Big Changes For Proxy Solicitors With Universal Proxy
Much about proxy contests will change, and has already started to change, with the universal proxy card (UPC). Earlier we noted that UPC makes proxy solicitors much more relevant than before. Here we explore exactly how that would work.
We expect activists to work with a proxy solicitor earlier, for valuable input in planning the director slate. Proxy solicitors also will work much harder with a company's shareholders, to help those shareholders with voting on individual directors and to follow-up with those shareholders even after they vote.
Alas, proxy solicitors frequently are an afterthought in a proxy contest. We've talked to many that rue how clients call them too late, long after they could help with critical decisions.
It's a familiar story. An activist makes the expensive move to start a proxy contest. First call goes to the attorney, or maybe an investment banker or other advisor. Then, it asks the attorney or banker or consultant for the name of a proxy solicitor. The solicitor gets to work, collecting colored cards.
With UPC, activists should look to proxy solicitors for two roles: planning the director slate, and (of course) persuading shareholders to vote for that slate. A shrewd activist will involve a proxy solicitor early in planning. It will also push a proxy solicitor even harder than before to obtain votes, and importantly on persuading shareholders to change unfavorable votes.
As we demonstrated elsewhere, UPC transforms a proxy contest from binary to continuous voting. In continuous voting, the extent of shareholder support for an activist translates more directly into the number of BoD seats the activist can expect to win. An activist must assess that shareholder support early in its planning. It can then determine the size of the slate based on that expected support.
Naturally, no one knows that expected support better than a proxy solicitor. They talk to shareholders every day. They understand how published voting policies, proxy advisor positions, and sentiment about a company and an activist interact at one or another shareholder.
Solicitors also help comply with the 67% solicitation requirement in the new UPC rule. As shown before, an activist might hit that level with a few hundred or few dozen shareholders. And, some companies have begun to demand proof of the solicitation. Thus, the solicitor can identify exactly which shareholders to solicit, track the solicitation, and compile the evidence.
Before UPC, proxy solicitation involved persuading shareholders to vote the activist card. It's straightforward, even brutal work. Show how the activist thesis beats the company plan. Collect more of the right cards than the company.
UPC complicates shareholder voting, as shareholders compare individual candidates. Shareholders can support the entire activist slate or just a few nominees. An activist can and should target specific incumbents, to maximize the impact of their own nominees. Thus, the proxy solicitor painstakingly educates shareholders about these comparisons.
Sure, for disgruntled shareholders, a solicitor collects a proper card, voted only for the activist candidates. That remains ideal, like old times.
For skeptical or wavering shareholders, a solicitor has a more involved conversion. It asks, "how much change do you want?" That takes more time and effort instead of a simple plea to "trust us and vote for our candidates."
UPC also provides a unique, unprecedented opportunity to actually "electioneer". Before UPC, a solicitor would monitor which shareholders already voted, and which ones to pester. Solicitation became a process of follow-up on the delinquent ones.
Now, an activist will collect many proxy cards with votes for both activist and company nominees. The solicitor will know, real-time, how shareholders vote, in addition to whether they vote. Importantly, they'll see which ones are skeptical or wavering and split votes between activist and company candidates. And, they'll see them at a time they can do something about it.
Crucially, UPC did not alter one important aspect of proxy voting: a shareholder can change its vote by submitting a later-dated card. Thus, a solicitor can try to persuade a shareholder that voted for company nominees to change those votes to activist ones.
This new opportunity helps explain some curious wording in early UPCs. In one current contest, both the company and activist admit shareholders might vote for the other side, and encourage shareholders to do so on their own cards. We wrote:
Why would each acknowledge that shareholders might vote for the other's nominees, and suggest they could do so using their own proxy card? We'd think they would do everything it could to discourage this.
It appears each wants to receive as many proxy cards as it can. They can thus track which shareholders have already voted. If AIM receives proxy cards with votes for L&B nominees, and L&B for AIM nominees, then each can easily contact those shareholders, and attempt to persuade them to change their votes. Clever...
Perhaps this goes beyond monitoring which shareholders vote. Maybe each wants the opportunity to persuade shareholders to change votes. An activist can do that only if they have the proxy card.
Imagine an activist seeing how a shareholder voted, seeing the incumbents it supported, and contacting them to vote for activist nominees...