No Shut-down for Activism

While activist activity was down a bit in the first quarter of 2020, compared with last year’s first quarter, according to Activist Insight’s “Shareholder Activism in Q1 2020” report, there were still plenty of shareholder demands made of public companies.

By sector, industrials was the largest group impacted by activism, followed by financial services and consumer cyclicals. Large cap companies were the most affected, with U.S.-based companies making up 70 percent of those subjected to activist demands.

Shareholder demands are still being made of public companies, according to Activist Insight’s “Shareholder Activism in Q1 2020” report.

Lazard’s 1Q 2020 activism review shows that the number of targeted companies in the first quarter of this year was roughly the same as in last year’s first quarter. On the other hand, Reuters, reporting on the Lazard review, noted that while 2020 began on a strong note, with activist firms pushing for change at 42 companies in the first two months of the year, new activist campaign launches fell by 38 percent in March, when the global economic shut-down began in earnest.  Further, Reuters reported that new activist campaigns were, “launched at the slowest pace since 2013 and corporate agitators put the smallest amount of money to work since 2016.”  

Even so, there are several high-profile campaigns looming. One getting some buzz, according to Bloomberg, is Standard General’s proxy fight with Tenga, Inc., a $2 billion media company. This contest will be the first-ever all-digital board fight. With Standard General seeking four board seats, Tenga’s virtual annual meeting on April 30 will be a test for activism, both digitally and in the world of COVID-19. 

While virtual annual meetings are nothing new, counting contested votes remotely is. Bloomberg noted that Broadridge Financial Solutions Inc., which prepares, ships and counts most of the proxies for U.S. companies, doesn’t currently have a specific platform to allow for remote voting in a contested situation.  According to a Broadridge representative, the company, “lacks the technology” to count virtual votes when there are competing director slates. 

Bob Marese, president at MacKenzie Partners Inc., a proxy solicitation firm, said that it could, “be more difficult for proxy solicitors get investors to switch their votes in the lead up to the meeting because many are not in the office, nor are the bankers or brokers they may need to change their vote.” Other potential pitfalls include the inability for shareholders to ask tough questions in a virtual meeting setting. According to the Financial Times (as reported by IR Magazine), investors have become concerned that virtual annual meetings could “shift the balance of power” away from shareholders, as companies have greater control over managing Q&A sessions virtually.

What does the future hold for activist activity? Since many companies have curtailed stock buyback activity in light of the COVID-19 crisis, Lazard believes that activists pressing for return of capital through buybacks will not be a focus. 

Jim Rossman, the head of shareholder advisory at Lazard, believes that, “lower M&A activity and companies focused on conserving cash will mean that activists are likely to increase their focus on operational performance and how management teams react to the crisis as the basis for new campaigns.” He went on to say that activists will likely want to avoid looking overly aggressive during the pandemic as to not offend other investors, “whose help they might need in pushing their case later.” 

Chris Young, managing director and global head of contested situations at Jefferies, also believes overly aggressive activists could face media backlash for seemingly profiting off the pandemic. Young further believes that, “having lived through the prior period of sky-high market volatility, we expect there will be a decline in activist campaigns in the near-term. Once volatility subsides and corporate valuations reset at new normal levels, however, we expect activists could have enough time to initiate new campaigns, including submitting director nominations for proxy season 2021.”

While COVID-19 may be changing the activist landscape in the near-term, the same best practices apply to help make sure your company is ready in the event of aggressive shareholder demands. Analyze your shareholder base and stay in-the-know about changes in ownership, especially during a period of extreme volatility when activists can build positions more cheaply; be open to proactively engaging with investors, even while you hunker down to focus on the impact of the current health crisis and economic downturn; and, think about adopting a “poison pill,” or at least having one at the ready. 

Laurie Berman,

What the Pundits are Sayin’ about Payin’

Value for Money

Value for Money (Photo Credit:

With myriad information and opinions hitting the papers and Internet every day about the ins and outs of “Say on Pay,” it seems helpful to summarize the most pressing issues and commentary (and a short summary this will not be).
The SEC adopted formal Say on Pay rules about a month ago, as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Companies must conduct an initial vote on Say on Pay at their first regular meeting of shareholders occurring on or after January 21, 2011 (even if a company’s proxy statement was filed prior to January 21).  Companies whose public investors hold less than $75 million of its outstanding shares are not required to hold such a vote until 2013. It’s important to note that the votes are advisory and not binding onto themselves.
In its most basic form, Say on Pay requires U.S. public companies to provide shareholders with the right to cast three types of advisory votes:

  • Say on Pay: To approve the compensation of named executive officers;

  • Frequency (a current hot button among public companies and their investors): To determine the frequency with which shareholders should be entitled to cast votes on the company’s executive compensation;

  • Golden Parachute: To approve certain payments made in connection with an acquisition, merger or other specified corporate transaction.

As of the end of last year, 73 companies with shareholder meetings on or after January 21, 2011 had filed either preliminary or definitive proxy statements.  Do these proxies provide trend information about how Say on Pay will play out?
Latham & Watkins says that 56% of the filed proxy statements have recommended a vote to approve compensation every three years; 23% have recommended annual votes; 11% have recommend a vote every two years; and the remaining 10% have not made a recommendation related to frequency.  A Towers Watson survey of 135 U.S. public companies conducted in mid-December showed that 51% expected to hold annual say-on-pay votes; 39% preferred the vote be held every three years; and 10% anticipated holding a vote every two years.
Law firm Qashu & Schoenthaler LLP reviewed the voting results of 88 companies that had disclosed the results of their Say on Pay frequency votes as of February 22.  While 55% of the directors at these companies recommended a vote every three years and 27% recommended a vote every year, only 29% of shareholders at these companies voiced their preference for vote every three years while 65% preferred every year. Sheppard Mullin also provides an excellent view into recent voting trends and practices.
My best guess is that investors will continue to press for annual votes, as they seek to gain more influence over how their companies should be run.  Institutional Shareholder Services (ISS) supports this view and has a good FAQ on its compensation policies here.  A recent MarketWatch article noted that the shareholders of Monsanto, Air Products and Chemicals, Jacobs Engineering and Woodward Inc. demonstrated a strong preference for future Say on Pay votes to be held each year, instead of management’s preference to hold the vote once every three years.
Towers Watson contends that there is “no single right answer to the question of how frequently these votes should be conducted that will work for every company.  Each company seems to be assessing its own circumstances and needs, taking into account its specific shareholder composition and the degree of potential shareholder concern about the company’s executive pay programs.”
Towers Watson found that nearly half of those companies surveyed are making “some adjustments to their executive pay-setting process in preparing for the upcoming proxy season.”  Those making these changes plan to devote more attention to explaining their programs, performing additional analyses on the link between executive pay and company performance, and/or considering changes to programs such as severance, change-in-control benefits and perks that have high visibility.
Advice from Latham & Watkins says that in preparation for these upcoming votes, companies may want poll their significant shareholders about desired frequency of Say on Pay votes.  In fact, a recent Harvard Law School Forum on Corporate Governance and Financial Regulation informed   that a group of institutional investors led by Walden Asset Management and representing more than $2.0 trillion in assets under management, has asked some companies to host an annual conference call specifically for institutional investors to focus on corporate governance discussions in the proxy statement. Whoa.
When deciding what is best for your company and its shareholders, consider the results of past votes on equity plans and director elections to determine the level of shareholder satisfaction on past executive compensation matters.  It’s also a good idea to understand the voting guidelines of proxy advisors, such as ISS and Glass, Lewis, as well as your largest institutional shareholders.
Open and ongoing dialog is key to maintaining a best-in-class investor relations program, and whether it be Say on Pay or other issues facing your company, communicating honestly is the best recipe for success.  Let us know how your company is thinking about Say on Pay.


Laurie Berman,