corporate landscape has grown and globalised, this once-clear path is now fraught with the thorny issues that arise when any stakeholder considers performance across a diversified portfolio, and over the longer-term.  READ MORE »

Oregon State Treasury Nomination Neutrality

Philip Larrieu is a Stewardship Investment Officer at the Oregon State Treasury. This post was prepared for the Forum by Mr. Larrieu. Related research from the Program on Corporate Governance includes Universal Proxies (discussed on the Forum here) by Scott Hirst and The Myth of the Shareholder Franchise (discussed on the Forum here) by Lucian A. Bebchuk.

The essence of corporate governance is rooted in addressing the agency problem, which encapsulates the inherent tension between the Board of Directors’ fiduciary duty to represent shareholder interests on one hand and the possible conflict this presents with personal interests. This fundamental conflict engenders significant apprehension among shareholders, stemming from the potential for the board or management to consider self-preservation over shareholder value and interests. To mitigate these concerns, shareholders have historically advocated for mechanisms to maintain their appropriate influence within the corporate governance framework. A central goal in many of these efforts has been protecting and enhancing shareholders’ ability to nominate director candidates.

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DEI in an era of unrest: a few truths and a path forward

Faten Alqaseer and Lisa R. Davis are Senior Managing Directors, and Rose James is a Senior Associate at Teneo. This post was prepared for the Forum by Ms. Alqaseer, Ms. Davis, and Ms. James, with contributions from Martha Carter, Matt Filosa, and Kensey Biggs. Related research from the Program on Corporate Governance includes Politics and Gender in the Executive Suite (discussed on the Forum here) by Alma Cohen, Moshe Hazan, and David Weiss; and Duty and Diversity (discussed on the Forum here) by Chris Brummer and Leo E. Strine Jr.

Anti-DEI (diversity, equity and inclusion) activity is not new, but it is intensifying; emboldened by the Supreme Court ruling on Affirmative Action in higher education and the divisive nature of current politics and policy.

Corporations are navigating lawsuits, retraction letters, calls for EEOC investigations, and considering what a possible second Trump Administration could mean for their DEI initiatives. Even so, Teneo research found that half of U.S. CEOs are continuing or accelerating their DEI programs. Fifteen percent are scaling back their programs and the remaining companies—over one-third—are taking time to re-evaluate. Below is an analysis of the landscape with three critical considerations for businesses as they navigate and review DEI policies and practices.

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2024 Proxy Advisor Guidelines: What Companies Need to Know Heading into the 2024 Proxy Season

Elizabeth K. Bieber and Sarah Ghulamhussain are Partners, and Peter Liddle is a Law Clerk at Freshfields Bruckhaus Deringer LLP. This post is based on their Freshfields memorandum.

The two most influential proxy advisor firms, Institutional Shareholder Services (ISS) and Glass Lewis & Co. (Glass Lewis), updated their annual voting policies for annual shareholder meetings in 2024. Both proxy advisory firms’ voting guidelines are currently in effect, with ISS’ effective for shareholder meetings on or after February 1, 2024, and Glass Lewis’ effective for shareholder meetings on or after January 1, 2024. In a departure from prior years, ISS had minimal changes to its voting policies this year with updates only to executive compensation related matters. Glass Lewis, by comparison, took a substantially more expansive approach, focusing on revisions related to executive compensation, cybersecurity considerations and climate and ESG oversight issues for 2024.

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2024 Proxy Season Preview

Mike Tae is Co-President of Investor Communication Services, and Chuck Callan is SVP of Regulatory Affairs at Broadridge.

Overview

Looking Back: Recent proxy seasons[1] were characterized by greater numbers of shareholder proposals along with declining levels of shareholder support for them.[2] As a category, support for environmental and social proposals declined to a five-year low from a highwater mark in 2021. Moreover, a greater number of directors and say-on-pay proposals failed to attain majority support last season than at any time in the past five seasons.[3] Technology innovations opened additional avenues for participation in corporate governance. Virtual shareholder meetings continued as the venue of choice for many companies despite return-to-work policies, end-to-end vote confirmation was (and continues to be) provided for most routine shareholder meetings, and proxy voting “apps” were launched for retail shareholders.

Looking Ahead: Technology innovations and the SEC’s new rules for Universal Proxy will further democratize corporate governance in the 2024 proxy season, adding ways to inform and engage investors. Electronic voting platforms and processing for Universal Proxy contests are up and running, making it easier and clearer for shareholders to pick and choose directors from competing slates. Pass-through voting “pilots” are going mainstream as the largest asset managers provide investors with a voice on how shares of portfolio companies are voted. Based on recent data over the past 8 months and the first 6 weeks of 2024, the trend of increasing numbers of environmental and social proposals, along with declining shareholder support for them, could continue this proxy season. The SEC’s final action on climate disclosure is overdue and new rules are expected to be voted on soon.

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