Shareholder Activism under Donald Trump

After Donald Trump’s stunning electoral victory, the question is what this means for shareholder activism.  Numerous activist investors openly endorsed Trump for president in 2024 and donated tens of millions of dollars and more to his campaign and related political action committees.[1] While not all activist investors supported Trump, at this year’s Active-Passive Investor Summit, the premier shareholder activist conference in New York City organized by research and advisory service 13D Monitor, many activist investors were excited about the prospect of another presidency of Donald Trump.[2]  This article examines the impact of another Trump presidency on shareholder activism in the United States and the beyond.

Taxes Cuts, Deregulation and Tariffs

The stock market surged after Trump won the election.[3]  Trump is expected to extend his 2017 tax cuts, which slashed corporate and capital gains taxes.[4]  These tax cuts were due to expire after 2025.   Trump has also called for additional cuts in corporate taxation.  During his first presidential campaign, Trump promised to eliminate the carried-interest tax loophole, which benefits hedge funds.[5]  However, Trump did not follow through on that promise during his first administration[6] and has not raised the issue since.[7]  Taken together, these tax policies are expected to fuel shareholder activism.

Then there is deregulation. Trump said he plans to free Wall Street from “burdensome regulations.”[8] He has already announced a plan for a “government efficiency commission.”[9] Republican donor and former activist investor John Paulson, floated by Trump as a potential U.S. Treasury Secretary, has publicly said he supports deregulation.[10] This is a prospect that excites many shareholder activists.  After all, they are value investors first and foremost.

Trump has promised a universal 20% tariff, which many economists fear could negatively impact the global and domestic economy.[11]  The potential disruption makes some on Wall Street nervous.[12] However, this may not necessarily deter shareholder activism. After all, companies struggling amidst volatility are prime targets for activism because their share prices are artificially low and present a clear case for change.

Antitrust Enforcement

During the Biden administration, the enforcement of federal antitrust law by the Federal Trade Commission (FTC) under its chair, Lina Khan, and the Antitrust Division of the U.S. Department of Justice under Jonathan Kanter has blocked numerous mergers.[13] This has generally chilled mergers and acquisitions (M&A) activity.

It is widely considered a near certainty that Khan and Kanter will be replaced once Trump takes office again.  Many Republicans favor more latitude for M&A and see the antitrust agencies as too tough on business.[14]

This in turn benefits shareholder activists who need a liquid market for M&A for their business model.[15]  After all, the easiest and fastest way to monetize an activist investment is to push a target company into a sale, divestiture or breakup.[16] In recent years, activist campaigns with M&A demands have declined, partly given the Biden administration’s crackdown on monopolistic practices in everything from tech to healthcare.[17]  “A lot of these mergers have been thwarted by the current administration,” activist investor Carl Icahn said.[18] Given a Trump victory, he said, “That’s going to change.”[19]

SEC Regulation

Trump’s election will also impact the U.S. Securities and Exchange Commission (SEC). Trump has already pledged to remove current SEC Chair Gary Gensler.[20]  However, interestingly, the SEC’s track record under the first Trump administration was more pro-company than pro-activist.

The SEC regulates proxy contests.  This is important because activist investors push companies to cave to their demands (sell or break up the company, fire the CEO, lever up the balance sheet, etc.) by using the prospect of a director election contest as a threat.  For years, shareholder activists lobbied for a universal proxy card, which would require companies to include activist nominees on their proxy cards. The Obama administration’s SEC proposed such an activist-friendly regime in October 2016. After Trump’s first election as president, some expected the SEC to adopt these rules because Trump appointed celebrity activist Carl Icahn as a special adviser on issues relating to regulatory reform in 2017. However, Icahn’s focus turned out to be environmental regulations, not the universal proxy, and resigned after a few months.[21] The Trump presidency ended without the SEC ever taking up the issue.  Instead, it was the Biden administration’s SEC under Gensler that decided in 2021 to revisit the universal proxy. Corporate America, including our practice at Sidley Austin,[22] lobbied either against these rules or to moderate them. Still, in November 2021, the SEC adopted the new activist-friendly regime with the votes of the three Democratic commissioners over the objections of their two Republican colleagues on the five-member commission.[23] It remains to be seen whether the SEC under Trump would revisit the universal proxy.  It is likely that Trump’s activist donors will lobby him to keep the rules largely unchanged.[24]

Another issue is the regulations of the proxy advisory firms like ISS and Glass Lewis, which issue vote recommendations to shareholders in proxy contests. Companies have repeatedly raised concerns about proxy advisers’ significant influence over corporate elections, leading to questions about whether proxy advisory firms should be subject to more regulation. In July 2020, Trump’s SEC chair, Jay Clayton, adopted rules for proxy advisers that were welcomed by many companies and business lobbyists like the Chamber of Commerce – but not necessarily by activist funds.  After all, activists need the support of ISS and Glass Lewis to prevail in proxy contests. Soon after assuming his position as SEC chair in 2021, Gensler directed the staff to take another look at the rules.[25] In 2022, the SEC adopted amendments to the proxy adviser rules, reversing some of the key provisions that were  favorable to companies.[26] The rules remain tied up in litigation in the federal courts to  this day.[27] While it is unclear what the Trump administration would do about these rules, many activist investors would arguably prefer to see them scrapped for good.

A last topic of interest to activists is the SEC’s stance on shareholder proposals. For decades, SEC rule 14a-8 has allowed shareholders to submit nonbinding proposals for inclusion in a company’s proxy statement. In recent years, special interest groups have been bombarding companies with proposals on environmental, social, and governance (ESG) issues, which companies have long lobbied the SEC and Congress to limit. However, it was under the Trump administration that the SEC imposed stricter minimum stock ownership requirements.[28] And Republican Commissioner Hester Peirce, a possible chair candidate in a Trump administration, appears poised to further restrict shareholder proposals.[29] Activist funds, which push companies to effect economic changes and are less interested in ESG, were mostly indifferent about the rules for nonbinding shareholder proposals. That said, a more recent development is the backlash to ESG by such activists as Robby Starbuck, who brought the culture wars to corporate America by targeting companies with diversity, equity, and inclusion (DEI) initiatives. [30] These kinds of attacks might proliferate following Trump’s electoral victory.

Conclusion

Trump’s victory will certainly impact shareholder activism in the United States and abroad.  However, a closer look at his first administration’s track record suggests that another Trump presidency might be a mixed bag for activist investors and companies alike.