Activist Investors Are Getting More Powerful

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Have you noticed that activist investors are more active, and maybe successful lately?

Data shared with Axios suggests that activist investors are tasting victory on a more regular basis, thanks in part to a new SEC policy that makes board voting less black-and-white, allowing shareholders to select from a buffet of nominees put forward by both the company and agitators, rather than order the set menu.

Icahn’t Believe It

Investor activism started this year with a bang. In the first three months of 2023 activist investors around the world had their most active quarter ever. Now the US proxy season is drawing to a close, the data suggests that activist investors’ success rates are creeping up.

This is partly to do with a rule brought in last September by the SEC called the Universal Proxy Card (UPC). Prior to the UPC, if an activist investor wanted to replace directors on a company’s board, two proxy cards would be sent to shareholders. One card would have the slate of directors being nominated by the activists, and the other would be the board as suggested by the company’s management. Shareholders could only send in one card, meaning you either voted for all the people backed by the company, or all the folks being put forward by the activists. The UPC changed that, meaning shareholders can now mix and match nominees from both camps.

Axios reports that while activist investors have definitely enjoyed higher rates of success, there have been some upsides for companies as well:

  • Data given to Axios by investor voting data company Insightia showed that although this year’s proxy season has seen fewer activist-backed nominees elected to company boards, the proportion of successful nominations is higher than last year. In 2022 47% of nominations resulted in a win, compared to 66% this year.
  • For companies, the silver lining is that having a smattering of dissident directors on your board is better than shareholders overhauling the entire thing.

The Boardroom Where It Happens: Activist investors don’t always need to rely on democracy for a win. The data given to Axios also indicated a higher rate of settlements between companies and activist investors, and Sunday saw a major move as Francis deSouza, CEO of biotech company Illimunia, stepped down following a long crusade from high-profile activist investor Carl Icahn.