H1 2023 Review of Shareholder Activism

Jim Rossman is Global Head of Shareholder Advisory, Christopher Ludwig is a Managing Director, and Cameron Fitzgerald is a Vice President at Barclays. This post is based on a Barclays memorandum by Mr. Roseman, Mr. Ludwig, Mr. Fitzgerald, Peter da Silva Vint and James Potts. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian A. Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); Dancing with Activists by Lucian A. Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here); 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 Frankl and Kushner Leo E. Strine, Jr.

Legal & Regulatory Developments

Universal Proxy Key Takeaways

  • Universal Proxy has heightened anxiety-levels for companies
    • Many companies amended charters and bylaws in anticipation of universal proxy without incident (~44% of the S&P 500)
    • However, a handful of companies faced litigation over bylaw amendments which were viewed as overburdensome in terms of disclosure requirements
      (e.g., Masimo by Politan and Primo Water by Legion)
  • Activists have been successful at the ballot box this year, winning a record 29 seats, as Universal Proxy has enabled ISS to recommend candidates with more
    precision and voters to pick and choose candidates with greater ease
  • We have yet to see a surge in single-issue activist campaigns, capitalizing on the potential to run lower-cost Board seat campaigns
    • Zero Board seat campaigns in H1 2023 by activists typically associated with Environmental or Social-focused shareholder proposals (e.g., Majority Action,
      As You Sow)

Proposed Regulation Changes May Affect Activist Strategies

Proposed Rule 10-B1

  • Potential to require “prompt”(1) disclosure of security-based swap (“SBS”) positions once an applicable reporting threshold is exceeded
    • Equity based securities disclosures will be triggered by the lesser of a notional amount ($300mm) or percentage of outstanding shares attributed to the
      position (5%), with a lower bar if other security / derivates are owned in the same issuer(2)
  • The reopened comment period will remain open until late August and the new rules may be effective as early as early 2024

Proposed Revised HSR Filing Process

  • Revised process would require substantially more detail on transaction rationale, historical acquisitions during previous 10 years, company officers, directors
    and workforce
  • Initial consensus view is that proposed revised process will take significantly more time, at a higher cost

SEC Climate-Disclosure Rules

  • Companies and investors are still waiting for definitive guidance from the SEC on climate-disclosure rules, due later this year

Global Campaign Activity

Global Activist Activity in H1 2023

Global Market Cap Breakdown

Global M&A-related Activism

Global Board Seats Won

2023 Proxy Contest Results

  • 10 contested proxy fights in H1 2023 that went to a vote, in line with the 9 proxy fights that went to a vote H1 2022
  • Activists won seats in 8 of the 10 contested votes, an 80% win rate, compared to winning seats at 3 of 9 contests, a 33% win rate, in H1 2022
  • When ISS recommended “for” a dissident nominee, that nominee got on the Board in 18 / 24 recommendations, a 75% win percentage, an early indicator of the influence that proxy advisors may now have under Universal Proxy
  • When Glass Lewis recommended “for” a dissident nominee, that nominee got on the Board in 16 / 20 recommendations, an 80% win percentage

U.S. Campaign Activity

U.S. Notable H1 Public Campaign Launches & Developments

Europe Campaign Activity

The complete report is available here.

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