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What Directors And Executives Should Take Into 2025 Annual Meetings in Activism And Shareholder Proposals

Boards of directors confront a fast-changing environment for corporate governance, activist investing, and shareholder relations as they plan for annual meetings this year. Investor-Com follows developments in these and other subjects closely. Based on our experience in 2024 and before, we set forth our views about how directors can best navigate these developments.

In short, boards should prepare for a wide range of activist scenarios, not just proxy contests. While shareholder proposals diminish in importance, routine annual meeting mechanics do demand heightened attention.

ACTIVISM GOES MANY WAYS

The most serious activist situations become proxy contests, although boards now see many different forms of pressure from activist investors. Boards should plan for a range of activist efforts, beyond complete proxy contests.

Over 100 proxy contests and similar activist situations were initiated each year since 2022, according to data from Barclays. Still, complete proxy contests for board seats are somewhat rare. In the US, under 20 proxy contests have gone as far as a shareholder vote at an annual meeting in each of the past few years. So, most such situations either settle or result in the activist abandoning the effort. Boards needed to prepare and respond to an activist with some frequency.

In 2024, companies and activists settled these situations more than in previous years. Approximately half of activist situations resulted in a settlement before the annual meeting, with half of those resulting in the board appointing one or more activist-affiliated directors. Thinking in advance about settlement terms as well as proxy contest strategy makes good sense, then.

What do activists want? Many things, and more than in past years. Sure, they usually demand board representation, but also CEO changes, strategic reviews of businesses, operational improvements, specific M&A moves, balance sheet restructuring, governance reforms, and board updates, according to Barclays data. Understanding the range of potential demands and forming a plan for each also helps a board prepare for these situations.

Finally, we see many new activist investors in our work. Over 80% of activist projects in 2024 started with either newly-formed activist funds or with other types of investors that have only a few or even no previous activist projects in their background. In other words, a current institutional investor in a company is much more likely to initiate an activist project than one of the long-time established activists.

SHAREHOLDER PROPOSALS LESS IMPORTANT

Another way directors see activism is in the wide range of shareholder proposals that companies receive in a year. These should pose less concern to boards in 2025.

The number of shareholder proposals increased steadily in the past few years, reaching a high of over 900 proposals at US companies according to data from ISS, with the largest cap issuers receiving 10-20 proposals. Well over half of these pertain to environmental and social issues, while the remainder involve specific corporate governance or executive compensation changes.

Two-thirds of shareholder proposals go as far as a shareholder vote at the annual meeting. Almost one-quarter are omitted because of a successful no-action recommendation from the SEC. The remainder are withdrawn, sometimes because the proponent and the company agree to something in lieu of submitting the proposal to a vote, and more often because the proponent declines to pursue it.

Support for proposals that go as far as a shareholder vote continues to decline. Very few environmental and social proposals win a majority of votes, while most receive far below 20% of votes cast. Governance proposals perform somewhat better.

We also expect the SEC to become more supportive of efforts to omit shareholder proposals based on no-action requests. For these reasons, we expect shareholder proposals to become less of a concern for boards in 2025.

Boards do need to consider one factor. As the environment worsens for proponents, some may pursue a novel path, soliciting proxies for a shareholder proposal. This occurred twice in 2024. At Warrior Met Coal, the United Mine Workers solicited proxies for five separate shareholder proposals, and succeeded in gaining shareholder approval for four of them. And, at News Corp., activist Starboard Value solicited proxies for a proposal to eliminate the dual-class share structure, which gained a majority of the unaffiliated (with the Murdoch family) shares voting. We expect one or more shareholders to pursue this creative way to pressure boards.

MANAGE ANNUAL MEETING MECHANICS

Recent developments in annual meeting proceedings also merits attention in 2025. Boards should pay close attention to seemingly routine details such as broker voting and advance notice bylaw compliance.

Broker voting refers to how brokers and other custodians vote shares held in street name, or held on behalf of the beneficial owners. Brokers policy for voting these shares can vary significantly. At routine shareholder meetings, if customers don’t submit voting instructions, then brokers increasingly do not vote those shares. They sometimes don’t even submit those shares to attend a shareholder meeting, so the company could fail to attract the quorum needed to convene the meeting. Some companies thus revise quorum requirements to allow a meeting to proceed.

For shareholder meetings with a proxy contest or even shareholder proposals, understanding broker voting policy and procedure becomes even more important. As shown above this occurs at a relatively small number of companies, but becomes critical if it’s your company. Then, brokers may not vote uninstructed shares on contested matters, including board elections and shareholder proposals. Boards must continue to solicit shareholders aggressively, both to win votes for board nominees and proposals, and even to gain a quorum.

Brokers have even begun to vote shares proportionally. They vote uninstructed shares in the same proportion as shares with instructions. So, if only a small number of shares in its custody vote on a matter and if they vote mostly against a given management candidate or proposal, then the broker will vote all of the shares in its custody mostly against the candidate or proposal. Companies should understand broker voting policy and procedure, and prepare to solicit accordingly.

The other significant annual meeting development involves how advance notice bylaw terms work. Companies have updated these terms in recent years to both bring them consistent with current practice, and in some instances to make it more difficult for activists to participate in shareholder meetings. Companies have also begun to enforce existing bylaw terms more aggressively, seeking to compel shareholders to follow closely existing bylaw terms when nominating directors or submitting shareholder proposals.

Companies should proceed cautiously with these terms. Activists have begun to litigate these terms in both state and Federal court, with increasing success.

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