TheCorporateCounsel.net

March 1, 2023

Universal Proxy: The Sky Isn’t Falling (Yet)

Everyone’s been speculating on whether & how the SEC’s universal proxy card rules will impact proxy contests. These rules are a big deal – but a recent memo from Schulte Roth & Zabel says that everyone can take a deep breath – at least for now. That’s because the fundamentals of early UPC activist campaigns have been pretty much the same as they were before the election mechanics changed.

The memo analyzes takeaways from the first 3 actual (and attempted) proxy contests under the new rules. Here’s an excerpt from the conclusion:

As noted above, the early proxy contests conducted under the universal proxy rules have seen companies and activists utilize strategies and themes that brought success prior to the UPC, with adjustments on the margin. At Argo and Aimco, the activists seemingly did not overreach on the size of their slates and attempted to take a surgical approach to board refreshment, including by largely targeting non-diverse men above the age of 65.

Contrary to the concerns that activists will now run campaigns “on the cheap,” the activists in both campaigns also apparently spent (or anticipated spending) a substantial amount of money when pursuing minority board representation—$1,000,000 in the case of L&B at Aimco and $750,000 in the case of CRM at Argo. In addition, at both Argo and Aimco, it seems, consistent with past experience, that ISS and Glass Lewis played meaningful parts in the outcome of each contest and that both used analytical frameworks that remained substantially unchanged from the pre-UPC era.

Finally, while we are still in the infancy of the universal proxy rules, the expected uptick in substantial activism has not yet come to fruition. Since the effectiveness of the universal proxy rules, the number of announced election contests, campaigns that have resulted in a board seat, and public settlement agreements are all at depressed levels relative to equivalent periods during the two prior years. For companies, it does not appear that the sky is falling. For shareholders, it does not appear that it’s open season. But, as the universal proxy rules age and the activism landscape settles around the UPC, we anticipate that the next two- to three-year period will reveal the true, immediate import of the mandatory use of universal proxy cards in certain director election contests.

Liz Dunshee