Actionable Ideas for Companies and Sponsors

The Impact of the Universal Proxy Card on Shareholder Activism and Board Proxy Fights

On September 1, 2022, the SEC’s new rules regarding the use of universal proxy cards in contested director elections went into effect, marking a highly significant change for director board room battles, and putting to rest the two-card system that dominated proxy contests for decades. Until now, a company and an activist would each submit a proxy card that listed only their respective director nominees, preventing shareholders from splitting their votes between any combination of company or activist nominees. Under the new rules, both parties’ proxy cards will list each of the director nominees put forth by both management and the activist on the same ballot.

We expect the new rules to shape a new era of boardroom proxy fights and influence the evolution of activist engagement and tactics as they seek to enact change in the boardroom. Most notably, the universal proxy card rules will make the cost of soliciting proxies, and in effect the cost to run proxy contests, significantly lower. As a result, we should expect to see an increase in the number of nomination campaigns that take place over the course of a proxy season. Additionally, shareholders who have not historically utilized an activist approach may become “first-time” activists as the cost to run a director contest becomes less prohibitive.

Instead of being forced to make a binary choice of siding with management or siding with the activist, shareholders are now empowered to vote for the most qualified nominees regardless of which side proposed them. Targeting specific directors will become much easier and will make it more likely for dissidents to win some minority seats, which in turn will likely push more companies to settle before a vote takes place.

To prepare for the next wave of activism, company board and management teams should continue to consider “being their own activists” by proactively examining the makeup of their board on an ongoing basis to ensure the best mix of skillsets, experience and diversity are in place, and regularly reviewing their strategic and financial alternatives to pre-empt any activist approach.