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)

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

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

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

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

The complete report is available here.