Taken from Diligent Market Intelligence’s ‘Activism and Voting this Week’ newsletter.
With 2024 playing host to several high-profile activist campaigns, more companies subject to activism may find themselves at risk of intense media scrutiny, according to panelists at the NIRI Annual Conference in San Francisco last week.
The three-day conference for investor relations professionals featured a range of sessions exploring proxy season trends and guidance for companies on defending against activism. One such panel examined the rise of shareholder activism at large-cap companies, prompting more high-profile coverage from the media.
“This year, proxy contests have been big, front-page events whereas in previous years they have taken place largely in the background. This means companies cannot ignore this space – there is the potential for an activist to target your company and make it onto the front page,” Stephanie Hill, head of index at Mellon Investments, said.
As of May 28, 2024, primary- and partial-focus activists have secured 12 board seats at U.S. large-cap companies, more than double the five secured in the first half of 2023. Nine (75%) seats were secured via settlement agreements, according to Diligent Market Intelligence’s Activism module.
Trian Fund Management’s bid for two board seats at Walt Disney was subject to significant media attention owing to the company’s popularity, while campaigns at other large-cap companies such as Starbucks and Norfolk Southern also faced significant media coverage.
With extensive media coverage comes heightened risk of reputational damage, as a broader range of stakeholders are made aware of both the activist’s campaigns and their criticisms. This may be one factor driving the number of early settlements seen this season.
“In public campaigns, activists can be more aggressive thanks to the media, whereas it is much harder for companies to navigate public campaigns as they have to be more defensive,” Demetrius Warrick, partner at law firm Skadden, Arps, Slate, Meagher & Flom, said.
“Activists can make things personal, whereas companies can’t,” said Ned Segal, former Twitter chief financial officer. “In most cases, activists will have more tools at their disposal than companies will.”
In another session, NIRI panelists discussed the uncertainty the universal proxy card (UPC) has also brought to U.S. proxy contests. Again, UPC is another factor to have promoted a rise in settlements in recent years.
Pre-universal proxy, U.S. companies could often rely on passive fund managers such as BlackRock and Vanguard to support management’s slate by default. With the newfound freedom to pick and choose between both management and dissident nominees, however, larger passive funds (as well as every kind of investor, for that matter) are less likely to vote completely in line with management recommendations.
“There is much more of a settlement bias now,” said Derek Zaba, partner and co-chair of Sidley Austin’s shareholder activism practice, said. “There is less certainty now of companies having the big index funds on their side.”
“What companies should care about most is being principled and consistent,” said Segal. “If the most efficient and effective thing to do is to compromise and meet activists in the middle via a settlement, then that can be a win for everyone if done well.”
Rebecca Sherratt 