Shareholder activism is firmly in the mainstream as institutional investors in particular become more comfortable asserting themselves during annual general meetings, which is changing the priorities that come up during proxy fights and other activist campaigns. In a five year study of proxy voting at Russell 3000 and S&P 500 companies, researchers Matteo Tonello and Melissa Aguilar of The Conference Board (in collaboration with FactSet) found that there has been a noticeable change in just the last few months, as noted in the September issue of Activist Insight (ValueWalk readers can receive 33% discount on Activism Monthly Premium by using this link to purchase a subscription).
Activists changing their focus
“There is a clear indication that activist investors are turning their attention to new issues. For example, in the Russell 3000, five investor-sponsored proposals restricting golden parachutes received the support of a majority of shareholders,” they write. “While the volume remains low, it is the highest ever recorded on this topic and it signals that voting on executive compensation issues other than say on pay can still find its way to general meetings of shareholders.”
Tonello and Aguilar also found that more companies failed say-on-pay votes this year than last year, even when they had passed the vote by a strong margin in 2013. The total number of campaign announcements in the Russell 3000 is up so far this year, but many of campaigns stayed clear of the annual general meeting as hedge funds focused on social media to agitate for change instead. There was also an increase in proxy contests among Russell 3000 stocks concentrated in retail trade and finance.
On the other hand the study found a decline in activist campaigns targeting S&P 500 companies, even though activists seemed more ready to take on large caps at the end of 2013.
Successful activism has made new activist campaigns more difficult
To some extent the drop in activism could be a sign of activists’ success. The volume of shareholder proposals (not to be confused with activist campaigns) has been down this year, with a more pronounced drop in proposals among large cap shareholders, because investors are shifting their focus away from nuts and bolts governance issues and corporate boards are doing a better job of staying engaged. This has led to a record number of shareholder resolutions addressing social and environmental issues, often spearheaded by the same labor unions that pushed for better corporate governance standards in the past.
This has also caused the number of withdrawn proposals to double as companies enact changes on their own instead of fighting tooth and nail to resist change. It also means that the percentage of successful proposals has fallen as activists target less popular topics that don’t have as much traction with other investors.