UPC in 2023: Shareholders

(and ISS) Won Big

Now that proxy season has wrapped up, we thought we'd look back at the experience with universal proxy card (UPC). Overall, shareholders expressed their preferences in BoD elections with precision. Proxy advisors, in particular ISS, saw their recommendations win in almost every proxy contest.

As you might recall, we followed the development of UPC in the past several months - see below for earlier posts tracking various proxy contests during the year. We looked at the ones with a voting outcome. Many other observers have assessed and commented on the broader impact of UPC, say on overall proxy contest activity and settlements, We wondered how UPC affected actual shareholder voting.

Latest Results

Since our most recent post in late June (below), two contests wrapped up: Driver-FFWM and Sarissa-ALKM. In both, the activist failed to win any BoD seats. One contest settled, Toro 18-HEAR.

We waited eagerly to see the result of the very last one, BT Brands-NROM, procrastinating about writing this post until after the AGM. First, NROM moved its AGM from July to August. In August, NROM announced it failed to gain a quorum at the AGM, and said it will see everyone at the next AGM in 2024. BT Brands sued NROM over this, so maybe we'll see a result sooner.

Overall Results

We saw a total of twelve proxy contests with a voting outcome in the 2023 "proxy season". We define that as roughly the first six months of 2023, with one AGM in mid-December 2022. This is similar to 2022, where we saw fourteen proxy contests with a voting outcome. Each year started with about 120 total activist situations that involved a demand for BoD seats.

In six of those twelve contests, activists won some or all of the BoD seats they sought. They won all of them in two: Magnless-ZVRA and Politan-MASI.

In ten of these contests, activists sought at least two seats. In all twelve, activists ran for five or fewer BoD seats. So, in only a couple of situations the activist wanted just a single BoD representative.

Shareholders and proxy advisors did well

We compared these results to what proxy advisors recommended for their shareholder clients. Shareholders followed their advice, especially for ISS, with one notable and interesting exception.

The table below shows the result for each contest. We express this as the number of activist candidates that each of ISS and Glass Lewis recommended and the number of those recommended candidates that shareholders elected. For example, at Land & Building-AIV, ISS recommended shareholders vote for one of the two Land & Buildings candidates, and Glass Lewis recommended shareholders vote for none of them. Shareholders elected the one candidate that ISS recommended, out of the two that Land & Buildings nominated.

In eleven of the twelve contests, shareholders elected exactly the BoD candidates that ISS recommended:

• At Hestia-PBI, ISS recommended shareholders elect four out of five of Hestia candidates, and shareholders did just that
• At both ILMN-Icahn and ETFS-WT, ISS recommended shareholders elect one out of three activist candidates, and shareholders followed along
• At Land & Buildings-AIV and Politan-MASI, ISS recommended shareholders elect all activist candidates, and that happened
• At six different contests, ISS told shareholders to support only company incumbents, and shareholders did so, too.

Glass Lewis did not see quite the same shareholder loyalty to its recommendations. Shareholders did follow the recommendation to support company incumbents at the same six companies as ISS did. At five others, shareholders followed its advice in full at two, and in part or not at all at three.

What about the twelfth one, Mangless-ZVRA? As we noted at the time, shareholders ignored proxy advisors completely. Mangless nominated three directors, the entire class this year, and both ISS and Glass Lewis recommended shareholders vote for only ZVRA incumbents. Instead, shareholders voted overwhelmingly for all three Mangless nominees.

We interpret these results as favoring shareholders, too. Proxy advisors largely reflect and express the preferences of their clients. Investors that don't like a given recommendation can and usually do ignore it. In five contests, shareholders wanted a greater or lesser amount of change. In six, they did not see the need for any BoD change. They expressed these preferences with apparent precision, much more so than they could have before UPC.

There is much more to consider, both in the impact of UPC on this year's activist situations, and in how activists might adapt to UPC in next year's. We will do that in upcoming posts.

UPDATE: UPCs We're Tracking

We last looked at the list of UPCs that we follow a month ago, so we thought we would update it, with some interesting developments.

Just yesterday Politan won both BoD seats it sought at MASI. Recall MASI attempted to exclude Politan's candidates months ago, only to back down after Politan sued MASI in Delaware Chancery Court.

In the past month, we also saw:

• two other voting outcomes: EFTS won one out of three BoD seats at WT, while FCM lost all four at MNMD
• two settlements, between Mark Tkach and RMBL, and Blackwells and GNL/RTL
• Star Equity withdrew its candidates at SVT.

Also, earlier this month JANA Partners announced its proxy contest at FRPT, which originally scheduled its AGM for July. FRPT since postponed it to October, so we would include it in later versions of this listing.

Overall, in 2023 we've seen ten proxy contests with voting outcomes, with four to go in the next two weeks. Among those ten, activists won at least one BoD seat in six.

As before, we welcome your questions, comments, updates, and corrections.

UPDATE: UPCs We're Tracking

Earlier (below) we listed a number of proxy contests under UPC. Here we update this listing:

• add one that we missed (Stilwell-PFBX)
• add three earlier ones that we mentioned but didn't make it onto the table (Land & Buildings-AIV, Mangless-ZVRA, Hestia-PBI
• saw the outcome of three in the past week or so (Seidman-BLFY, WM Argyle-BWEN, and Icahn-ILMN)
• learned of the ASM date at Sarissa-ALKS
• add the outcome for the seven contests on the table, shown as number of activist BoD seats won compared to the number sought.

Thus, we now have a total of seventeen proxy contests that will have proceeded under UPC by the end of July 2023. Ten of these still have ASMs, so a few may settle. Among the seven with a voting outcome, activists won at least one seat at four companies.

As before, we welcome your questions, comments, updates, and corrections.

UPCs We're Tracking

We've monitored many developments in the new universal proxy card (UPC) rule, including initial reactions, SEC interpretations, and the first few director elections contested under UPC. Rather than recap all of that here, you can find links to that range of resources at the UPC website.

We've seen three such elections with a voting outcome:

• Land & Buildings-AIV
• Mangless-ZVRA
• Hestia Capital-PBI.

Activists prevailed in all three.

We wondered what else to expect in the next few months. Here, we list thirteen other proxy contests we've seen so far in 2023 that may get to a shareholder vote between now and July 2023.

These situations feature a live BoD election. In other words, the activist and company filed definitive or preliminary proxy statements, with a couple of exceptions. Most of these situations involve US-domiciled companies. A couple are not, yet are traded on a US exchange, and thus subject to the UPC rule.

In 2023, we've seen many other situations where an activist announced an intention to nominate candidates, identified nominees in a news release, or otherwise made noise about a proxy contest. We don't yet include these, and plan to update this list as these situations develop.

Some comments:

• At BLFY, the activist nominated candidates for an ASM that took place last week. We have not seen any public information about the outcome.
• We talked about Driver-FFWM earlier, as FFWM initially declined to include some Driver candidates, but since agreed.
• At RMBL, the company announced the date for the ASM, while the activists and the company have not yet filed proxy statements. It looks serious enough to include it here.
• For NROM and ALKS, the company has not yet scheduled the ASM. We expect it to take place in July 2023 based on past meetings, so we also include it here.

We'd gladly include others we may have missed, so please get in touch with omissions or corrections.