Universal proxy after three years

Welcome to shoulder, Primacy from free float media, a podcast about activist investing Securities Law, and all the ways, the financial illegal worlds, intersect and Collide in real life, and Lipton. And I have returned, and is the law professor at University of Colorado, we teachers and research to Securities and business law. She looks after and is custodian of the legal end of. I tried the question in your, in your voice. Well, the law part of what we talk about here on the podcast. Investor. Who lives in Works in Chicago, he covers the financial side. Yes, financial and financials has brought us legal. So anyway, hey, and guess what? It is 50. This is our 50th podcast. Wow, did you ever think we could get that far? I don't know. I mean it was gonna happen, right? We found enough to talk about it. We have a long list of other things to talk about. So there will be many more but this is not number 50. Yes. So, and how can people tell us what to add to the list? Yes, they can email us, they can email us at shareholder, Primacy at freefloat LLC. I'll just mention we got a great helpful email in response to our last podcast which we will spin out in a future date and talk about it. But yeah, but yeah. So if you can send us what you would like us to talk about or comment on what we've talked about, that would be helpful shareholder, privacy at free, float. LLC. Thank you. All right, it's been a little while since we talked about our or maybe my at least my most one of my favorite subjects, Universal proxy really technical but very broad implications so three years ago Right around. Now, the SEC began to require companies to use the universal proxy in Contested border elections. So we need to be careful that that it only applies to proxy contests. But so after three years, is probably a good time to look back on our experience and sort of see what we've seen and see what we've learned. Yeah, well, can cover some of the basics, a refresher of what this actually is and then you can tell us what happened in the last three years because I will, I will do. I will do my darnedest. Let's talk about some of the basics then just as sort of a refresher, or for people who have been quite familiar with it. It's a good groundwork for understanding some of the trends that we saw which we'll talk about in a little while. So yeah. So I mean, the way I explain it, I mean, is that you own you have to understand it in contrast to what the world looked like before. Yes. So we start with most shareholders. Do not go to the shareholder meeting. They vote by proxy meeting. They cast a ballot in advance, which is very much like casting a ballot by mail and they mark off the ballot and they mark off their choices. And when there's a contested election, both the company and the dissidents and their own versions of a ballot and you can pick which one you want to return, you could have, you could have the past right. Okay, the past was you pick which one you'd want to return and it mattered a lot back in the day because they were different because the rule was that you could only put the name of a particular director candidate on a ballot. If that director agreed to be included on your ballot and since in a proxy contest, both sides are rather it odds. Nobody would agree to put their names on the other side's ballots. So, what that meant was that you was a shareholder, would get a copy of the company. It and you would get a copy of the dissident ballot and they would lift two different director slates and that meant that you could only choose from one slate or the other slate. And you would mail that ballot back. There was no way to pick and choose and combine different directors from different slates, right? And and, and, and there was actually an interesting. So, basically, as an activist, I used to have to get consent from candidates and I used to have to run around, you know, the night before I submitted a notice, and I'd be getting consents from the people. I've been interviewing and talking to and so forth. And they write a short little letter that my lawyers told me to make them. Sign that said, I hear by consent to agreeing to serve, as a direct or appear as a director nominee. I can't remember the exact language. Well, if and, I think what you're saying is that, if I tried to get that from any of the company people, they would say. No, they would decline here. Palette, the people who you were nominating and the company directors would not be on your ballot. And that would mean that, if anyone wanted to vote for your directors, they couldn't also vote for company directors, that they take, you know, a few directors from each slot. Essentially, you'd have to go the entire activist slate or the entire company slate, with some variations for short space, but that was basically the principle that you couldn't pick and choose from the different slates unless you actually went to the shareholder meeting for the most part, and cast your ballot like in person. Yeah, like, show up in person and what happened? You'd get a piece of paper, right? You get realistic everybody exactly. But you could, but unless you if you're voting by proxy, you would have these ballots. That would have either one Slater the other slate. And so essentially what the SEC did a couple three years ago was to say that's stupid which actually people had been saying for years, that's stupid. But finally, the SEC made rules that said if it's a bona fide contest and it has some rules for has to, you know, how it's got to be Bonafide, like they are there of like people who aren't Really making much solicitation. They have to listen to certain number of people, but it's a bona fide contest. Then everybody gets to list all the candidates on their ballot, you still get a ballot from each side, but the ballots are have the same list of candidates all the company candidates and all the activists candidates as well as other stuff that might be on Bell. So that you as a shareholder, can pick either one to return and it doesn't affect who you can vote for. You can vote for some of the company people and you can vote for some of the activists people. If you want to mix and match, And that's yeah, and one of that was the basic idea. And one of the things that we talked about is this sort of unanticipated side, effect of this was the possibility of running proposal, only proxy contests, where an activist doesn't propose any candidates for director where they only propose a shareholder proposal, because they can put the company director candidates on their own ballot, and then you could return their balance. So, we've talked about that before, right? And that was the, when the Mine Workers, and yeah, they're saying at the warrior met some others and starboard did it too. Yeah. So like their news because they know they can list all the director candidates on their own ballot. They can circulate a ballot that has the company director candidates and say, a shareholder and their proposals, which they couldn't do before. Because before they couldn't list the company directors, they would only send around about with shareholder proposals on it. And no one's going to return that because they don't want to sacrifice their ability to vote for directors, right? So and so this Three years ago, but there was a little bit of her history. This was kind of quiet note. I think there were some no one quite expect. No one quite saw this coming in 2022. I don't think people have been urging it for years. I don't know if like the when they actually enact finally did it, whether that was a surprise, but people have been arguing about this for at least 10 years before then, right. And it was a lot of concern that it would, you know, encourage A frivolous candidates that kind of thing, right? And then what and the SEC put in a couple of what they thought would be safeguards right against that, which is, which is the solicitation. Yeah. Actually go out and solicit 67% of the voting power and so forth. Like you have to essentially prove that, this is a non frivolous contest, right? Right. Right. Right. Right. And so, and there's, and there's a little bit of question about how do you, how do you provide evidence? Of that, that solicitation that's come up in some contests, I've been involved in, oh really? Yeah, we're you haven't really solicited. Well, how do we, how do we prove it? And so, and so companies, I do know this, you know, there was this whole Groundswell of bylaw amendments. To two to three years ago, whatever. We're a lot of companies were Allegedly, merely conforming their bylaws to this and it's not Universal proxy. But yeah. Yeah, it's not getting some other stuff but in particular and this is important. A number of companies, I do know this had Included in their biological requirement that you need to solicit 67% but you need to provide evidence of that solicitation like five days before the meeting. And so so proxy solicitors. Now, you know have sort of a standard thing where they're able to provide you know lists of all the people that they mailed to or whatever. I mean I actually am asking like it's not something that gives insight into how the campaign is unfolding to the board. Or is it not a little? Yes sure. Is it not really that important? It's a little insightful you know, in these kind of situations people are looking, they're scrapping for whatever kind of, you know, a little bit of information and so forth. I guess if you are soliciting more than 67%, there's someone you don't like that, they spoke to. And you can leave them off the list and just so we spoke to Black Rock. Like, in most most situations at least Financial activists solicit. I mean, it's close to 100 and they just, they just kind of budget for this and they say. And so, you know, and there were a bunch of companies that were were looking for this kind of proof and so, you know, activists have provided they'd say, you know, it's probably Just give all these lists and so they they kind of show that so so that was that was and importantly this was a Gary Gensler special at the time so this was this was under survive. Yeah, right. Exactly. So, so I think I'm not sure people are kind of worried about it. I know I wonder if it's gonna if it's gonna live the next three years but I haven't heard anything that's gonna change it. Yeah but it's it's important to kind of make a I think to point out a couple of kind of Important attributes to this first, it makes the SEC stated intention here was to make voting by proxy voting absentee voting over the Internet or whatever. As. Similar as possible to voting in person. Yes. So, that was kind of the sec's goal and I think that was in the rag. When they, when they kind of promulgated. But then there's also an interesting and this is why I got really, really fast and buy this. Interesting little kind of thematic implication, which is it kind of converted Board elections from this binary. Matter, you could vote either or and again, you could do, you know, get an exception and get a legal proxy. And so, for those things, but it was an enormous hassle to try to do this. So called mix and match by proxy before this. So, everything was binary. You're voting one or the other and it converted it as I've described into a continuous structure. So a company, a company, excuse me, and well, shareholder and this is all for shareholders benefit and a lot of companies kind of pissed. And moaned about, you know, this is a problem and an activist or something. Oh, look what they've done for us but this is really trying to make it better for shareholders and I really respect them as much money. Flexible flexibility as possible. Exactly. And so, so now she can vote for as much or as little change at least as expressed in a board election. As they desire. So if I just think it's like, there's something you need to fix, but it's not a huge thing, maybe just one. See. Oh, so I'm gonna, I'm gonna say, you know. One, I only think enough change out of a 10-person board. That I only think two people need to change or man, you know, I am such a big fan of the company. I'm gonna vote for all the incumbents, or I think the company. So screwed up, I'm going to vote for all of the activists. Now, I'm in East and I wish they nominated more Fresh. Oh, so. But you can sort of calibrate, your desire for change in a company to your vote, which was never been done before. And I think there's some very interesting implications about how, not only how the votes kind of unfold, but how activists plan for these votes and how companies respond to this. So it really starts to have implications for the strategy that we see in proxy contests and that was kind of, that was kind of interesting to me and I talked a couple political scientists at one point to try it. That's what letter is how the Dynamics? Yeah. Yes that's what you know, we have some really good conversations with, you know, Sarah Hannah at one point and who's studied you know, the parallels between political democracy and financial a corporate democracy. So so there's there's been a lot of study in political Science about these kind of voting behaviors when voting systems change like this. And so I was trying to learn a little bit and apply it to, to our little corner of corporate life. So anyway, so, yeah. So, that's some of the basics about how. You know, this little, I think people, you know, sort of thought it was sort of a technical change just kind of how you display a bunch of names. On a card, you know, whether it's the blue one or the pink one or the green one, or the white one. And But there's some really, there's been some interesting implications for this like sort of in the data. So I think maybe let's talk about that data maybe. But in a moment after we take a quick break, okay sounds good. Cool. Sure here at shareholder Primacy. The Primacy is brought to you by free float and lyrics.com the only free database of corporate directors their influence and their performance. If you want to stock or retirement plan go to free float, analytics.com and look up which of your elected directors are performing well, which aren't use your vote in the alternative democracy and get your data at free. Float analytics.com. Now, back to the show, Mike Levin and we are talking about developments at the Universal proxy. So what are the developments what happened? So yeah, in three years of looking at this. So I followed it for, you know, since its Inception and I don't know. I, you have your hobbies, which are following really Delaware opinions, really, really weird ass, litigation Security's, crimes, and probably your cats, or something like that. All right, and I have a hobby of tracking, Universal proxy proxy contest. So I kind of collected data about this about the ones that went to an actual vote. I was kind of interested in how this the change in the ballot affected like voting behavior. Okay. So and you know, by extension how it affects the strategies and so on and so forth. And costs also, it's interesting ways to look at this. And so, looking back over three years at dad, there's some interesting stuff. I Think it's worth. Pointing out what we didn't see. So there was this sense, three years ago and ever since then a little bit each year, that there'd be a whole lot of new products he contacts. That this is going to lower costs dramatically, it was going to make it a lot easier. It was going to achieve with the old proxy access movement was trying to achieve. You know, years ago there was a and I was one of the People Protected. Oh man you know people are gonna really jump on this. And that didn't quite happen. There have been an uptick as we'll see in kind of in contests. And, and there's more, you know, and better whatever activism happening each year in the past three years. But we didn't see, you know, a magnitude change in the number of contests. So it was so, it's still was kind of steady with, with sort of a gradual increase that was commenced, it was some other factors. So that's one thing we didn't say. Another thing we didn't see was a whole bunch of the traditional ESG Community. Those proponents starting an initiating proxy contests I personally had thought that a number of the A conventional predatory, proposal sponsors would use this as a big opportunity to try to you know send their message or whatever. But I think that if anything that well we haven't seen a whole lot of it but maybe they've chosen to use it for the proposals rather than yeah. Oh you mean for the 14th? Yeah. So like yeah because that's what everyone said that like all the ESG people were gonna like run the ESG candidate or something but apparently know maybe they're doing that with proposals. Yeah, you know and there was there was that one famous example of Exxon Mobil. Losing a election to an engine number one, which, you know, they had their one and done and so forth. Those were ESG proposal proponents suit with another so. So and that was, you know, that was for Universal proxy and those directors eventually got kind of co-opted and so forth. So, there was that kind of suggestion to me, that there'd be more than there. Hasn't been I in my looking at all the proxy. Contests that kind of come up that gets settled and the ones that go to a vote. There's not a single ESG proponent that, you know, that was normally associated with this among, you know, the community that went and nominated directors and then took it to his conclusion, which kind of surprised me because yeah, again a lot of a lot of the case at the time was that this was going to lower the cost right of running a price conscious because, you know, An activist, you know, could only would have to solicit only 67% or maybe not even that there's different kind of tactics around that. And what it kind of reminded of us of was that it reminded us that while it you don't have to spend a lot of money to start and to pursue a proxy contest. You know, the the SEC in its rulemaking which was actually kind of interesting, reading all 200, something Pages was a struggle for me. Yeah, right double space. Thanks. That, you know, they did a very thorough economic analysis. I think that was in part in response to like. Yeah right. Yeah I mean like they have to do with certain kind of analysis and and yeah courts have said projected to them when they don't. Right. Exactly. So you know and they were estimating that you could do a proxy contest for as low as like four or five thousand bucks and and that's in fact, true. But running approximately practitioner. Exactly. Right people, it's like people are always asking me. Can't do over it. I mean, do you feel different questions? Exactly. So, yeah, for a couple thousand ducks, you can start it but that doesn't make you can finish it, right? So, um, so that's what we didn't see what we did. See was a couple of interesting things first. There are surprisingly few, and I was even surprised by that proxy contest that go all the way to a vote. So in just this year and I was gonna like play a little game here and say, you know what the numbers? But, you know, we've seen the same no idea what? Oh, you don't. Oh, you don't. 17. In 2025, 17 us. public company, proxy contest went to a voting outcome, but No, what's the how? Actually started. Oh you know how many 17 probably out of 80 or 90 or 50? I mean some some some you know, High many dozens and a lot you know others get withdrawn they get a lot of settlements which we'll talk about in a minute and so 70. So at the start of the universal proxy era 2023 there were only 12 And then it went up to 15 and 2024 and 17 last year, this past year. So and again, there's different ways accounting and someone, you know, I've seen other studies that say, it's not 17 is 22 or it's whatever. But the key thing is, it's a very small Number. Okay, relative. It's so it's a very small sample in terms of trying to analyze this and you can start to look at some really interesting stats here, which I put in a post a while ago. So followers here, if they want it, you can go to the sub stack and find it or I can I can send it to you. What the universal proxy card seem to do was. Make activists a little more aggressive. Okay. So I like to look at the number of Board seats that activists were looking for and I, you do it as a couple different. Statistics. So, like percentage of the board seats that are available for election, the percentage of the total board and that number has marched up. So, in 71% against a small sample of the 17, contests activists sought at least nominated candidates for 71%, almost three quarters of those. Contests were looking for majority of the candidates and Oh, and part of the problem is you have to start looking at classes. So in classified boards, you know, if you're three people out of nine, you can nominate all three and you still don't get control, but that's still 100% of what's available. So it's kind of changes the mindset and voters so in 70 75% or activists were looking for 75 percent of the available seats. In 2025. And that's a change. That was a definite increase. Usually you'd be going for one or two or whatever, just the year before, was 50% of the able to see this. And you think this is a strategy change because since you know, the shareholders can mix and match anyway, you may as well throw as many candidates at the start looking for his many candidate. Exactly, because further. Yeah, alright. So that was the first thing and the second is you can look at how How successful these were? Okay. Um, and again, you know, in in a vote it gets. And again this is successful at the, in a vote, not necessarily from a settlement or something like that. We'll talk about that in a minute. But activists in 41% of those 17, contests one, at least one of the seats they were looking for which is up from just a quarter of those the year before, okay? And if 41% of the contest and as a general statistic about, they want about a quarter of the seats. That they were looking for a quarter of the board or quarter of the available seats, that they, that they were after so, and that kind of gradually went up over the past two years. So activists were succeeding a little more again, it's not wildly. So like on the average, Activists were winning 10% of a board, you know, one seed out at 10:00, which is about sort of what it's been, you know, within a range of variability over the past, you know, many years. But nonetheless, it seems that the universal proxy started making Activists a little more aggressive if you will, in terms of in terms of what they were, what they were looking for is something that they were asking for. And so consequently the other major Trend and and you know, others have observed. This was that a lot of these kinds of settlements are way up. Here. so, this seemed to Get the parties and particularly the companies, you know, which have a lot of resources to throw at this much more eager to try to settle these contests. And I was looking at some other data, which that showed that not only were there a lot more settlements, kind of, as you're asking early as a percentage of the contest that we're started, they were settling a lot faster. So, last couple years, we've looked at this settlements are taking like half the number of days measured, you know, arbitrarily from, you know, when it started, when it was announced to to wrap up which was really interesting so that, you know, that suggests that you could. you know, probably if you're an activist achieve your goals, you know, necessarily you know started outside of trying to take this to a final vote. So again you know 17 178 went to a vote and activists were succeeding, you know, a little more than they had before. Um, so that's on the contest side. There are a couple of other interesting, kind of things. I like to follow, who some of the proxy solicitors are here and you probably I don't know how much you think about followers, right? I think so the fixed, right? But you probably don't meet many of them. I do not. Whatever. Right. Well, these are, these are the folks that are in the trenches. So they're the ones who are out there calling people and tracking all the paper. It's a thankless thankless job. And it's, it's really, you know, even though a lot of a contest, depends as we start talking about, I'm kind of what an active is wants to spend on it. You know, after what an activist wants to do the processor, really has a significant impact on these contacts, you know, the kind of resources they put in with the how they position it, how they call people how they follow up the kind of strategizing they do. So they're kind of the unsung heroes are. I suppose villains of proxy contests and so I you know a bunch of people at the different different places. And there's some. Solicitors that. Kind of tend more toward working to activists investor calm is one. Another biggie is Okapi and then and then Saratoga is the third. And so I've kind of looked at who's, who's done better or worse. Go ahead this segment. I mean, I'm curious. It sounds to me, it's like, they segment. The market like, these are the ones who work on activists behalf and he's the worst and once you work on company, yeah there's they're not gonna want like to hear that because yeah well the three that I mentioned tend to work better. They try to sympathize a little more. They try to they understand a little more about how active us think about this stuff. And so they are more the go-to if you're a fund and you're trying to do something like this conversely. There's, you know, other solicitors that specialize in work for companies. Well, I know there's a story, right? Yeah. Industry is the biggie there. There were with Disney last year. They were kind of quieter. Uh this year the the you know sodalis another one they're a little specialist that seem to actually be on The Winning Side of some of these. So there's a whole list of these and in some of the posts about who's who but that's another interesting artifact of this is that the inner Universal proxy world who are the proxy solicitor is and how they work. You know how they help shareholders. Pick from among the Slate, from among the available candidates and how they kind of guide shareholders to voting becomes much more important, you know. It's so it's a little easier for proxies to get thrown out if they're over voted or voted in a wrong ways. So they're actually becomes becomes pretty pretty important here. The final thing I wanted to mention is what this stuff is starting to cost. Which is, which is really interesting. So, in the 17th that we That I in my little hobby that I kind of tracked, the average cost was like between 8 and 9 million dollars to combine. Just to run a proxy contest. So companies spent an average across 17. Go ahead. Yeah. It's it's a million here, a million there so that's a lot of money, right? Exactly. Well and so companies, their average is about 5.3 million and the activists spent an average of 3.2 million on proxy contests. So that's where I get my my sum and of course, activists like to say that companies activists are spending their own money right on this and Company. Except when we accept when we get reimbursed in a settlement which sometimes can happen, which we, which we won't turn down. The biggest two which were kind of almost tied was are products and mantle Ridge, combined spent 34 million dollars on their proxy contest. And that's the one romantical Ridge won. Three out of four. It was looking for, go ahead on Air Products. Yeah, are products mantle Ridge? Yeah. Oh no. I mean I honestly I had heard of it. The reason I just think it's funny is because air products are gases sort of this major. Conflagration, that's in every case book. Yeah, yes, correct. So yeah, they've had. They've had their experience here and then the other one, which got a lot of attention, was when Elliot management ran its proxy contest at Phillips 66 at PSX, and that was only 33 million. So just behind are products and mantle Ridge and Elliott, you know, Money Talks Elliott won two out of four. Wow seats. That ran there. And you know, there was one contest that was a mere 200,000 200 and 210,000 dollars, and another one that was only 400, but most contests have started to increase in cost. Where, you know, sometimes the activists there's a few were the activists spent more. Than the company. That was usually kind of unheard of you. Usually companies, kind of outside, the directors are using their money. Exactly. So I think, I think we've started to see and there's other Scholars that have analyzed this little better than I have here that costs are starting to kind of ramp up, and I think it's in part because, you know, activists are funds, whatever are starting to see the value of, you know, being able to kind of prevail, give him what Universal proxies started to allow. So if they spend, you know, budget for this in the right way, they may have a much better chance of succeeding or At least getting to the table and getting a settlement that would be, you know, very favorable to the shareholders. So I know I mean the reason it's just interesting is because everyone was assuming you know lower cost given just internet distribution. Like leaving aside the universal proxy like right internet distribution. You can put advertisement that God's got to be cheaper, right? Yeah. You social media. There was all this was talked about over the years. You know, maybe social media is going to allow these and there was some, there was one proxy contest at the beginning. I think we talked about on the show, a activist or shareholder named Dan. Mangle is a his day job. I guess is a car dealer in Green Bay. He ran approxi contest in at a place called several farmer three years ago and, you know, used like social media, address of Lee and so forth. Really did it kind of well and one both seats out of a class, he was looking for out of six person board. And spent I think a couple hundred thousand bucks. Wow. And and really succeeded. And again, you used, you know, some of the communications tools that are available pretty aggressively But, you know, on the other hand, you know, you look at, you know, Elliot at Phillips or, you know, last year Disney was the big one. Try and Disney together here, 90 million dollars. I mean, so, and so you could really three-way contest there. It was, right? Yeah. Our videos, which are great for the classroom. Yes. Exactly. Oh, you showed those you did. Oh, you like Disney cartoon characters? Of course, I didn't realize, I didn't realize that that's in the syllabus now. No, I definitely not the only one. I mean, like, how to vote your shares? It's perfect. Oh, that's great. Oh wow. You should, you should write, you write this down and tell him how much you appreciate it. Anyway, so anyway, that's kind of the update that I had. In my, we had in mind when we were talking about what's going on with universal proxy. Okay? So we're starting to embark on a new, a new term, a new as we say proxy season, so we'll see how it goes. But I would expect, you know, more, the same people spend more in this stuff. Similarly, you know modest whatever you call 20 contest. I don't know. I'm not gonna make a prediction. They go to a vote but you're already seen like a whole bunch of new activists situations getting announced. And if Trends follow a lot of these are going to get settled pretty quickly. No one wants to, you know, go through what what is being what? What some of these others have seen. So All right, I think I'm out of breath. I think. I think we can. I think we can close this one out and then revisit Universal proxy sometime, you know, sometime in the spring after we've we've started to see what's unfolded. So let's wrap up. This is shareholder Primacy hosted by Anne Lipton and me Mike Levin. I'm an independent activist investor and advisor to investors about their activist situations and is Professor of Law and Lawrence W, demuth, chair of Business Law. At the University of Colorado, law school. You can find me Mike at the activist investor.com, and Anne at law.com colorado.edu, our podcast is produced and distributed by free float media. Thanks for listening, we will talk again.