With the height of the proxy season largely over, there’s very little sign that activists in 2023 are drastically altering their campaign patterns as a result of the arrival of the universal proxy card.
Last year’s activism would have only begun to feel the impacts of the SEC’s amendment to its proxy rules to require the use of the universal proxy card, which took effect in September. But 2023 appeared to be ripe for big changes.
The new universal proxy card, which includes all nominated director candidates on a single ballot, was predicted to lead to sweeping changes in activism—such as making small companies particularly vulnerable to campaigns and causing companies of all sizes to avoid proxy fights by agreeing to earlier settlements on certain objectives.
To see if these two predictions are becoming reality, I investigated whether more small companies are finding themselves targeted by activists, and whether activists are succeeding on board representation objectives at a greater rate.
The year is far from finished, but I’m not seeing indications that these predictions have already come true. And if they do, it does not look like it will be in the form of a dramatic shift—at least not yet.
Micro-, Small-Cap Targets Continue to Dominate
In the universal proxy era, activists do appear to be affirming their interest in small company operations, but not in a way that is atypical of the activity we’ve seen in prior years.
Of the 469 activist campaigns launched to date in 2023, 77% have targeted micro-cap (45%) and small-cap (32%) companies. Mid-cap campaigns make up only 15% of 2023’s activism, and large-cap campaigns are responsible for the remaining 8%.
These figures are only modestly different from last year, when about 74% of investor activism campaigns targeted small- and micro-cap companies, and another 17% and 9% were launched against mid- and large-cap companies, respectively.
It’s still only mid-August, but based on these figures, it seems unlikely that the percentage of activists targeting smaller companies will break from the pattern seen in 2022 and prior years by year’s end.
Successful Board Objectives Don’t Foreshadow Boost
As for the prediction that the universal proxy would increase the success rate of activist objectives—either by prevailing in proxy fights or by making parties more willing to settle to avoid the risk of a proxy fight—the track record for the objective most likely to be impacted, board representation, hasn’t yet shown such a bump.
Because the universal proxy card required companies to place shareholder and company director nominees on the same ballot, activists’ board nominees are likely getting more eyes on them than ever before. But the threat of additional eyes is not yet showing that more activists are actually making their way onto the board.
For board representation objectives launched this year, 65% remain pending—an extremely high number compared to prior years, albeit one that does not reflect a full calendar year. While it is too soon to tell how the pending objectives will be resolved, the resolution timeline for board representation objectives does not appear to be accelerating just yet.
As these pending objectives are resolved, some are likely to be successful, while others are likely to fail after activists exhaust other tools for gaining board representation.
Taking a closer look at the successes, it does not appear that shareholders and target companies are rushing to reach settlements before proxy season comes to a close. In fact, of all of the 2023 board representation objectives that have found some degree of success, only 25% (10 out of 40) involved settlements. This settlement rate is much lower than the last three years, which saw settlement rates in the upper 30 percentile range.
It is too soon to tell if the low settlement rate will be true of year-end totals, but for now, there is no evidence of a surge in settlements on board representation objectives.
Activists do not appear to be more or less contentious as a result of the universal proxy either. About 40% of successful board representation objectives launched so far in 2023 have involved a proxy fight (16 of 40), and 10% involved an activist-initiated lawsuit (4 of 40). These proportions are on par with recent years.
While it still may be the case that the outstanding objectives increase shareholder successes on board representation by year-end (through settlements or otherwise), the post-proxy season data does not seem to suggest that activists and target companies are rushing to resolve their disputes during proxy season.
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