Directors Hold on to your Seats - Shareholder Activism in light of Universal Proxy Voting

The headline quote below is a reflection on respective corporate governance challenges presently being faced in the United States by Starbucks and Disney, with very different underlying reasons and exponents (and which the Financial Times article very interestingly analyses in some depth). Starbucks is encountering a union-led challenge in support of employees, whereas Disney is under pressure by two activist investors. 

Both are enabled, however, by an obscure rule change with its genesis in an SEC investor advisory committee meeting in February 2015, the results of which found ultimate political implementation in 2021. 

Summarily, “universal proxy” voting (as it has become known) has allowed shareholders to vote for a mixture of company and activist nominees by proxy without in-person attendance - previously you were only allowed to vote by proxy for a full slate of either's nominees. 

Shareholder activism appears to have been invigorated by this change, which affords the potential of easier and greater resonance for their efforts by facilitating board changes in public companies. 

Some commentators feel that increases in shareholder activism are also being fanned by a confluence of this rule change with a resurgence of organised labour in the US in the wake of successful deals reached following the recent Hollywood actors and writers' strikes.

Further, whilst previously board challenges were more typically felt from substantial investors, some point to the rule change as emboldening and allowing for pressure to be brought to bear by shareholders with even very limited economic rights (e.g. the alignment of unions challenging Starbucks have a very small shareholding and are similar to the tiny hedge fund Engine No.1 at Exxon whom with just a 0.2% stake in the company managed to obtain three board seats by galvanising larger Exxon shareholders who also wanted it to take climate change seriously). 

Universal proxy voting can arguably catalyse such campaigns by improving the access and reducing some of the costs (that in-person attendance of annual general meetings where board changes are voted on would require), which may otherwise operate as barriers to achieving such changes.

Whatever the causes or consequences of recent increased shareholder activism, the current landscape, which includes universal proxy voting, undeniably brings an added dimension to the scope of matters requiring consideration by directors when exercising their roles - their seats could literally dependent on it.