26-minute listen
Tiffany Fobes Campion is a senior attorney in the Chicago office of Latham & Watkins, where she focuses on takeover defense and shareholder activism matters. She is a vital member of the firm’s Activism Practice and a central resource for clients and Latham lawyers dealing with activist investors. Tiffany came on RiskWatch to discuss recent trends in the takeover defense and shareholder activism space. She discusses the evolving landscape of shareholder activism, particularly in light of the SEC’s universal proxy rule (UPC) implemented in 2022.
The discussion provides an excellent overview of recent trends. Below are some key takeaways and summarized excerpts from our talk related to how companies can proactively utilize a due diligence firm like Vcheck to prepare for an activist campaign.
What is Shareholder Activism?
Shareholder activism is when an individual or group of shareholders in a publicly traded company use their ownership stake (regardless of size) to pressure management into making changes. Investors acquire shares in public companies and push for changes that drive short-term economic gains, often believing the stock is undervalued. Strategies include proposing new board members, selling non-core assets, streamlining operations, or changing leadership.
Impact of the Universal Proxy Rule (UPC):
Effective since 2023, the UPC requires companies and activists to list all board nominees on their respective proxy cards. This allows shareholders to mix and match candidates from both slates, creating their preferred board composition.
- While initially expected to lead to a rise in single-issue activism (e.g., environmental or social concerns), this hasn’t materialized significantly.
- The rule has resulted in increased settlements between companies and activists due to the uncertainties and logistical complexities it introduces.
- Proxy fights have become more targeted and personalized, focusing on individual director qualifications and comparisons.
Proxy Fights Are Personal
Proxy fights are the most aggressive tactic shareholder activists can use. In a Proxy Fight, activists propose their candidates for the company’s board of directors and try to persuade other shareholders to vote for them. A successful campaign can give activists effective control over the company.
Now more than ever, proxy fights are personal because they look at what an individual director can bring to the board and how they are better or differentiated from another individual director. As proxy fights grow more personal, they also settle earlier, and one reason may be that directors do not want their qualifications or past performance under the spotlight.
Activist Investors Seek Out Disqualifying Themes
Activists utilize several resources to prepare for an activist campaign. This can include gathering the company’s financials, sitting on earnings calls, reading press releases, speaking with other investors about the company’s strategic vision, interviewing current and former employees to uncover risk issues on management, and reading online company reviews.
The Importance of Vetting Board Candidates
While board members typically fill out a Directors’ & Officers (D&O) Questionnaire on an annual basis where they are required to make certain disclosures, companies can go a step further by incorporating upfront and refreshed diligence on board members and candidates to identify things that may not be self-disclosed and can be exploited by activist investors. Proactive director diligence can:
- Screen for risk issues at past companies where they’ve served on the board.
- Verify their education and licensing credentials.
- Identify reputationally damaging behavior on social media.
- Uncover litigation or liabilities in their personal lives that would impact their ability to serve as an influential board member.
- Examine a candidate’s online profile to include criticism on company review websites.
Here at Vcheck, we provide thorough and accurate executive board member screenings.
Contact our team to learn more about how Vcheck can help prepare your company for an activist campaign.
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