How Three Years of the Universal Proxy Card Rules Have Changed Proxy Contests

On September 1, 2022, the SEC universal proxy card (UPC) rules took effect, allowing shareholders to freely “mix and match” from among management and dissident nominees in contested director elections. Before the rules’ adoption, their impact on shareholder activism was hotly debated, including in a comment letter to the SEC from our practice. Since they went into effect, judgments (even by us) have too often been anecdotal or based on limited data.

To replace conjecture with facts, we have conducted a comprehensive analysis of all late-stage director contests at Russell 3000 companies in the five years before the UPC rules and three years since.

While only a small minority of activism campaigns end in contested elections and most board change results from settlements, all activist engagements occur in the shadow of how a vote might play out. An activist with a credible path to electoral success (let alone sweeping victory) has leverage to push for changes without proceeding to a proxy contest, and vice versa. Whether the UPC altered voting outcomes — and if so, in whose favor — affects all companies’ perceived ability to resist activist demands.

Our study shows that management continues to sweep most proxy contests, activists’ electoral floor has risen while their ceiling has collapsed, support for activist principals has softened, and vote margins have become tighter. Below we present these novel findings, which we hope will be of interest to our current and prospective clients concerned with possible activism and to the activism ecosystem writ large.

Read the full Update below.