May 23, 2022

Universal Proxy: What If There’s More Than One Activist?

The universal proxy rule will change tactics for activists & companies. The investor resource The Activist Investor is exploring the ramifications with a collection of articles and other information. In this article, Michael points out that the SEC rule doesn’t directly address the situation of multiple activists – leaving companies & challengers to sort that out in the trenches. He notes:

The rule is silent on the critical elements of how the UPC will apply to proxy contests with more than one activist investor. Without further guidance from the SEC, companies and activists may handle these situations in dramatically different ways.

We see three such critical elements:

– The proxy card contents and format

– Notifications among the activists and the company

– Reference in proxy statements to information about director nominees.

The article goes on to outline ways this might play out, in the absence of SEC guidance:

We can easily envision situations in which a company wishes to comply strictly with the SEC rule. If the SEC doesn’t require something, then (conveniently!) it won’t do it.

It might notify each activist only of the company’s nominees, since that’s all the rule requires. Each activist would then have an incomplete proxy card.

Or, a company may list all activist candidates together, alphabetically as the rule prescribes. This will likely confuse shareholders, and perhaps prompt them to vote for company nominees.

We can also envision situations in which one activist wishes to avoid ceding any advantage to another activist. Then, one activist might want to not list director nominees from another. Or, one activist might refer shareholders to proxy materials only for the company, and not for other activists.

This is just a start. Resourceful companies (and activists) can no doubt think of other ways that creative interpretation of the new rule will confound multiple activists that nominate director candidates at a company.

The SEC hasn’t given indications that it will provide additional guidance on this rule before the August 31st effective date. It may wait to see what issues actually materialize and how companies & activists respond. Remember that if you encounter a sticky situation, you can use our “Q&A Forum” to get thoughts from the securities law community.

Liz Dunshee