The 2024 proxy season saw another year of elevated activist activity, including a second quarter that ranked among record quarters for new campaigns launched. As both activists and shareholders adapt to the second full season under Universal Proxy Card (UPC) regulations, a tale of two proxy seasons emerged.

Companies with strong performance, refreshed Board of Directors, and a track record of operational improvements demonstrated that proactive governance actions accompanied by strong execution of a strategic plan can be successful in a contested situation involving an activist. During the current year, those traits helped lead shareholders to award activists fewer Board seats in proxy contests that went to a vote than last year. For the rest, settlements were increasingly prevalent and reached earlier in engagement processes.

The Pendulum Begins to Shift in Year Two of the Universal Proxy Card

While activists saw significant success winning Board seats in Year One of UPC regulations, in Year Two the pendulum appeared to shift. Activists won significantly fewer Board seats contested all the way to a proxy vote this year than last year, according to data compiled via FactSet and 13D Monitor[i]. Shareholders demonstrated a bit of an independent streak as well, voting to elect fewer dissident nominees who had been recommended by proxy advisory firms. At the same time, the increasing speed and frequency of settlements is likely to raise questions if Boards settle with activists too quickly.

Several high-profile proxy fights this year in which companies successfully defended against an activist approach present a compelling roadmap for companies to deploy a proactive, vigorous defense. Now is the time for companies to develop their value creation narrative, evaluate Board composition and communication, and enhance their shareholder engagement strategy.

Record Number of Shareholder Proposals, But Shareholder Support Continues to Fall

The number of shareholder proposals submitted reached a new record in H1 2024, while the trend of declining shareholder support for environmental and social proposals continued. Only 10% of overall proposals won majority support and the average support was approximately 20%. Support for governance proposals increased, however, mostly focused on executive compensation and reducing or removing supermajority voting for directors.

The volume of media attention on anti-ESG and DEI topics is not reflective of shareholder views. While the number of anti-ESG proposals submitted reached a new record this year, these proposals received an average of less than 3% shareholder support[ii].

Companies should pay attention to the increase this year in shareholder proposals related to AI (15 submitted), a number that is sure to increase in the years ahead. Amid this evolving and dynamic environment, it has never been more important for companies to plan ahead, understand how their investor base views these critical issues and ensure their proxy statement and other disclosures describe their track record and commitments in a comprehensive way.

Increase in Public Short Attacks

Forty-four investors took a public short position against companies in the first half of 2024, a nearly 30% increase over the first half of 2023, [iii]according to FactSet data. Short sellers are using social media to rapidly disseminate their views and bet against a company’s financial performance or business practices through online platforms. Though recent enforcement activity may have a chilling effect on public short attacks.

Companies must remain nimble and prepared to quickly rebut misinformation disseminated into the market and mitigate the impact of a short attack on a company’s long-term reputation. Engage with priority investors, sell-side analysts and influential media. Your ‘break glass’ plan should get the team ready to respond quickly – and often forcefully – to regain control of your narrative, discredit the short seller and steady support among investors. In addition, an effective investor relations program is an essential pre-emptive defense ahead of any potential short attack.

Amid this dynamic environment, it is essential for public companies to plan ahead for the risk of activism and to have a clear, concise and well-articulated long-term strategy plainly available to investors and all stakeholders. A busy year for activist shareholders raises the stakes for companies to review their preparatory measures. Build your team of trusted advisors. Update your “break glass” plan to both anticipate potential scenarios and adapt to latest activist tactics and strategies. Review your investor communications program to identify areas for improvement so your Board can be positioned to go on offense, instead of just playing defense.