Now that proxy season has wrapped up, we thought we’d look back at the experience with universal proxy card (UPC). Overall, shareholders expressed their preferences in BoD elections with precision. Proxy advisors, in particular ISS, saw their recommendations win in almost every proxy contest.
As you might recall, we followed the development of UPC in the past several months – see below for earlier posts tracking various proxy contests during the year. We looked at the ones with a voting outcome. Many other observers have assessed and commented on the broader impact of UPC, say on overall proxy contest activity and settlements, We wondered how UPC affected actual shareholder voting.
Since our most recent post in late June (below), two contests wrapped up: Driver-FFWM and Sarissa-ALKM. In both, the activist failed to win any BoD seats. One contest settled, Toro 18-HEAR.
We waited eagerly to see the result of the very last one, BT Brands-NROM, procrastinating about writing this post until after the AGM. First, NROM moved its AGM from July to August. In August, NROM announced it failed to gain a quorum at the AGM, and said it will see everyone at the next AGM in 2024. BT Brands sued NROM over this, so maybe we’ll see a result sooner.
We saw a total of twelve proxy contests with a voting outcome in the 2023 “proxy season”. We define that as roughly the first six months of 2023, with one AGM in mid-December 2022. This is similar to 2022, where we saw fourteen proxy contests with a voting outcome. Each year started with about 120 total activist situations that involved a demand for BoD seats.
In six of those twelve contests, activists won some or all of the BoD seats they sought. They won all of them in two: Mangless-ZVRA and Politan-MASI.
In ten of these contests, activists sought at least two seats. In all twelve, activists ran for five or fewer BoD seats. So, in only a couple of situations the activist wanted just a single BoD representative.
Shareholders and proxy advisors did well
We compared these results to what proxy advisors recommended for their shareholder clients. Shareholders followed their advice, especially for ISS, with one notable and interesting exception.
The table below shows the result for each contest. We express this as the number of activist candidates that each of ISS and Glass Lewis recommended and the number of those recommended candidates that shareholders elected. For example, at Land & Building-AIV, ISS recommended shareholders vote for one of the two Land & Buildings candidates, and Glass Lewis recommended shareholders vote for none of them. Shareholders elected the one candidate that ISS recommended, out of the two that Land & Buildings nominated.
In ten of the twelve contests, shareholders elected exactly the BoD candidates that ISS recommended:
- At Hestia-PBI, ISS recommended shareholders elect four out of five of Hestia candidates, and shareholders did just that
- At both ILMN-Icahn and ETFS-WT, ISS recommended shareholders elect one out of three activist candidates, and shareholders followed along
- At Land & Buildings-AIV and Politan-MASI, ISS recommended shareholders elect all activist candidates, and that happened
- At five different contests, ISS told shareholders to support only company incumbents, and shareholders did so, too.
Glass Lewis did not see quite the same shareholder loyalty to its recommendations. Shareholders did follow the recommendation to support company incumbents at the same six companies as ISS did. At five others, shareholders followed its advice in full at two, and in part or not at all at three.
At Sarissa-ALKS, Alex Denner nominated three candidates. ISS recommended shareholders vote for only one, while Glass Lewis advised they vote for none. Shareholders voted for none, so we’d consider this one of the a “wins” for Glass Lewis and a “near-win” for ISS, if we care about who “wins”…
What about the twelfth one, Mangless-ZVRA? As we noted at the time, shareholders ignored proxy advisors completely. Mangless nominated three directors, the entire class this year, and both ISS and Glass Lewis recommended shareholders vote for only ZVRA incumbents. Instead, shareholders voted overwhelmingly for all three Mangless nominees.
We interpret these results as favoring shareholders, too. Proxy advisors largely reflect and express the preferences of their clients. Investors that don’t like a given recommendation can and usually do ignore it. In five contests, shareholders wanted a greater or lesser amount of change. In six, they did not see the need for any BoD change. They expressed these preferences with apparent precision, much more so than they could have before UPC.
There is much more to consider, both in the impact of UPC on this year’s activist situations, and in how activists might adapt to UPC in next year’s. We will do that in upcoming posts.