Activists Looking to Gain More Power in Company Elections

Signage at the headquarters of the Securities and Exchange Commission (SEC) in Washington, on May 12, 2021. Andrew Kelly/Reuters

New election rules imposed by U.S. regulators have many firms worried about shareholder activists becoming members of company boards.

The Securities and Exchange Commission (SEC) recently finalized revisions to corporate director election rules by mandating that companies must provide shareholders voting through proxy a “universal ballot.”

According to outgoing rules, shareholders voting via proxy (like email or traditional mail) used to receive two sets of ballots with rival sets of candidates proposed by directors and activists. The shareholders then have to choose one of either two sets. Only shareholders who attended the firm’s annual meeting in person could vote for candidates from both sets.

But per new rules, the universal ballot will list all candidates in one place. As such, shareholders voting through proxy can now pick and choose from a list of common candidates rather than being forced to pick one of the two sets.

“Companies are concerned it will draw in first-time activists who think they can take advantage of the new system to threaten proxy contests to create leverage to advance their agendas,” Shaun Mathew, a partner at law firm Kirkland & Ellis LLP who advises companies on how to prepare for and respond to activists, told The Wall Street Journal.

Universal ballots are a double-edged sword from the company’s perspective. Since it allows shareholders to pick and choose candidates individually rather than as a set, dissidents might take hold of board seats. However, it also ensures that the company is less likely to lose a majority of seats.

The SEC had voted to approve the revisions 4–1, with the dissenting vote cast by Republican commissioner Hester Peirce.

Activist Directors, ESG

Last year, an activist hedge fund gained three board seats on Exxon Mobil despite only owning a tiny fraction of the firm’s stock. Rookie activists have launched campaigns at several firms like News Corp. and Hasbro Inc.

Worried about activist interference, Strive Asset Management had sent a letter to the boards of Walt Disney and Apple in September, asking not to let their focus on environmental, social, and governance (ESG) concerns affect their decision-making processes.

The spread of ESG policies is being viewed with skepticism by some Republicans. In a letter earlier this month, for example, Sen. Marsha Blackburn (R-Tenn.) and Sen. Tom Cotton (R-Ark.) warned 51 of the country’s top law firms that the ESG movement tries to “weaponize corporations” and reshape society in a manner that U.S. citizens would never agree to through ballots.

“Of particular concern is the collusive effort to restrict the supply of coal, oil, and gas, which is driving up energy costs across the globe and empowering America’s adversaries abroad,” the letter stated.

Though activists push forward the ESG agenda, most investors barely care about it. A poll by Capitol.com published in September found that traders and investors are not prioritizing such investments, with 52 percent not even considering ESG factors while picking a stock.