Despite winning at least one seat in a majority of their fights, activist investors won less seats overall from proxy contests in the 2023 proxy season at 102, down from 115 in 2022, according to data from Diligent Market Intelligence (DMI).

Although activists enjoyed a surge in support from the so-called “Big Three” index funds; BlackRock, Vanguard and State Street Corp., the introduction of the universal proxy card (UPC) in September 2022 did not lead to a surge in activist campaigns, rather instead resulted in an increase in partial victories.

Primary focus activists nominated 58 directors at U.S.-based companies, versus 115 in the 2022 season. 40% of demands put forward at U.S. companies by primary focus activists, which led to a proxy contest, were at least partially successful, up from 38.5% a season prior.

“For us the key takeaway from 2023 is what didn’t happen,” said Glenn Davis, head of research at the Council of Institutional Investors (CII) in Washington DC. “The arrival of universal proxies didn’t set off a spike in shareholder activist campaigns. It just enabled shareholders to be more precise about which nominees they actually support.”

Universal proxy expands voting universe

That ability to pick and choose freely between dissident and incumbent nominees, thanks to universal proxy, looks to be one of the key factors behind a rise in partial victories this season. Institutional investors were granted a newfound freedom to pick and choose directors on both slates, meaning more campaigns saw one or two dissident nominees secure seats on boards where their skills and experience were considered especially attractive.

According to DMI’s Proxy Season Review 2023, in the first half of 2023, six of the 11 resolved gain board representation demands made at U.S.-based companies resulted in at least one activist board seat being won.

“Increased support for dissidents is also likely a function of the UPC where investors can truly evaluate candidates on a nominee-by-nominee basis and select what they believe is the optimal board composition,” said Michael Fein, Chief Executive Officer of Campaign Management. “We’re also seeing a continued upgrade in the caliber of dissident nominees as the stigma of being on a dissident slate has largely vanished.”

At Pitney Bowes’ May 9 proxy contest, Hestia Capital, a firm with less than $100 million under management, gained four of the five board seats it was seeking at the business services company. The campaign took aim at Chair Michael Roth and CEO Marc Lautenbach for what the activist described as “maintaining a clubby and insular boardroom that safeguards their leadership positions and the status quo” while damaging shareholder value.

Columbia Threadneedle U.S., T. Rowe Price Associates and BMO Global Asset Management rank among the investors to partially back dissident nominees, citing dissident director skillsets as particularly desirable and currently lacking on Pitney’s board.

“At the company’s annual meeting, [we] supported three of the dissident’s directors, including one candidate who was mutually agreed upon by the dissident and the company, to signal our concerns about board composition and oversight of strategy execution,” BlackRock’s proxy season review reads.

Big Three support

The three largest index funds, BlackRock, Vanguard and State Street, were all more supportive of dissident nominees in 2023 compared to seasons past, again likely in part due to UPC granting more freedom in voting decisions.

On average, the Big Three supported dissident nominees in 37.2% of global contests they voted in, up from 31.5% in 2022, and the highest support level in at least five years. Average support was slightly lower at U.S. listed companies, with the three asset managers supporting dissidents in 31.5% of votes, though still well above the five-year average.

The power of the Big Three was exemplified by notable campaigns where their support for dissidents helped secure activist victories.

At Illumina’s May 25 proxy contest, Carl Icahn gained a board seat with backing from Vanguard and State Street, marking the first time the chairman of a large-cap North American company was voted off a board since the Canadian Pacific fight of 2012. Shortly after, CEO Francis deSouza also stepped down.

BlackRock opted to support management, noting in its proxy season review that “in our assessment, the directors nominated by Illumina are in a better position to navigate the complexities and potential outcomes of the Grail deal.”

“Companies should proactively engage with shareholders, provide disclosure of board composition that explains how the board’s collective and individual talents and skills align with the current and future needs of the company; and communicate steps the board is taking to measure and enhance its effectiveness,” a January Vanguard whitepaper reads. “Such disclosures can allow shareholders to better assess the qualifications of each director and can lead to better decision-making abilities in the instances of contested director elections.”

For insights into investor voting trends, download Diligent Market Intelligence’s Investor Stewardship 2023 report, which offers definitive qualitative and quantitative analysis of voting trends observed in the 2023 proxy season.