Good morning,
Proxy season 2023 is just around the corner. And it may be a tough one for public companies.
The Conference Board's report on the upcoming proxy season forecasts several factors that will make it tumultuous. "Big 'A' shareholder activism is likely to rise, due in part to the current economic environment and the implementation of the SEC’s universal proxy rule," according to the report. Some other predicted challenges include: the overall volume of shareholder proposals will likely continue to rise, an increase in "anti-ESG proposals," and asset managers have adopted policies that will lead to more votes against directors on "governance practices and problematic compensation packages."
An analysis by Broadridge shows that in the 2022 proxy season, there was a decline in investor support for directors—618 directors failed to attain majority support (104 more than in 2021). And there were more shareholder proposals than at any time over the past five years.
"Corporate America has to manage investor expectations more rigorously and frequently than say 20-25 years ago," Sandeep Dahiya, associate professor of finance at Georgetown University’s McDonough School of Business, recently told me. "We have hedge funds, activist shareholders, and a very diverse investor base.” Frequently, CFOs are taking the lead in terms of “crafting the strategy and communicating it," Dahiya said.
When it comes to activist shareholders, The Walt Disney Company has already been put on the front lines. In November, former CEO Robert Iger returned to the helm, ending former CEO Bob Chapek's tumultuous tenure. Iger was tasked with turning around the company.
In January, Nelson Peltz, a billionaire, activist investor, CEO, and founding partner of private equity firm Trian Fund Management, launched a proxy fight and announced that he would seek a board seat at Disney to try to initiate changes. But Peltz had a change of mind on Feb. 9 after Iger announced plans for a dramatic restructuring during the company’s earnings call on Feb. 8. Plans included 7,000 job cuts, $5.5 billion in cost savings, and the board would consider reinstating Disney’s dividend, which was suspended at the start of the pandemic.
My colleague Shawn Tully got the scoop on how this all played out and shares it in his latest piece, “The inside story of how Nelson Peltz got his way at Disney—and his detailed plan for a rebound.” Tully had an exclusive interview with Peltz about “his journey through the fog of proxy war.”
Tully writes: “Though Peltz hates proxy conflicts, he says they’re necessary for one overall situation: when a company he’s targeted is struggling but refuses to acknowledge that it has big problems. ‘If we can’t agree on the problem, we have to go to war,’ he told me.”
He continues: “It’s the standoff that triggered the only three proxy campaigns in Trian’s history, the salvos at H.J. Heinz, DuPont, and Procter & Gamble. In all three cases, he says, the CEOs and boards thought their companies were doing great, and showed zero interest in Trian’s proposals, though their poor numbers belied the claims that all was fine.”
You can read Tully's complete report here.
Regarding gauging your company’s vulnerability to activist investors, “If you’re a good CEO, and a good CFO, that’s really your job,” Shane Goodwin, associate dean of graduate programs at the Cox School of Business at Southern Methodist University, once told me. “If you’re thinking about all the governance-related issues for your board, how to run your business in a profitable way, and creating value, that’s your best inoculation to any activist or any bad conversation with your shareholders, in general.”
Sheryl Estrada
sheryl.estrada@fortune.com
