*Before We Get Started*: GPP will be co-sponsoring this year’s Berkeley Fall Forum on Corporate Governance, taking place in San Francisco on October 10-11. If you’re in town, we invite you to drop by Gladstone’s cocktail party on Monday, October 9th, from 6-8 p.m. at the Pied Piper, located in the Palace Hotel. Please send us an RSVP at firstname.lastname@example.org if you’d like to join us.
As the fall begins and a new proxy season inches closer, here are three things companies should be on the lookout for as the 2024 activism season approaches:
1.) A Little Drop of Poison: Bloomberg Law’s Mike Leonard examined the swell of lawsuits attempting to define the proper use of the “poison pill.” Leonard noted that now poison pills are more likely to be used as a blunt instrument to defend against activist investors than their original, targeted function: fighting off hostile bidders. In 2021, the energy company Williams Cos instituted a poison pill with a 5% trigger and a “wolfpack” provision designed to block activists from “acting in concert.” The Honorable Kathaleen McCormick, Vice-Chancellor at the time, invalidated that poison pill, citing a “disproportionate” response to the threat of an activist investor. Fast-forward to 2023 and Chancery is litigating on four poison pill cases similar to Williams Cos. Ann Lipton, Associate Dean at Tulane Law School, says anything that signals “an attempt to rig a proxy context” is going to face more scrutiny.
2.) Swapping Notes: Axios’s Michael Flaherty analyzed why Elliott Management’s campaign at NRG Energy is being closely followed by the activism community. Although Elliott owns just 1.1% of NRG common stock, the fund has built a large position in NRG using a common and much-criticized activist tactic – using derivative swaps which do not show up in shareholder registers. Elliott is now petitioning regulators for the ability to execute its NRG swaps, which would increase its voting power at NRG to 20%. This situation hits right at the heart of a bigger battle: that of the SEC’s proposed rule that aims to place more limits on how activists use swaps to build their positions – known as proposed Rule 10B-1. A ruling against Elliott in the NRG situation could “embolden” those in favor of placing more curbs on how activists build stakes. But, in Flaherty’s eyes, given the heavy lobbying from the financial industry, “the chances of [the new SEC rule] passing are about as small as Elliott’s common equity stake in NRG.”
3.) Are the times A-Changin’? Change doesn’t happen overnight, especially on corporate boards. The Wall Street Journal’s Theo Francis and Emily Glazer highlighted new data regarding the demographics of Fortune 500 boards directors. They note that while most companies say refreshment and diversity are priorities, the numbers suggest change is happening very slowly. Last year, nearly three-quarters of Fortune 500 board directors were male, and four out of five were white. A major factor slowing progress: most boards are hesitant to enforce a retirement age. And while there is a marked improvement compared to where Boards were five years ago, Glazer and Francis note, change overall is glacial: “At current rates of change, the share of Fortune 500 directors who are Black or Asian will roughly match the U.S. population by about 2030, Deloitte projected. Boards will be about half female by 2040. By contrast, at current rates of change, Deloitte said Latino directors will never catch up to the U.S. population.”
Have a great weekend,