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2021 Proxy Season

Our executives from the global Shareholder Engagement team reflect on the U.S. 2021 Proxy Season and beyond.

Learn about the 2021 Proxy Season takeaways from sector trends to short slates, ESG proposals, say-on-pay voting and more.

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Learn about the 2021 Proxy Season takeaways from sector trends to short slates, ESG proposals, say-on-pay voting and more.

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Alfredo: So the 2021 proxy season stacked up by having twice, roughly twice the number of campaigns of the 2020 season. And that is explained by the fact that 2020 was somewhat affected by the pandemic, and that makes sense because there’s a renormalization of markets.

David: It’s very important to note that activists have shown that they’re willing to attack any sector whatsoever with a campaign. Of all sectors though, it is information technology and the consumer discretionary sectors that have received the most campaigns over the years. In fact, 70 to 80 percent of the time, they put up what’s called a short slate, which is a minority of the board of directors if they were to win. They do that because it’s a lot easier to gain support from other institutional investors who may just say, “Well, what’s the harm in adding one or two board members?” We again saw that 50 percent of the proxy contests were settled, where the dissident took board seats and the company was willing to grant the dissident those board seats to avoid actually going to a shareholder vote. Companies realized that they have to balance: is it worth fighting versus the quality of the board members that are in front of them?

Alfredo: We have seen a significant increase of compensation in governance-related campaigns broadly across the sector. And that was followed also by an increased number of operational-type campaigns, then an increase in M&A-related campaigns, which is somewhat of a function of activists enjoying or really targeting situations where they can achieve a significant return within a short timeframe.

David: The proposals regarding the environment actually were more frequent and they developed a much larger support vote. So you were seeing about 33 percent of proposals regarding the environment actually pass this year, which was up significantly from previous years. 2021 also saw the first proxy fight where the primary issue was climate change. We saw Engine No. 1 nominate candidates to the Exxon Mobile board and they were able to win three seats on the board. As we go into 2022, I think that the environmental themes that we saw and the social themes are becoming a bigger trend. The Say on Pay vote is interesting because it’s an early indication of shareholder unrest, and the trend that we saw in 2021 should trouble some companies. And in 2021, you saw more proposals fail than in any other year, with upwards of 35 to 40 percent of the proposals failing at the largest companies in America.

Alfredo: As we think of the role of proxy advisors in the context of proxy fights, there has been a shift where many investors are viewing the input from ISS and Glass Lewis (the two main proxy advisors) as an input into their decision process on how to vote on a number of items. ISS has recommended in favor of dissident candidates two-thirds of the time, whereas Glass Lewis has done that one-third of the time, and that is somewhat consistent with past practices.

David: Preparing for an activist campaign is like the old adage, “an ounce of prevention is worth a pound of cure.” Making sure that you have reviewed your strategy and know how well you’re communicating with your shareholders and being in touch with that is a very important element to being aware whether you are vulnerable and knowing how quickly you can act. Assembling a team of advisors that you know and trust and are ready to move into action quickly is a key part of being prepared.

What Were the Key Trends Shaping this Year's Proxy Season?

“The 2021 proxy season stacked up by having roughly twice the number of campaigns than in the 2020 season. That is explained by the fact that 2020 was impacted by the pandemic, and 2021 became a renormalization of things."

Alfredo Porretti
Head of Shareholder Engagement and
M&A Capital Markets for North America

2021 Proxy Season by the Numbers

Sources: FactSet, ISS, Activist Insight
Proxy season covers annual meetings held by June 30 each respective year since July 1 the year before; “Proxy fights” defined as contests where a shareholder sought board seats, so output excludes contests in which board seats were not sought; Sample set includes proxy fights at U.S. companies with market cap >$500mm at the time of campaign announcement; Includes hostile situations in which activist also demanded board seats

How Can Corporates Prepare for Activism Campaigns?

“It's like the old adage: An ounce of prevention is worth a pound of cure. Make sure that you have reviewed your strategy. Communicate with your shareholders. Assemble a team of advisors that you know and trust. Be ready to move into action quickly.”

David Freedman
Global Head of Shareholder Engagement and M&A Capital Markets

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