A Superb Analysis of Advance Notice Bylaws

Followers here know we read the academic literature on activism avidly. Corporate finance and legal scholarship forms the foundation of the logic and evidence driving trends in activism.

We rarely explain one or another paper here, though. Much as we handle most stuff we read and like, we prefer merely to link to interesting and useful ones, and let everyone peruse them as they see fit.

A current paper on advance notice bylaws (ANB) caught our attention. As we follow ANBs, we've waited eagerly for someone to build and analyze a dataset of them, much as academics analyzed poison pills a generation ago. Now we have it, and explain its structure and importance here.

14,000 ANBs at 3,800 companies

In Rewriting the Rules for Corporate Elections, Ben Bates of Harvard Law School compiled and analyzed a dataset of ANBs for the ages. He seeks to identify trends in ANBs from 2004 to today.

To no one's surprise, Ben finds ANBs have become more complicated and restrictive in the past twenty years. He also begins to identify the factors that contribute to this trend, including the financial crisis of 2008 and the increase in activism in those years.

Ben examines two attributes of ANBs: their absolute length in terms of word count, and their individual components. These components pertain to the specific disclosures that companies require of activists, rather than the notice period for director nominations and proposals. While the standard notice period has not changed materially since 2024, the individual disclosures within ANBs have changed dramatically.

Types of ANB disclosure

His classification scheme for ANB disclosures especially impressed us. He identifies twelve disclosures:

1. Agreements, arrangements, and understandings - between an activist and related parties, such as director nominees or other investors
2. Affiliates - of the activist
3. Associates - of the activist
4. Acting in concert - any other parties with which the activist might collaborate
5. Competitors - any investment or interest in competitors of the company
6. Derivatives - investment in derivative securities of the company, and possibly of competitors (see 5. above)
7. Family members - extend various disclosure obligations to family members of the activist and its BoD nominees, and possibly affiliates (2. above) or associates (3. above)
8. Known supporters - of the activist, such as other shareholders
9. Performance fees - for the activist, say based on company performance or the outcome of the activist project
10. Questionnaire - whether the company requires director nominees to complete one of these
11. SEC Reg S-K Item 404 disclosures
12. SEC Schedule 13D disclosures.

Ben uses these twelve types of disclosures to assess ANBs. He deems companies with numerically more of these as having more restrictive ANB terms. His specific methodology merely searches for and counts the number of these terms within the ANB text, rather than reading and interpreting individual terms.

We can and should debate these categories. For example, affiliates (2.) and associates (3.) probably overlap. It's not clear what a company wants and what Ben means by Schedule 13D disclosures (12.). Our point here is, he thought how to break down and classify the wide range of disclosures in ANBs.

We'd love to see further analysis of this data. How about identifying which ANB disclosures are more or less correlated to company financial performance or to activist efforts? Can we run these through an AI engine to read and assess individual ANBs, and tease out even more nuance?

History and legal foundations, too

The paper also has a thorough discussion of the history of ANBs. Because it's a law review paper, it also discusses in detail the legal elements of ANBs, such as how they have evolved in Delaware. In this respect it serves as a current historical and legal reference for anyone interested in those aspects of ANBs.

Ben compiles and analyzes other company data besides ANBs, including financial information and stock pricing and activist efforts at those companies. He correlates ANB development to company size and financial performance and to proxy contests and other activist projects.

Ben goes as far as analyzing the costs to activists of ANBs. He even suggests some reforms that could make ANBs more fair and reasonable, such as shareholder approval of ANB amendments or changes in Delaware statute.

The entire paper is worth a close read. Above all, we now have a comprehensive dataset of ANBs, with an admirable initial effort at analyzing how these work. Activists, scholars, attorneys, regulators, and the courts should watch this closely.