ESG people in a meeting
Corporate Governance

Preparing for Proxy Season: How Boards Should Manage Activism

With proxy season approaching, activist investors are preparing to execute their campaigns. Given that many activist campaigns seek changes to the target company’s board, directors should be proactive in understanding and addressing concerns an investor might have.

Over the past several years, there has been a shift in activism. For decades, activism has largely taken a similar form, often thought of as a corporate raid where a person or fund obtains a substantial stake in the targeted company with the ultimate goal of gaining board seats to influence corporate strategy. However, more recently, these types of campaigns have been less successful, and activists pivoted to other tactics, such as issuing public reports that are critical of management and its existing strategy. The newer tactics can be employed without substantial stakes in the company and without the traditional expenses, such as media relations and legal expenses for proxy fights, which kept activism to a small group. While the style of activist campaigns has changed, representation on the board is still typically a core objective. 

“There’s a greater use of persuasion and negotiated outcomes in activism, which are the newer elements that have come to light in the increased number of shareholder proposals in the past couple of years,” said Kaley Childs Karaffa, Head of Board Advisory in the Americas at Nasdaq.

Activist Campaigns
Source: Nasdaq IR Report, Shareholder Activism: 2022 Year-in-Review

This year, activist campaigns are expected to continue at a high volume, following a record number of campaigns in 2022. According to Nasdaq’s Shareholder Activism: 2022 Year-in-Review report, the spectrum of what qualifies as activism has expanded as smaller investors and even individual investors attempted to change corporate trajectories in 2022. Furthermore, under the U.S. Securities and Exchange Commission’s new Universal Proxy Rule, shareholders can vote for their preferred mix of company-recommended directors and dissident directors.

Notably, there was an increase in U.S. campaigns last year that looked to change the composition of boards and targeted specific corporate governance issues, such as multiple facets of board composition, executive compensation and severance, shareholder rights and ESG, among other issues. Even though material U.S.-based campaigns that resulted in board seat changes were just 8% of the total, many activists will continue to push for board changes this year.

“Good governance is your best defense for activism,” said Jared Wasserman, Associate Vice President of IR Intelligence at Nasdaq. 

To prepare for such campaigns, directors can employ the following practices:

Monitor and assess board composition, skills, expertise and diversity

Now is a good time to examine board makeup and the level of effectiveness related to board composition disclosures to understand areas that an activist may scrutinize. 

“There’s a whole process you go through for good governance,” Wasserman said. “Like what expertise should we have on our board, and do we have it? I think that’s about good governance, but it’s also about strengths and weaknesses. And if you have a weakness or need to address it, and if not, be prepared for an activist to do so.” 

Boards can be more proactive against any potential activist by leveraging a strategic process, like board evaluations, to continuously analyze board composition, identify diverse talent and the necessary skills and expertise needed to oversee the corporate strategy and navigate the current macroeconomic environment. This type of evaluation can lead to more intentional, informed board succession planning practices, which benefit the board over the long term and may also mitigate the likelihood of activism.

Oversee investor relations and gauge institutional and retail sentiment

Based on conversations with directors, Karaffa noted that boards are increasingly adding oversight of investor relations into their agenda. From her experience, boards are reviewing sentiments from analyst reports and having conversations with corporate executives to understand the company’s investor relations approach and to gain their reflections from the management team’s interactions with those key shareholders, often focusing on their top 10 or 20 investor groups. In these meetings, directors should also be asking if any likely activists own a stake in the company and, if so, have any activists requested to speak or meet with leaders of the company. These discussions may lead to new or refined investor outreach efforts that aim to provide a clearer articulation of the company’s strategy and the board’s approach to governance. 

Additionally, Karaffa noted that boards are ascertaining what experience directors have in managing activist campaigns. According to research from Harvard Law School, as of 2022, 38% of directors of Russell 3000 companies have prior experience with an activist campaign, most within the past five years. Karaffa indicated that these directors provide significant value and can influence the company’s likelihood of a successful outcome, particularly when it may be the executive team’s first time dealing with an activist campaign. Wisdom and experience are paramount to determining the prudent approach in these circumstances. 

Develop contingency and communication plans

Having a robust communication plan ready to deploy is essential when an activist targets a company. Because many activists have started leveraging social media to share their campaigns with others instantaneously, companies must be prepared to act swiftly. As Wasserman noted, having a message that the board and C-suite stand behind will be critical in not only illustrating a united front against the activist but also in helping investors and the media understand the company’s point of view.

Karaffa added that it’s important for boards to sharpen their message, whether it relates to articulating the company’s strategy, describing board composition, or conveying other matters, such as the company’s ESG plan and how it’s driving cohesion. “Articulate it, anticipate the critiques and ensure that management is being sufficiently proactive in taking that tailored message to specific investors,” Karaffa said.

Furthermore, part of these communications plans should extend to the annual shareholder meeting, in which the board may want to consider direct engagement with shareholders, according to Karaffa. 

“The board should be sitting independently and pretending to be that activist investor and critiquing the company,” Karaffa said. “While directors can be excited about the strategy and see coherence in the direction of the company, every strategy, vision and plan can be criticized.”

Prepare for the first proxy season with Universal Proxy Rule 

While the impact of the Universal Proxy Rule—which will have proxy voting cards that list all duly-nominated director candidates from all parties in one place—has yet to be determined, Karaffa acknowledged that directors are concerned about votes against independent directors. For example, investors and activists seeking to critique the board’s diversity could vote against multiple directors rather than just specific individuals.

With the Universal Proxy Rule in effect this proxy season, it will be critical to assess the board’s composition, skills, expertise and diversity by implementing a well-designed board evaluation process that drives intentional board succession planning and effective corporate governance practices. This must be coupled with the board’s oversight of robust communications plans and proactive monitoring of investor engagement. A well-composed board that has the requisite perspectives to understand the business and stakeholder perspectives are best equipped to provide the high-quality, independent oversight that is a key driver of long-term shareholder value. 

Meet growing investor demands with Nasdaq’s board evaluations. Develop effective evaluation processes from start to finish that promote alignment, foster strong governance, and identify opportunities. Learn more:

Plus, Nasdaq’s work with thousands of global issuers has provided firsthand experience with hundreds of activist situations in recent years. For more information about the latest data and trends regarding activist investor activity, read Nasdaq’s recent shareholder activism report:



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