Shareholder activism remained high throughout the first half of 2025, as market volatility and uncertainty created a challenging environment for companies during the proxy season. Both prominent and smaller investment funds were highly active, with targeted companies entering into settlement agreements more swiftly than ever before. Looking ahead to 2026, boards must remain especially vigilant, recognising that even well-intentioned decisions may come under activist scrutiny.

FW: Looking back over the past year, what key trends have shaped shareholder activism?

 Riches: Market volatility and uncertainty has created a challenging environment for companies in the 2025 proxy season. Settlements with activists have been on the rise over the past few years since the introduction of the universal proxy card but the current market dynamics have created an extra incentive for boards to find an agreement with dissidents rather than face even more uncertainty by engaging in a proxy contest. There has also been a significant reduction in the number of shareholder proposals companies have faced, in part due to the changes to the Securities and Exchange Commission’s (SEC’s) ‘no-action’ rules which rescinded previous guidance, increasing the burden on companies which were looking to deny proposals. Environmental, social and governance (ESG)- focused proposals have faced greater scrutiny, a trend which was also reflected in voting results as shareholder support for environment and social proposals in 2025 have declined.

Tucker: Shareholder activism does not exist outside of the broader market, so the element having the biggest impact was volatility. Market disruption across the first half of 2025 had a significant impact on many activist engagements, often benefitting corporates. The changes afoot in global capital markets were seen as creating real uncertainty, and this put a near complete pause on activist attacks calling for significant corporate change – very similar to what we saw in the first half of 2020. As we look ahead to 2026, we will see activists and investors recalibrate and re-engage in our new reality quickly. Boards should not expect a free pass next year.

Tetelbaum: Q1 2025 was the busiest first quarter for shareholder activism since 2022, with activists continuing to target many of the largest companies across a range of sectors. Although there were a few high-profile activism battles that resulted in full proxycontests, the vast majority of activism matters in Q1 were resolved through settlement, including settlements mere weeks from when the activist surfaced at the company. Onenotable trend from the prior year is that activists privately submitted nomination notices at companies, often naming individuals from the activist’s fund as director nominees – raising questions about whether a full campaign was truly intended or if the move was primarily a strategic negotiation tool.Companies facing these situations nevertheless were compelled to devote valuable time, energy and resources to prepare proxy statements and explore settlement options with the activists. The short time periodbetween nomination windows and when proxy statements must be filed puts tremendous pressure on companies to dual track ‘fighting’ and ‘resolving’, especially in situations where companies are ambushed by activists a mere few months before an annual meeting.

Glover: Activism levels were very high during 2024 and have remained high during the first half of 2025. Activism hasbecome a global phenomenon, and the total number of funds has continued to grow. Many of the big name funds have been very active, launching multiple campaigns. Smaller funds have also been active. Companies targeted by activists are enteringinto settlement agreements more quickly than was the case in the past, and the number of campaigns that result in proxy contests has diminished. Theincreased willingness to settle may be attributable in part to the universal proxy card, which makes it easier for activists to target individual directors. It may also be attributable to the fact that institutional investors are more receptive to activist proposals than was the case in the past. There are an increasing number of situations in which multiple activist funds challenge the same company. Thisphenomenon may be a product of growth in the number of funds and competition for targets. It may also reflect the activists’ recognition that when they join forces the pressure on the target increases. In some multiple activist situations, however, the activists do not take the same position. The end result is more complexity for the target.

Scrivano: Activists have maintained a focus on total shareholder return (TSR) and operational performance, with TSR and performance weakness still being the major activist campaign attractant. Furthermore, the spotlight continues to be on operational improvements, such as cost cutting and operating expense reduction. Corporate governance weaknesses have also drawn activist attention. Recently, tariffs and market volatility have disrupted M&A, which has in some cases increased activist activity at particular companies, while decreasing it at others. This past year has also seen a significant number of break up or divestiture campaigns by activists, including at some fairly large companies, such as CVS, Honeywell, Becton Dickinson, Kenvue, Warner Bros. Discovery and others. Unsurprisingly, the universal proxy card continues to facilitate split votes between activist nominees and company nominees. In addition, activist funds have resumed nominating their own employees to boards.

FW: Which issues are currently driving activist campaigns, and how do shareholder-friendly legal frameworks influencetheir likelihood of success?

Tucker: There is a focus on calls for companies to look at where business lines could be separated. In the past few years, there has been a real increase in the number and size of spin-off transactions. Most of all, we see the market consistently rewarding companies that pursue these transactions. This dynamic really challenges aboard to articulate the benefits of the combined company and the risks of separation, both areas where concrete data is often hard to find. These arguments tend to focus on long-term stability, whichrequires a significant level of trust between investors and boards. Activists are adept at claiming any resistance to a separation is simply entrenchment.

Tetelbaum: Activists continue to prioritise short-term agendas that can come at the expense of long-term value creation, relying on a tired formula of targeting ‘underperforming’ companies. Activists often use cherry-picked metrics, challenging long-tenured directors, irrespective of the institutional knowledge and industry expertise they may bring, and push for event-driven outcomes such as breaking up or selling the company, even if at inopportune times. Even the smallest hedge funds are legally permitted and practically able to buy into a company and run a control proxy fight without meaningful financial commitment or any long-term orientation. The disruption caused by many activist campaigns risks undermining the board’s deliberative processes, continuity and cohesion that are essential for sustained corporate performance and long-term value creation.

Glover: Over the past year, more and more activist campaigns have focused on operational and strategic issues. For example,activists have been making arguments that a company should employ more effective cost controls, devote more resources on high margin businesses, or otherwise adjust business strategies. In many cases they have also argued that the chief executive and other members of the management team should be replaced. These kinds of campaigns often take time to gain momentum, but if theysucceed they can generate significant returns for the investor. The number of campaigns focused on M&A issues has declined somewhat, which may be in part because the M&A markets have been relatively cold. The SEC’s decision to adopt the universal proxy card rule two years ago has probably helped activists by increasing pressure to settle. Delaware courts’ insistence that bylaw regulations governing access to the shareholder meeting ballot should not be unduly restrictive has also helped activists.

Scrivano: TSR or performance weakness continues to be the driving force in activist campaigns. It tends to be challenging to defend directors or a board that has overseen TSR or performance weakness for a durationally significant period of time. Operational improvements and cost overruns also invite scrutiny. In parallel, portfolio review, especially in cases where a company division could be sold or spun off, and companies integrating M&A, are targets for activists. Single classboards open up the potential for a control slate. Over the last 20 years, the staggered board has become rarer at Fortune 500companies, with many having pre-emptively de-staggered their boards. Many of these companies took solace in the fact that they were large enough that they did not need tofear a takeover offer; however, they did not see the threat on the horizon of activist attacks that do not seek to acquire the company but rather to obtain control at the board of directors level.

In recent years, there has been a notable rise in activist campaigns explicitly targeting chief executives and chairs of the board.

ELINA TETELBAUM
WACHTELL, LIPTON, ROSEN & KATZ

 

Riches: In February 2025, there was an expansion in SEC guidance regarding shareholder engagement, which put investors at risk of having to adhere to more stringent 13D filing requirements should they be deemed to engage in a way which could effect change or influence control at a company. This resulted in many stewardship teams adopting a listen-only approach in meetings with both activists and companies, creating further uncertainty around how they may vote. It is not just institutions that have come under scrutiny in 2025 as leading proxy advisory firms ISS and Glass Lewis, which issue voting recommendations for their institutional clients, have faced legal pressure from the state of Texas. Texas passed a law which restricted the proxy advisers’ ability to advise shareholders on ESG factors. ISS and Glass Lewis have responded by suing the state on the basis that the law violates their First Amendment right. It is notable that both ISS and Glass Lewis have been far more supportive of activist nominees in 2025 and activists have been more successful in winning board seats as a result.

FW: What strategies are activists using to assert influence and drive change? How have these tactics evolved in recent years?

Tetelbaum: Activists today employ a variety of strategies and tactics to influence boards in pursuit of short-term returns. For example, some activists rely heavily on media-driven campaigns, using headline-grabbing narratives to shape public perception and investor sentiment. Others pursue more behind the scenes engagement, working directly with boards on substantive strategic initiatives. Although there is a practiced activist playbook, each activist has a different style and set of objectives, driven by the personalities involved. In recent years, there has been a notable rise in activist campaigns explicitly targeting chief executives and chairs of the board. While any activist campaign that criticises a company’s strategy and operations can be viewed as an implicit attack on the company’s management, activists have been more often explicit in advocating for chief executive replacement. Correspondingly, there has also been an increased number of chief executive departures and resignations at companies targeted by activists in recent years, even after the chief executive prevails at the ballot box. This trend has magnified the importance of boards being fully aligned with management’s strategy, as anydaylight between a management team and its board may be amplified under the stress of an activism campaign.

Glover: The activists’ basic playbook has not changed for many years. They look for a target that represents a good opportunity because it is under leveraged, has lots of cash on the balance sheet, presents M&A opportunities, underperforms its peers or has strategic or operational problems. Activists also look for situations where they think they can persuade shareholders that the company has poor governance or a weak management team. When they find a suitable target, they will request meetings with the management team and the board at which they will describe their complaints, and perhaps also request the company to appoint new directors to help implement change. At the same time, they will seek support from other stockholders and may also seek topersuade other activist firms to join forces. If the target company does not agree to settle quickly, the activists ratchet up the pressure by going public and threatening a proxy contest. Activists have improved their game in a number of respects in recent years. In particular, they havebecome more sophisticated about proposing operational and strategic changes, and they make more fully developed arguments for why changes are appropriate. They may enlist support from formerboard members or executives. They select qualified director candidates and press harder for early settlement. In addition, a number of funds have gained traction by arguing that they will be friendly and supportive of management if management is willing to implement their proposed changes.

Riches: Activists have continued to target company chief executives, with the number of activism-related chief executivedepartures steadily increasing year on year since the pandemic. Given the subdued M&A environment of recent years, an increased focus on operations and corporate strategy has led to chief executives coming into activists’ crosshairs much more frequently, with activists applying pressure on boards to hold chief executives to account over any previous strategic missteps. ‘Vote no’ campaigns have also been used more frequently than ever before as activists look to prevent the election of the company’s directors. These campaigns give an activist more flexibility around the timing of a campaign, as they need not comply with nomination deadlines, as well as on the cost and scope of the solicitation. A ‘vote no’ campaign can serve as a litmus test for shareholder sentiment and help activists send a message to a company that change is required.

When investors believe that the management team is listening to them and responding proactively, they are much more likely to support management if and when an activist appears.

STEPHEN I. GLOVER
GIBSON, DUNN & CRUTCHER LLP

Scrivano: In a departure from the traditional activist tactic of a private approach combined with increasing pressure and then apublic disclosure, certain activist funds have resorted to issuing public letters to companies or filing schedule 13Ds disclosing a substantial stake in companies with little to no warning to those companies. Recent examples include Wolfspeed, Rapid7, Qorvoand others. In addition, certain activist funds, such as Elliott and Ancora, have been more willing to propose a control slate in a proxy contest, as occurred in Southwest and Norfolk Southern, respectively. A more stark example is Gildan Activewear’s entire board resigning in response to an activist campaign by Browning West. Swarming is another tactic that has continued  to occur, whereby multiple activists target the same company, often around the same time.

Boards need to think about where support can erode slowly overtime and recognise that shareholder engagement is more akin to a relationship that needs to be nurtured than a transaction.

PAT TUCKER
FTI CONSULTING, INC

Tucker: One of the more notable trends we have observed over the past few years is the speed of settlements and the increase in private settlements, such as where a company and activist settle without any prior public disclosure of the activist’s position. At the same time, we are seeing an increase in activists forming strategic committees through settlement. These trends, taken together, really indicate activists’ significant ability to quickly change the direction of a company. Alongside this, we are seeing a generational change with new funds being started quickly. In our experience, the new funds are moving more aggressively as they need to prove a differentiated rate of return and a brand their limited partners would recognise.

FW: Have any recent activist campaigns stood out to you? What lessons can be drawn from their execution and outcomes, such as changes in board composition or corporate strategy?

Scrivano: Activists are continuing to push for change after board victories. At Norfolk Southern, Ancora’s board victory led to international investigations resulting in the termination of the chief executive and general counsel. A similar pattern emerged at Kenvue, where Starboard settled for three seats and then orchestrated the ousting of the chief executive several months later. Mantle Ridge also stands out – by targeting the chief executive of AirProducts, among other directors, in a proxy contest – the chief executive lost his board seat in the proxy contest and resigned shortly thereafter. Another notable development is that certain tier one activists that have previously not taken a contest to a vote are now doing just that, as seen with Elliott’s successful proxy battle at Phillips 66.

Tucker: There have been several campaigns in recent years that have put chief executives in focus. These stand out as a number of these engagementswent through a proxy fight where chief executives consistently remained in their jobs. That is a really important lesson that it is easier for activists to replace directors than to replace chief executives. It also affirms that in fights that focus on operational issues primarily, the investors remain sceptical that activistshave any special insight.

Riches: One of the most interesting activist situations took place at healthcare products distributor Henry Schein. The company initially faced pressure from Ananym Capital Management which had been gearing up for a proxy contest. However, before Ananym had a chance to nominate, Henry Schein announced a deal with private equity (PE) behemoth KKR, which became one of the company’s largest investors and took two seats on the board. An expanded share repurchase programme was also initiated and in the months since, the company’s president has stepped down and Henry Bergman, the company’s long-term chief executive, has announced his retirement. This situation is a perfect illustration of how PE can utilise activist strategies and highlights how activism and PE are converging.

Glover: Recent campaigns in which activists have successfully argued that a company is underperforming and that the chief executive should be removed have been interesting to watch. These campaigns demonstrate how much pressure activists can applyto boards of directors. It has also been interesting to watch the relatively few campaigns that have resulted in a live proxy contest, since contests generally go forward only when the target board strongly believes that it is on the right side of the debate with the activist. Finally, it has been interesting to see activists look for opportunities outside the US and launch campaigns in other markets.

Tetelbaum: No two activist situations are alike and many of the most interesting situations are resolved behind the scenes. For boards and management, it is often a key priority to minimise the distraction and potential disruption that public campaigns can cause for stakeholders. The most high- profile situations are ones with the most well-known activists at blue chip companies, especiallythose that get close to, or go the distance to, a vote. Proxy battles that go the distance usually do so because of the irreconcilable differences between the objectives of the board and the activist. Boards thatare well advised and maintain consistent engagement with shareholders are best positioned to go the distance and prevail in a vote.Success lies in maintaining year-round dialogue – not just during proxy season – while delivering a clear, consistent and uniformmessage and articulating a long term strategic vision aligned with shareholder interests.

Companies should be establishing relationships and communicating the company’s strategy and plans to these institutional investors, even if there is no activist threat on the horizon.

PAUL SCRIVANO
DAVIS POLK & WARDWELL

FW: How would you define institutional shareholder engagement, and why has it become a critical component of activist defence?

Tucker: Institutional shareholders are absolutely essential. In most public companies, the top 20 or so investors control more than 50 percent of the vote. That is ultimately a relatively small constituency that can dictate the outcome of a proxy fight. Far too often we see engagement with this group become perfunctory and stale. Management teams can easily get into a repetitive groove and miss any nuance in feedback that would indicate the mood is shifting. We think there is woeful underinvestment in credible research and data in this space. No elected officials stake their careers on anecdotal experience with voters, so why do boards?

 

While operational activism has outstripped M&A-relatedcampaigns in the years a er the pandemic, companies should expect activists to increase their focus on transactions as market conditions improve.

ADAM RICHES
ALLIANCE ADVISORS

Riches: Institutional shareholder engagement is a programme designed to connect with a company’s largest institutional investors. The process begins by accurately identifying the beneficialowners behind custodial accounts and analysing their historical voting behaviours, as well as reviewing available voting rationalesand other relevant research. Following this analysis, targeted outreach is conducted by the board or senior management to these key institutional shareholders. These direct engagements provide valuable insights into investor perspectives, including concerns that may have led to opposing board nominees or executive compensation. The feedback obtained enables companies to proactively address potential gaps or weaknesses in their governance practices, potentially reducing their vulnerability to activist interventions.

Glover: A company that is the target of an activist campaign can reach out to its shareholder base in a variety of ways. It can issue press releases, make statements in social media and mail letters to stockholders in which it responds to the activist’s arguments and explains management’s plan for the company. If the activist launches a proxy contest, the target can also make its case in its proxy statement. These company materials can also be posted on a website. One on one meetings with significant stockholders are a critical part of the shareholder engagement process. These meetings are very important because they help the company identify which investors are its strongest supporters, which are on the fence, and which are likely to side with the activist. They also help the company determine whether the arguments it is making resonate with shareholders, whether it should make changes to those arguments, and whether it should consider settling with the activist or continue to fight.

Scrivano: Institutional shareholders remain critical to the outcome of any proxy contest. The big three passive investors, BlackRock, State Street and Vanguard, continue to play a decisive role in winning proxy contests. Many times, these investors tend to back incumbent directors, and are less likely to back an activist slate. Large institutional investors are also very important, and companies should be building and maintaining relationships with these key shareholders; after all, the activists are certainly hard at work trying to build these relationships. Ultimately, continued shareholder engagement with all institutional investors, whether large or small, is key. Companies should be establishing relationships and communicating the company’s strategy and plans to these institutional investors, even if there is no activist threat on the horizon.

FW: In what ways can shareholder engagement serve as an early-warning system to identify governance vulnerabilities before they attract activist attention?

Scrivano: Regular meetings with the company’s shareholders are the best way to build and maintain relationships. These meetings can also serve as an early warning to management and the board of shareholder unhappiness with management or performance or activist threats on the horizon. Additionally, stock watch programmes offered by proxy solicitation firms can serve as an early warning sign of activist interest by alerting companies to unusual reading patterns, such as unusual activity in the company’s stock – to the extent ascertainable – at prime brokers connected to the company’s stock. Vote analysis is a useful tool in assessing the company’s and the activist’s chances for victory in a proxy contest. Internally, companies should also monitor their investor relations inbox – complaints and negative feedback from shareholders sent to investor relations may indicate vulnerabilities.

Glover: Engagement with institutional and other significant investors before an activist campaign starts can provide an effective early warning system. If a company’s internal investor relations team meets regularly with investors, it can learn about the investors’ concerns and develop and explain management’s plan to address these concerns. If the company’s proposed solutions do not resonate with the investor base, management can consider adjustments that accommodate investor concerns. When investorsbelieve that the management team is listening to them and responding proactively, they are much more likely to support management if and when an activist appears.

Riches: Institutional shareholders prefer to invest in companies that demonstrate long term value creation, good governance and a low to moderate risk profile. As part of an investor’s due diligence, they typically initiate a governance risk assessment and when companies reach out through shareholder engagement, institutions convey their concerns to management. Should quarterly and annual results disappoint, then governance weaknesses become more prominent and a larger discussion point. Should these concerns not be addressed sufficiently and financial results continue to underperform peers, they become an entry point for potential shareholder activism. Shareholder engagement serves to alert companies to structural governance issues that institutions and activists may find unfavourable and allows for these issues to be addressed before an activist appears.

Tetelbaum: While stock watch firms can monitor activist activity through investor relations pages and occasionally anticipate activist threats, activists have grown increasingly adept at operating discreetly. Many build significant positions while remainingunder the radar, leveraging sophisticated strategies to avoid early detection. Despite their capabilities, activists rarely presentwholly novel strategic ideas. Boards that engage regularly with shareholders are better positioned to anticipate concerns and evaluate strategic alternatives on their own terms. Proactive engagement enables boards to develop deeper insight into shareholder priorities, mitigating the risk of being caught off guard. When faced with business suggestions, boards should respond deliberately, assessing each suggestion in good faith and equipped with adequate information and expert guidance. Incorporating insights from analyst reports can furtherenhance a board’s understanding  of its vulnerabilities and help refine its strategic direction. Ultimately, staying ahead of activism requires regular stakeholder engagement and a commitment to thoughtful governance.

Tucker: Too often boards view engagement with shareholders in a black and white framework: investors are either for us or against us. For a long time, that was effectively true. If an investor owned the shares, they were supportive; if they were not supportive, they sold their shares. Markets have changed in structure and investment style, making this dynamic no longer true. Boards need to think about where support can erode slowly over time and recognise that shareholder engagement is more akin to a relationship that needs to be nurtured than a transaction. One simple trick is for boards to evaluate annual general meetingvoting results and ask where shareholders expect them to respond and if more context is required.

FW: What emerging issues are likely to shape shareholder activism in 2025 and beyond? How should companiesprepare to respond?

Glover: The number of campaigns focused on operational issues will likely continue to grow. If the M&A markets become more active, campaigns that focus on M&A issues will make a resurgence. Companies are likely to continue to settle quickly, particularly when they are challenged by a well-known activist with a strong marketplace reputation or are targeted by multiple activists. Activists are less likely to focus on ESG issues than was the case in the past. A campaign that argues that a company should focus on ESG issues will not win strong support unless the activist can show a clear connection between those issues and economic returns.

Riches: While operational activism has outstripped M&A- related campaigns in the years after the pandemic, companies should expect activists to increase their focus on transactions as market conditions improve. Activists have already been focusing on break-up and spin-off demands to find higher valuations, and corporations need to ensure that they are communicating to both shareholders and the market in general why businesses across different industries should remain integrated. While it is been harder for activists to push for companies to sell within the current regulatory and macroeconomic environment, boards still need to demonstrate that they have not ignored ‘strategic alternatives’ and have a response ready should an activist look to apply pressure.

Tetelbaum: In today’s volatile environment – shaped by M&A uncertainty, tariffs, ongoing geopolitical conflicts, the rapid adoption of artificial intelligence and an evolving media landscape – boards are under heightened scrutiny. Any misstep in navigating a crisis risks being reframed by activists as a governance failure. In this context, boards must be especially vigilant, recognising that even well-intentioned decisions may be second-guessed in hindsight. The most effective preparation involves disciplined governance: using the board calendar and agenda strategically, anticipating risks and ensuring decisions are grounded in well-informed analyses. Byacting on a reasonable and informed basis, while maintaining records of the decision-making process, boards can improve theircredibility and resilience when faced with activist threats.

Tucker: We think there will be two major focus areas in shareholder activism going forward. The first will be a continued focus on operational improvement campaigns, where activiststarget relative performance, both in terms of revenue growth and profitability. This will be particularly noteworthy, as changes toglobal trade are creating tangible costs and strategic dilemmas for nearly every company. Activists will be quick to target companies that are perceived to be falling behind. We also think we will see a reinvigoration of activists focused on M&A-oriented themes, both continuing the separation theme and returning to a call for companies to be sold.

Scrivano: Looking ahead, shareholder activism will accelerate and continue to evolve. It will likely continue trending toward faster, more public and coordinated attacks. We are seeing certain activist campaigns begin with a public announcement of a position, with little to no advance warning to the company – that tactic may be used more frequently going forward. At the same time, the persistence of swarming continuesto pose challenges. Large stake building is also on the rise, giving activists an outsized presence in proxy fights. In response, companies should reassesswhether a poison pill – triggering at 10 percent – might be effective to prevent a rapidaccumulation of shares. If an activist rapidly accumulates in excess of 10 percent of a company’s shares and continues to buy, concerns of creeping control and the loss of a level playing field in a proxy contest begin to arise.

This article first appeared in the September 2025 issue of Financier Worldwide magazine. Permission to use this reprint has been granted by the publisher. © 2025 Financier Worldwide Limited.

Will Present Case to New Trump Administration

Alliance Advisors, a global corporate consulting and communications firm, has kicked off a campaign to change a 40-year-old Securities and Exchange Commission rule that allows large stockholders to remain anonymous to the companies that they are invested in, announced Joseph Caruso, the Alliance Advisors CEO.

Caruso argues that under current SEC rules, American public corporations and investment companies are at a serious disadvantage because corporate boards are shielded from the identity of some of their biggest stockholders.

The roadblock to investor transparency was established by the Securities and Exchange Commission in the mid-1980s. It allowed owners of company stock to be classified as either objecting beneficial owners (“OBOs”) or non-objecting beneficial owners (“NOBOs”). OBOs do not want their name, address, and direct share positions disclosed to the company’s management by the broker or intermediary who purchased the stock for them. NOBOs, on the other hand, do not object to such information being disclosed.

To change the regulations on shareholder ownership, Alliance Advisors created a group called the Shareholder Ownership Transparency Alliance (SOTA) whose goal is to convince Congress to eliminate the OBO classification and thus allow publicly traded companies equal access to all their shareholders. SOTA will present information on the failings of the OBO rule and a petition signed by corporate executives and shareholders from around the county who support the elimination of OBOs to the House Finance Committee when the new Congress convenes in 2025.

“At a time when every member of Congress and just about every federal and state regulatory agency is demanding more transparency from corporations – to the point where companies are counting the number of electrical vehicles in their parking lots – one of the most crucial corporate transparency issues is going unaddressed,” says Caruso.

“The present system of shareholder communication is cumbersome, time-consuming and costly and ultimately that cost is borne by the shareholders,” notes Caruso. “The NOBO and OBO rules were made when Ronald Reagan was president and were welcomed at that time. It’s now time to bring stock ownership into the 21st Century.”

Many of the OBO accounts are held by high net-worth individuals, hedge funds and foreign investors, who hide their identity and shield their positions from management. Their ability to mask their identity – and their ownership stake in a company gives OBOs an unfair advantage that is both costly and extremely disruptive to management teams who are working to run the business for the benefit of all stakeholders, explained Caruso.

“To pass complex shareholder proposals that benefit a company’s future, companies need to secure voting support from all their shareholders. Having an unidentifiable shareholder segment with a meaningful share position can cause havoc to the outcome of a shareholder meeting,” said Caruso, whose firm helps corporations solicit shareholder votes.

Caruso added that from his talks with hundreds of corporations about the OBO issue; “I doubt there is a single American corporate executive who would not support an update in shareholder rules that allows companies to talk directly to their biggest and most influential stockholders.”

Help For Small Companies

Caruso says the lack of shareholder transparency is a more acute issue for small, emerging companies since all public companies are forced to work primarily through one monopolistic, third-party company. This intermediary charges exorbitant, non-negotiable fees to send proxy vote materials to their investors.

“Major multinational corporations like Disney can afford the huge expense of secure lists of NOBO stockholders when they need votes for an important or contentious shareholder meeting. And they will spend millions of dollars to do it, which is a waste of the shareholders’ money,” says Caruso.

Caruso adds that making all shareholders transparent to corporate boards poses no danger to the investors. “All the companies want to do is talk to them; to explain the positions they are taking and why their support is needed for a certain proposal. None of the companies want to – nor should they be allowed – to sell their shareholder information,” said Caruso.

The Alliance Advisors’ CEO noted that corporate executives in Europe and Asia operate with much more transparency about who owns their companies. “Foreign companies have a distinct advantage both financially and strategically over American firms,” said Caruso. To help American companies succeed in global competition, the new administration in Washington needs to update a 40-year-old rule that is a hindrance to corporate communication.

Caruso said he believes, “success in this initiative will benefit both the corporations and small individual shareholders. It is the small shareholders who are hurt the most by these rules. There are no losers as a result of the change in policy that we are proposing.” Change in policy that we proposing.”

To learn more about the importance of erasing the OBO, and to support the elimination of the OBO secrecy, please go to https://sotanow.org/.

Contact:
W. Sam Chandoha
1-917-873-2949
schandoha@allianceadvisors.com

Shareholder activism remains high in 2024, with the number of campaigns on track to surpass last year. Driving this activity is activism focused on improvements in operational performance, accountability for operational miscues, valuation gaps and board refreshment of long-tenured directors – much of which is targeted at larger, high-profile companies. With interest rates, geopolitical challenges and market volatility expected to inform the activist playbook in the short to medium term, all the signs point to activity remaining elevated for the foreseeable future.

Riches: It has been interesting to examine how the universal proxy card has impacted contested director elections in the US where we have seen companies settling with activists more frequently and far quicker than in previous years. Another noteworthy dynamic is the increase in situations where multiple activists are targeting a company at the same time, often pushing for different objectives, with several prominent mega-cap situations drawing more attention to this trend. These scenarios can really complicate things for both sides and have led to settlement agreements being placed under more scrutiny. We have also seen a big jump in the number of campaigns led by former company directors and founders, in addition to activists including former company executives on their slate of nominees. The narrative of these ‘insider campaigns’ will often revolve around the dissident highlighting how a company’s performance has declined in the period since their tenure and pushing for new strategies and reforms to rectify it.

Glover: Over the past 12 months, activists have increased their focus on operational and strategic issues. They are identifying companies that they believe are underperforming their peers or pursuing flawed strategies and arguing for change. Campaigns with this type of focus now outnumber campaigns that make M&A-related demands; in a lukewarm M&A market, pushing for M&A events loses some of its appeal. Governance remains an issue in virtually every campaign; activists use governance arguments and the threat of a proxy contest to create leverage. Governance-focused arguments have been most successful when the activists are able to describe a specific problem, such as when they can point to a chief executive who has made fundamental strategic mistakes or who has failed to establish a meaningful succession process. Proxy contests have become more personal, in part as a result of the universal proxy card rules. With the advent of these rules, all management and activist candidates are listed on a single proxy card and stockholders can pick and choose among the two sets of candidates rather than being forced to choose either all of the management candidates or all of the activist candidates. As a result, activists have been able to focus their attacks on individual management board candidates whom they think are particularly vulnerable.

Warrick: While activism continues to be a core component of the investor value generation ecosystem, the pattern of practice of traditional activists, along with other investors utilising activist tactics, continues to evolve. Many activists continue to embrace a constructive and collaborative approach to engagement with targeted companies, opting for private engagement, often with negotiated settlements or non-agreement mandates, without ever going public. Another significant development is the strategic collaboration among activists. Tactics such as ‘swarming’ and the forming of ‘wolf packs’ have become more prevalent, where multiple activists target a single company, either through implicit or explicit coordination or, in some cases, with opposing agendas. Furthermore, the threat level for many companies has increased as an activist attack is no longer limited to traditional hedge funds.

Katz: Shareholder activism in the US has accelerated over the last 12 months due to a variety of factors and there is no single development to explain this growth. Some of it is likely due to the impact of higher interest rates limiting the options available to US companies to pursue acquisition strategies and otherwise increasing borrowing costs, making them easier targets. Activists have continued to go after larger, high-profile companies like Disney, Match, Macy’s, Autodesk, Southwest and Starbucks. Despite the many claims that the universal proxy card would be a game-changer, it has been anything but, perhaps leading only to quicker settlements. In practice, the universal proxy card has favoured neither the activist nor the targeted company, although it has made proxy contests more personal as individual company directors are called-out and specifically targeted.

Lissauer: Shareholder activism activity remained elevated in 2024, with the number of campaigns currently on track to surpass 2023. After sitting on the sidelines in the first year of the universal proxy card, major activists returned to launching proxy contests in 2024 which led to some of the most notable campaigns of the proxy season. Activists ran proxy contests at some of the largest players in their respective sectors, which dominated headlines. Additionally, chief executives and management teams have been targeted by activists looking to push for accountability for underperformance. A major shift in campaign themes in 2024 is that activists are now frequently seeking to remove chief executives, including replacement chief executives, on proxy fight slates and calling for new leadership as a key demand.

Glover: Activists have been targeting companies with operational or strategic problems and calling for change, including lower costs, management changes or strategy shifts. Although M&A-focused campaigns are not quite as common as they were, activists have continued to suggest that target boards should sell the company or spin-off significant divisions and assets. They also continue to oppose announced deals that they believe undervalue the target. Governance issues remain common themes as activists couple demands for board changes or other governance objectives with economic demands. As recently as last year, activist campaigns that focused on environmental and social issues were sometimes able to get meaningful traction. But the anti-environmental, social and governance (ESG) movement has become more powerful, and investors seem to be more reluctant to support ESG campaigns unless the activist is able to demonstrate a clear link between the target’s perceived ESG deficiencies and an underperforming stock price.

Warrick: While activist investors employ a range of strategies to influence company governance and strategy, which can vary depending on the current macroeconomic environment, investor preferences, company size and industry specifics, the ultimate goal to positively impact share price and return to investors remains consistent. Over the last 12 months we have certainly noted an increase in campaigns targeting companies to make operational adjustments. This has involved a push for changes in management, a reevaluation of companies’ methods for implementing their long-term objectives, and, when necessary, the revision of these long-term plans themselves. In addition, many activists are requesting that companies modify their capital allocation plan through share buybacks and increased return of capital to shareholders. While there has been a notable decrease in the number of activism campaigns that include an M&A thesis, in large part due to the recent M&A market, many activism campaigns still encourage companies to seek strategic transactions to generate value, focusing in many instances on divestitures or spin offs of businesses that negatively impact value.

Katz: Over the last 15 years, the most common issue focused on by activists was capital allocation – specifically the return of capital to shareholders through stock buybacks or dividends instead of the company using the capital to reinvest in the company’s business or to make acquisitions. These opportunities have largely been exhausted. Today, the more established activists are targeting operational activism, which takes significantly longer and is more difficult but, when successful, can create very significant returns. Operational activism focuses on changes to the business, and often the management team, that may take multiple years to see results. Another common tactic targeted by activists continues to be sale of the company – either to a strategic buyer or taking the company private – and some activists have even gotten into the business of taking companies private themselves. We are also seeing more situations involving multiple activists, which makes it increasingly difficult for companies to decide how to respond appropriately.

Lissauer: All activist campaigns and investments are different, but recently we have seen activists focus on improvements in operational performance, accountability for operational miscues, valuation gaps, and board refresh of long-tenured directors. A thesis centred on operational improvements will inherently take longer for companies to implement and see results, contributing to the larger number of campaigns that remain ongoing – 49 percent of those launched in 2024. Activists looking for quick wins are often coupling operational demands with calls for changes in leadership, aggressively pushing for chief executives to step down. Further, as we continue to see a rebound in M&A activity, we are starting to see the return of M&A-focused activism campaigns.

Riches: Financial activist campaigns are almost always balance sheet driven, so an activist will typically focus their efforts around pushing for a company to make changes to its capital allocation and governance structure or to rethink core strategies. But an investor will often argue that the best way to create value for shareholders is to sell the company outright. As inflation rates start to cool and the M&A market picks up, activists are becoming more aggressive in their arguments for companies to sell as well as pushing for a break-up or to spin-off certain assets. Activists have also been targeting smaller companies much more frequently in the past 18 months. Valuations at the sub $2bn market cap range have on average remained much lower than large cap companies which were able to recover from the pandemic far quicker, creating more opportunities for activists whose core strategy is always to find companies which trade at a discount to their intrinsic value.

Warrick: There is not necessarily a specific campaign that comes to mind, but rather a trend. There is an increase of the phenomenon known as ‘swarming’, whereby multiple activists independently target the same company during overlapping time periods, sometimes with different agendas or initiatives. Dealing with a single activist investor can be a significant undertaking for a company’s board, as it requires careful navigation and strategic decision making. However, when multiple activists are involved, the complexity and difficulty of the situation can increase exponentially. This is primarily because each activist may have different objectives and demands, which can range from seeking board representation to advocating for parts of the business to be spun off or pushing for increased stock buybacks. In a traditional ‘one on one’ campaign, a company and its board can engage with the activist to determine if there is alignment on potential value-enhancing initiatives.

Katz: There have been a number of interesting situations ranging from the Trian campaign at Disney to the union-led campaign at Starbucks. The Trian campaign at Disney is notable for several features, in addition to the fact that it appears to be the most expensive proxy contest to date. First, there were actually two activists involved, Trian and Blackwells, which complicated matters including with respect to items like the universal proxy card and suggesting how Disney shareholders should cast their votes. Second, although Trian lost at the ballot box – with neither of its nominees elected to the Disney board – it won with respect to shareholder returns, as Disney was one of the best performing stocks over the relevant period, in part because Disney was seen as adopting some of the strategies suggested by Trian. In Starbucks, a coalition of labour unions sought to elect three directors to the board in an effort to combat what were seen as anti-union activities. Ultimately, the coalition withdrew their slate after the company agreed to commence negotiations. This was the first time that a labour union used these types of tactics to promote its human capital issues and it is unlikely to be the last.

Riches: Elliott Management’s campaign at Southwest Airlines is a really interesting one for a few reasons. Firstly, the timing of the campaign is unusual as the nomination deadline does not fall until December 2024, and so to see the campaign initiated in July is much earlier than would be expected given activists tend to start public campaigns closer to the proxy season in order to build momentum ahead of the annual general meeting. Similarly, Elliott’s calls to replace Bob Jordan, chief executive of Southwest Airlines, from day one is uncommon with activists typically focusing on the need for a change in company strategy before introducing the arguments for a change of leadership. Finally, we have not seen much activism in the airline industry before now but with Carl Ichan’s investment in JetBlue, we now have two of the most prominent activists with significant positions in the sector and it will be fascinating to see how these situations pan out. Not many situations went all the way to a vote this year but Ancora Advisors’ bid to take control of the board of railroad operator Norfolk Southern was one of the most fiercely contested proxy battles of the season.

Glover: Disney has been the target of several activist campaigns that put significant pressure on the board and the management team. Nelson Peltz and Trian launched a campaign in late 2022, expressing concern about Disney’s declining stock price, strategic direction and expense levels. Trian withdrew in early 2023 after the Disney board reinstalled Bob Iger as chief executive and the company announced significant budget cuts and strategy changes. But Trian restarted its campaign in late 2023 as losses continued to mount and the stock price failed to improve. As part of the second campaign, Peltz proposed that he and two other Trian nominees serve on the board and argued that the company had failed to establish a credible chief executive succession plan. Other activists, including Value Act, Ancora Capital and Blackwell Capital jumped into the fray. Disney was ultimately successful in defeating the Peltz candidates, but only after a bruising, expensive campaign.

Katz: Generally, established activists are becoming more refined and tactical in their approaches to the companies they choose to target. In part due to activists and the companies they target, and perhaps due in part to the new universal proxy card rules, settlements are occurring earlier in the process and this results in directors joining boards at much earlier stages in the process. Today, in many situations, the first time the public learns that an activist is in the stock is when the company and the activist announce a settlement. One of the biggest changes is that activist investors are attracting experienced directors as their candidates. Particularly for smaller companies, the activist may be able to attract higher calibre directors than the company itself can attract. That is a very powerful incentive for a company to settle.

Riches: ESG arguments are becoming more central to an activist’s investment thesis and public engagement. Returning to Southwest as an example, Elliott highlighted the airlines’ handling of a scheduling crisis over the 2022 holidays due to malfunctioning software systems to further emphasise the company’s underperformance and underline the need for change. SOC Investment Group’s campaign at Starbucks is likely to be a bellwether campaign for activists focused on environmental and social issues. SOC was focused on holding the company to account on worker rights and a flawed human capital management strategy but nominated a full slate of directors rather than just filing a non-binding shareholder proposal which forced the company to take its demands much more seriously. Although it was highly unlikely for the activist to replace the entire board, under the new universal proxy card rules it had a much better chance of winning a seat or two on the board than before. Ultimately, SOC withdrew the nominations but only after Starbucks had come to an agreement with its labour union to improve worker rights. We expect to see more of these types of campaigns going forward, with investors nominating candidates to put more pressure on companies to take their agenda seriously.

Glover: Because each activist has its own investment horizon, objectives and tactics, activism reflects a variety of strategies to effect change. Some funds publicly announce their objectives at an early stage, issuing white papers and using the press and social media to maximise pressure on the target. Others negotiate with the target privately unless and until they decide the target is not sufficiently responsive. Some establish fairly large positions in the target; others invest less capital. Some litigate in order to access board minutes or other material to gain inside information to use in their campaigns. Activists with longer investment horizons are willing to wage multi-year campaigns, or to take aim at a company they previously targeted when they are not satisfied with the progress being made. Much of an activist’s leverage relies on the threat of a proxy campaign to replace management’s board candidates. However, activists do not launch a contest in every case.

Lissauer: Now into its second proxy season, we are beginning to see the effects of the universal proxy card and the way it has shaped activists’ approach to assembling slates and running fights and how companies need to refine their defences. Activists have tailored their approaches to be more selective with their nominees and have found candidates with defendable track records to help implement their desired changes. Additionally, the universal proxy card has ushered in an era of highly personal campaigns focused on directors and management as shareholders now have the ability to vote on candidates individually, not solely according to a slate of candidates. We saw a number of firsts this year – the first single-issue social-focused proxy fight, the first multi-activist proxy fight, and the first control-slate proxy fight. Activists, including smaller non-traditional funds, have used environmental and social issues to build shareholder support against boards and management.

Warrick: Shareholder activism has evolved significantly, with activists employing more sophisticated and varied tactics to influence companies. Traditionally, activists buy shares and push for changes to enhance value, often seeking board representation or proposing strategic moves like mergers. To complement these tactics, activists are increasingly using social media and public campaigns to rally support and pressure companies, which can lead to reputational risks for those that do not respond effectively. Activists are also increasingly collaborating with institutional investors which, while not traditionally activists, engage discreetly with activists to influence corporate strategies. This shift marks a departure from the past when activism was primarily associated with hedge funds, illustrating a broader trend toward shareholder activism among institutional investors seeking to enhance long-term value and corporate governance. Proxy fights have become more strategic, targeting specific directors rather than entire boards and litigation is used as a tool to address governance failures.

Glover: The universal proxy card rules, which were adopted by the Securities and Exchange Commission (SEC) in late 2022, appear to have given the activists more leverage. The rules, which require management and activist candidates to be listed on the same proxy card, give shareholders the ability to pick and choose among the management and activist candidates. As a result, it has become easier for activists to target weak management candidates and cheaper for them to run campaigns. Although the number of activist campaigns that led to proxy contests did not increase in 2023 or early 2024, the percentage of proxy contests that activists won increased significantly. In addition, the number of campaigns that resulted in an activist-favourable settlement increased. These trends suggest that companies are feeling greater pressure to settle because of the increased likelihood that they will lose if they engage in a proxy contest.

Lissauer: The SEC rolled out several significant changes impacting shareholder activism including the universal proxy card, updated 13D and 13G requirements, short sale disclosure requirements and ESG disclosure requirements. A number of these changes were the first updates to market behaviour in decades.

Warrick: The implementation of the universal proxy rule has altered the landscape of proxy contests by requiring that all director candidates be included on all proxy cards. Although this change was intended to increase transparency and shareholder choice, the actual impact on activist success in securing board seats appears to be minimal with respect to contests that go to a shareholder vote. However, an uptick in the speed and frequency of settlements between activists and companies suggests that the existence of the universal proxy card regime may provide activists a limited advantage and encourage companies to seek common ground with activists sooner rather than later. The SEC’s amendments to schedule 13D and 13G, which shorten the filing deadlines for disclosing substantial stakes in companies, may have some effect on activists’ approach to accumulating positions.

Riches: Since the universal proxy card rules came into effect, activists have found it harder to win board control. Now that the proxy advisers and institutions can mix and match between the company and dissident nominees, they are much more inclined to go for one or two seats less than control save for in the most severe cases of board entrenchment and company underperformance. It is worth noting that in situations where ISS and Glass Lewis have split recommendations, activists have struggled to win even a single seat. One area where activists have continued to look to nominate a full slate and take control of the board is in situations where they are simultaneously demanding for the company to sell. This is enabling the investor to place the board under more pressure and makes the M&A demands harder to dismiss when the company has to repel an activist board slate at the same time.

Katz: I do not see legal and regulatory developments significantly impacting shareholder activism. The universal proxy card was not a game-changer, nor were the recent amendments to the 13D disclosure requirements. The Moelis decision temporarily affected activist settlements but not in any meaningful manner. Obviously tougher enforcement of antitrust regulation may impact the strategies that activists use but is unlikely to significantly change the likelihood of success of a particular matter. Activists try to consider these issues before they launch their campaigns so these developments rarely affect outcomes. By way of example, if a legal or regulatory development made it easier to call shareholder meetings – such as by outlawing advance notice bylaw provisions – that type of structural change would give activists a greater advantage, but I think a development like that is unlikely, but not impossible.

Riches: An activism preparedness programme can be regularly undertaken with corporate clients to reduce their risk to activism and ensure they are ready to respond should an activist appear. Ownership intelligence can identify the top institutions behind a company’s trading activity as well as alert them to any potential activist accumulations. Once shareholders have been fully identified, it is important to understand their voting policies and historical voting behaviour across a broad range of issues. From there an outreach programme can be devised to engage with shareholders and to effectively communicate the company’s strategy and execution of those objectives. It is also important to conduct an analysis of company performance, board and governance structure, compensation and ESG practices to identify and address possible weaknesses as well as potential activist attack vectors and necessary rebuttals. It is essential for any company to be prepared for activism in this way to avoid being on the back foot and risk losing a fight before it has even begun.

Lissauer: Companies should take an outside-looking-in approach to evaluate their operational and governance risks. A comprehensive vulnerability assessment is an important tool for companies to utilise to assess areas of potential exposure and to identify proactive steps to minimise risks. A key preparedness measure for companies is to carefully review possible activist arguments and develop rebuttal arguments. Additionally, directors and management teams are increasingly participating in shareholder engagement in the ‘off-season’, an important part of establishing strong relationships with shareholders and positioning the company well in the event of an activist approach. Proactive engagement has become essential to communicating the board and management’s strategy, as well as the importance of governance and other key issues, especially in the context of an activist approach. It is best to proactively establish these relationships with key shareholders before there is a specific need for their support.

Warrick: At the crux of all activism campaigns is the general belief by the activist investor that the target company is underperforming and underdelivering to its shareholders. Activists allocate a considerable amount of time and resources to understanding the targeted company and trying to identify specific areas where the company can make change, with the belief that such changes will lead to an increase in shareholder value. With that backdrop, the best defence to an activism campaign begins with the company having a clearly articulated strategic plan that it believes will lead to the best long-term value. While pursuing their outlined strategic goals, boards of directors and management teams should continuously evaluate their plan and act proactively, looking for weaknesses, areas of underperformance and potential pivot points. Ultimately, while completely avoiding activist threats may prove difficult, a strong plan that has been vetted and pressure tested by the board and management well positions the company to respond appropriately to activist pressure and not be unduly swayed by an activist’s tactics.

Katz: An active shareholder engagement programme is essential and companies should use the months between their annual meetings to engage with their largest shareholders in a meaningful manner. This engagement should include passive investors like index funds, recognising that some of these investors will decide that they do not want to, or need to, engage at that particular point in time. However, the willingness to reach out and offer to engage is itself important and will often be recognised. This engagement should focus on important issues the company is facing as well as other issues that may have arisen in connection with the company’s last annual meeting. It is important to keep notes regarding these meetings so that companies can follow up as necessary and, to the extent appropriate, reported in the company’s next proxy statement. Companies should also review reports from proxy advisory services and other rating services, so that relevant issues can be addressed with shareholders on a peremptory basis instead of defensively.

Glover: Companies can take various steps to prime their defences. Companies should ensure that their advance notice bylaws are state of the art and appropriately balance company interests in an orderly shareholder meeting and full disclosure about ownership of company securities and conflicts of interest, on one hand, and shareholders’ ability to exercise nomination rights, on the other. Recent Delaware Court of Chancery decisions regarding advance notice bylaws reflect that the court will generally support board decisions to adopt and enforce advance notice bylaws, but will strike down bylaws that appear preclusive, especially if adopted in response to activist threats. A stock watch service can help companies identify unusual stock trading patterns and alert them to possible activist activity. To better anticipate activist campaigns, companies should consider what demands an activist might make and plan how the company would respond. Does the company have divisions that could be sold? Is its business strategy working? Is board refreshment overdue? Does the company have a sound chief executive succession plan? The goal of this exercise is to identify potential weaknesses and either address them or be ready to explain why they are not weaknesses.

Warrick: Shareholder activism is poised to escalate as savvy investors utilise social media and advanced analytics to examine corporate governance and performance, advocating for strategic changes such as mergers and operational enhancements to foster long-term value. In this context, the role of law firms with expertise in shareholder activism becomes critical for boards of directors who must adopt a proactive approach to these pressures. Law firms can guide boards in establishing and maintaining open lines of communication with shareholders. This is not just about regular engagement but also about understanding the nuances of shareholder perspectives and preempting activist strategies. In addition, regular reviews of company performance and governance are essential to identify and address vulnerabilities, with technology playing a pivotal role in understanding market sentiment and investor priorities.

Lissauer: In the short term, we expect interest rates, geopolitical challenges and market volatility to continue to inform the activist playbook. The first half of 2024 saw a surge of activist campaigns, almost half of which remain ongoing, setting the stage for longer campaigns leading into fall and winter 2024. Conversely, we have seen a trend that companies looking to settle with an activist have been settling more quickly to avoid protracted and costly campaigns, which we expect to continue as we head into the start of the 2025 proxy season. Additionally, an M&A rebound may give activists an additional ‘lever’ to pull. With an increase in M&A volumes expected for the remainder of 2024, activist demands to push for a sale or divestiture are likely to increase. Corporate separation activity will persist as organisations simplify and respond to investor pressure to allocate capital effectively as a means of unlocking value.

Katz: I believe that we are at an interesting time for shareholder activism. Established activists have gotten larger and more successful and have continued to attract investors. Over the last five years, there has been a shake out where many of the smaller activists have closed up shop since they have been unable to run multiple successful campaigns, but at the same time, some new activists have started successful funds. In addition, we may be nearing the end of an era, as it appears that Nelson Peltz, Carl Icahn, Bill Ackman and others appear to be taking a step back. So what will the next generation of activists bring? Probably more of the same – targeting underperforming companies, pressuring boards, challenging corporate strategies and pushing for quick fixes that will raise stock prices in the short term. The key question is whether activists and companies can focus on the longer term and create an environment where the best interests of the company and the shareholders over the long term becomes a shared priority.

Glover: Activists will continue to launch new campaigns at a vigorous pace through the end of 2024. They are likely to continue to focus on companies that operate in sectors that are experiencing rapid change, such as technology, healthcare, media and consumer goods. They will argue that these companies should make strategy and operational changes that the activists believe will lead to better performance. Because the universal proxy card rules give activists increased leverage, companies may feel more pressure to make accommodations and activists may be emboldened to be more aggressive. Activists will also continue to make governance issues a major focus as a way of creating leverage. In general, we may see more aggressive public campaigns and more successful proxy contests. Even if we do not see more contests, we are likely to see a high percentage of campaigns end with a settlement. But not all of the momentum will be in favour of the activists. The number of campaigns focused on ESG issues may decline, as investors become increasingly sceptical about the link between economic value and ESG factors.

Riches: After a couple of down years during the pandemic, activism has returned to the peak levels we saw in 2018/19 and all the signs point to activity remaining elevated for the foreseeable future. Activists are increasingly putting sustainability and compensation practices in the spotlight and tying these to financial performance. The universal proxy card has put individual directors who lack experience or have other demonstrable shortcomings more at risk. Furthermore, activists are putting forward more impressive candidates than ever before with proven track records and extensive industry experience in order to ensure they gain the support of institutional investors and proxy advisers. Global M&A tailwinds will continue to provide activists with a wider range of strategic options and create further opportunities for disruption. Fostering a culture of constructive dialogue with shareholders has never been more crucial for corporations.

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General Mandate Proposals in Hong Kong: ACGA Report

General mandate proposals are gaining attention as companies seek more flexibility in capital management. However, a report issued by the Asian Corporate Governance Association covers a close-up view of case studies, and potential pitfalls associated with general mandates in the H-share market based on findings last year.

Key takeaways from ACGA:

• Three-quarters of the top 100 by market capitalization sought a general mandate in 2023
• Nearly one in ten mandates were opposed by more than 30% of shareholders
• Some issuers are reducing mandate size after resolutions barely pass
• Shareholders push back hard at China Mengniu Dairy with a resounding 49.8% rejecting the mandate
• One in four issuers only sought a 10% mandate, but the majority of dual-class share stocks seek the full 20%

IROs are coming under pressure in their engagements with shareholders on capital issuance proposals. Pre-emptive rights still being a red line for many institutional investors to safeguard their holdings when voting on such requests. What are companies and shareholders doing together in finding an optimal model that works for all? A starting point should include reviewing past results and circulars for the upcoming shareholder meeting followed by a thorough identification process of investor concerns through a well-crafted outreach plan with their investors. Most institutional investors have set their policies on new issuance of stock. In doing so, issuers will overcome the barriers to unlocking a healthy relationship with shareholders on capital proposals and focus on other pressing topics.

Listing Rules in China: What’s New?

On 12 April 2024, the China Securities Regulatory Commission (CSRC) issued a guideline emphasising strict implementation of delisting regulations on STAR Market and ChiNext companies. The landscape of listing rules in China is undergoing significant changes mainly focused on improving the quality of listings, reflecting broader economic reforms and the drive for greater transparency and strengthening of investor protections. There are several areas it has outlined that will be of focus including regulation surrounding M&A deals, as well as remedies for investor compensation.

• Improve quality of listings is the focus in the A-Share Market: Approximately 30 stocks trading at the Shanghai and Shenzhen bourses are bordering the delisting line which is based on combined financial indicators according to the CSRC’s calculations. Another 100 companies may face delisting risk warnings in 2025.
• Distributions of dividends under the spotlight: A-share issuers may be subject to scrutiny for failing to pay adequate dividends to their shareholders. The regulator expects a 30% payout ratio in the final dividend in terms of cumulative cash over a recent 3-year period. China Daily article highlights that in terms of cash amount, that baseline is a cumulative 50 million yuan for main board listings and 30 million for STAR Market and ChiNext issuers.
• There are reports that Companies have scrambled to scuttle plans for initial public offerings in China this year as the securities watchdog tightens rules on share listings in a bearish market. Forty-seven companies pulled their listing plans from China’s stock exchanges so far this year, compared with 29 withdrawals during the same period one year earlier, data from stock exchanges showed. Read more from the Business Standard.

Companies that fall into the latest guideline will have a period of transition to make improvements until the end of 2025 to comply. The latest update seeks to raise the bar among companies trading on the A-share market.

Shareholder Activism in Japan

Hong Kong investment firm Oasis Management is considering submitting shareholder proposals to Japanese cosmetics giant Kao in 2025 with its 3% shareholding to encourage management to cut underperforming products and boost shareholder returns reported by Nikkei Asia.

This approach not only aims to enhance corporate governance but also to ensure that companies are positioned to deliver sustainable, long-term benefits to all stakeholders. Through detailed analysis and shareholder engagement, Oasis Management exemplifies how disciplined activism can serve as a catalyst for significant change in corporate Asia. It underscores the growing influence of shareholder activists in shaping corporate strategies and governance standards in the region, highlighting a trend that is rapidly evolving amidst the dynamic economic landscape of APAC.

Policy Segment: Board and Elections

The board should establish and maintain a framework of robust and effective governance mechanisms to support its oversight of the company’s strategy and operations consistent with the long-term economic interests of investors. There should be clear descriptions of the role of the board and the committees of the board and how directors engage with and oversee management. We look to the board to articulate the effectiveness of these mechanisms in overseeing the management of business risks and opportunities and the fulfillment of the company’s purpose and strategy.

Where a company has not adequately disclosed and demonstrated that its board has fulfilled these corporate governance and risk oversight responsibilities, we will consider voting against the re-election of directors who, on our assessment, have particular responsibility for the issues. We assess director performance on a case-by-case basis and in light of each company’s circumstances, taking into consideration our assessment of their governance, business practices that support durable, long-term value creation, and performance. Set out below are ways in which boards and directors can demonstrate a commitment to acting in the long-term economic interests of all shareholders.

Regular accountability

It is our view that directors should stand for election on a regular basis, ideally annually. In our experience, annual director elections allow shareholders to reaffirm their support for board members and/or hold them accountable for their decisions in a timely manner. When board members are not elected annually, in our experience, it is good practice for boards to have a rotation policy to ensure that, through a board cycle, all directors have had their appointment re-confirmed, with a proportion of directors being put forward for election at each annual general meeting.

Effective Board composition

Regular director elections also give boards the opportunity to adjust their composition in an orderly way to reflect development of the company’s strategy and the market environment. In our view, it is beneficial for new directors to be brought onto the board periodically to refresh the group’s thinking while supporting both continuity and appropriate succession planning. We consider the average overall tenure of the board, and seek a balance between the knowledge and experience of longer-serving directors and the fresh perspectives of directors who joined more recently. We encourage companies to keep under regular review the effectiveness of their board (including its size), and assess directors nominated for election in the context of the composition of the board as a whole. This assessment should consider a number of factors, including each director’s independence and time commitments, as well as the diversity and relevance of director experiences and skillsets, and how these factors may contribute to the performance of the company.

We believe that directors are in the best position to assess the composition and optimal size of the board but we would be concerned if a board seemed too small to have an appropriate balance of directors or too large to be effective.

We expect the board to establish a robust process to evaluate the performance of the board as a whole and the contributions of each director. BlackRock believes that annual performance reviews of directors and the board contribute to a more efficiently functioning board.

Board independence

In our view, there should be a sufficient number of independent directors, free from conflicts of interest or undue influence from connected parties, to ensure objectivity in the decision-making of the board and its ability to oversee management. Common impediments to independence may include but are not limited to:

• Current or recent employment at the company or a subsidiary
• Being, or representing, a shareholder with a substantial shareholding in the company
• Having any other interest, business, or other relationship which could, or could reasonably be perceived to, materially interfere with a director’s ability to act in the best interests of the company and shareholders
• An immediate family member of any of the aforementioned
• Interlocking directorships

Conflicts of interest

BlackRock believes that all independent directors should be free from conflicts of interest. Independent directors, their immediate family or their affiliated companies, who or which engage in material transactions with a company, could be placed in a position where they may have to make decisions that may place their interests against those of the shareholders they represent. BlackRock may vote against the election/re-election of a director where an identified conflict of interest may pose a significant and unnecessary risk to shareholders. All potential conflicts of interest should be declared prior to appointment and at each board meeting in relation to any specific agenda item.

Independent Board Leadership

In our experience, boards are most effective at overseeing and advising management when there is a senior, independent board leader. This director may chair the board, or, where the chair is also the CEO (or is otherwise not independent), be designated as a lead independent director. The role of this director is to enhance the effectiveness of the independent members of the board through shaping the agenda, ensuring adequate information is provided to the board, and encouraging independent director participation in board deliberations. The lead independent director or another appropriate director should be available to meet with shareholders in those situations where an independent director is best placed to explain and contextualize a company’s approach.

Length of service

BlackRock believes that shareholders are best served when there is orderly renewal of the board. This should result in directors with accumulated experience while at the same time introduce fresh minds and experience to the board as well as provide adequate succession planning. An effective renewal process will ensure independent directors do not serve for such lengths of time that their independence may be impaired. BlackRock will consider voting against the re-election of directors who have been on the board for a significant period of time especially if there is no evidence of board renewal.

We believe independent directors who have been on the board for 12 years or longer should generally be reclassified as non-independent directors. Where the level of independence on the board or at committee levels is insufficient, taking such reclassifications into consideration, we may vote against directors for failing to ensure sufficient board and/or committee independence.

Diversity

We see diversity as a means to promoting diversity of thought and avoiding ‘group think’ in the board’s exercise of their responsibilities to advise and oversee management. It allows boards to have deeper discussions and make more resilient decisions. We ask boards to disclose how diversity is considered in board composition, including professional characteristics, such as a director’s industry experience, specialist areas of expertise and geographic location; as well as demographic characteristics such as gender, race/ ethnicity and age. We encourage boards to aspire to meaningful diversity of membership, while recognizing that building a strong, diverse board can take time.

Significant progress has been made in recent years towards advancing gender diversity in the boardroom, following voluntary initiatives and mandatory quotas in markets such as Singapore¹, Malaysia² and South Korea³.

We generally would not consider single gender boards as diverse boards, and we expect all listed companies in Singapore and Malaysia, India, as well as large companies in South Korea⁴ and Taiwan⁵ to have at least one female board director. In the absence of such, we may vote against the re-election of director(s) deemed responsible for the lack of female representation on such boards.

Nomination procedure

The company should have a formal and transparent procedure for the appointment and re-appointment of directors. The board should adopt a procedure that can ensure a diverse range of candidates to be considered. Such procedure may involve the engagement of external professional search firms.

When nominating new directors to the board, we look to companies to provide sufficient information on the individual candidates so that shareholders can assess the suitability of each individual nominee and the overall board composition. These disclosures should give an understanding of how the collective experience and expertise of the board aligns with the company’s long-term strategy and business model. Highly qualified, engaged directors with professional characteristics relevant to a company’s business enhance the ability of the board to add value and be the voice of shareholders in board discussions. In our view, a strong board provides a competitive advantage to a company, providing valuable oversight and contributing to the most important management decisions that support long-term financial performance The procedure for the nomination of directors and evaluation of the board as described above should be disclosed in the corporate governance section in the annual report. We seek information to understand how the board composition reflects the company’s stated strategy, trends impacting the business, and succession expectations. Where this information is not provided, BlackRock may consider voting against re-election of members on the nomination committee.

Cumulative voting

Majority vote standard is the norm for director elections in most jurisdictions in Asia, ensuring director accountability through the requirement to be elected by more than half of the votes cast. Nonetheless we are cognizant that in some jurisdictions in Asia, cumulative voting is instituted as a default practice, aimed at protecting the interest of minority investors in light of the prevalence of controlling shareholders. In such jurisdictions, we will generally support cumulative voting proposals as long as the spirit of the proposal is aligned with protecting the interest of minority shareholders.

Disclosure of director information

BlackRock expects the following information to be disclosed in the annual report and company website, and the meeting circular when a director is seeking election/re-election:

• Directors’ full name and age
• Date appointed to the board (in the case of re-elections)
• Brief biography detailing the director’s educational background, working experience, and any other board positions held
• Specific discussion of the skills and experience the director is expected to contribute to the board
• The company’s assessment of the director’s independence, including details of any current dealings with
  the company

Particularly when a director is seeking election / re-election, it is imperative the above information is provided to allow us to determine whether to support the appointment. Where this information is not forthcoming, BlackRock may consider voting against the election / re-election of that director.

Sufficient capacity

As the role and expectations of a director are increasingly demanding, directors must be able to commit an appropriate amount of time to board and committee matters. It is important that directors have the capacity to meet all of their responsibilities – including when there are unforeseen events – and therefore, they should not take on an excessive number of roles that would impair their ability to fulfill their duties.

BlackRock expects companies to provide a clear explanation of the capacity to contribute in situations where a board candidate is a director serving on more than six public company boards. When looking at the number of board mandates, BlackRock will consider if the board memberships are of listed companies in the same group and / or for similar sectors, and whether executive officers, including an executive chairman, may or may not be able to exercise the responsibilities of a director on as many non-related company boards as non-executives.

BlackRock may vote against the election / re-election of a director where there is a risk the director may be over-committed in respect of other responsibilities and / or commitments (taking into account outside employments and / or board mandates on private companies / investment trusts / foundations). In the case of an executive officer, we would vote against his / her election only at external boards.

BlackRock may vote against the election / re-election of an outside executive as the chairman of the board as we expect the chairman to have greater time availability than other non-executive board members. We expect the company to explain why it is necessary for an external executive to lead the board of directors.

Meeting attendance

Directors should ensure they attend all board and relevant committee meetings. BlackRock will consider voting against a director who fails to attend at least 75% of board and relevant committee meetings for the past term of being a director, unless compelling reasons for the absenteeism have been disclosed. However, BlackRock will disregard attendance in the first year following appointment as the director may have had commitments made prior to joining the board.

Committees

Appropriately structured board committees provide an efficient mechanism which allows the board to focus on key issues such as audit, board renewal, remuneration, risk, and any other issues deemed important. Board committees can also provide an important role dealing with conflicts of interests.

The audit committee should comprise only non-executive directors and a majority of independent directors, an independent chair and with at least one member having appropriate accounting or related financial background. Where the audit committee does not comprise a majority of independent directors and the chair is not independent, BlackRock will consider voting against the re-election of non-independent members of the audit committee. Further, where BlackRock believes a company has evidenced a failure of the audit committee relating to the preparation of financial statements, fraud, and general accountability to shareholders, we will consider voting against the re-election of members of the audit committee.

All committees should have written terms of reference which should, inter alia, clearly set out the committee’s roles and responsibilities, composition, structure, membership requirements, and the procedures for inviting non-committee members to attend meetings. All committee terms of reference should be available to investors on the company’s website. All committees should be given the power and resources to meet their obligations under the terms of reference. This will include the right of access to management and the ability to select service providers and advisors at a reasonable cost to the company.

The chairman of a committee should be independent and each committee should have a majority of independent directors. It is preferable for the chairman of the board not to chair board committees as this may lead to a concentration of power in a single director.

Risk oversight

Companies should have an established process for identifying, monitoring, and managing key risks. Independent directors should have ready access to relevant management information and outside advice, as appropriate, to ensure they can properly oversee risk management. We encourage companies to provide transparency around risk measurement, mitigation, and reporting to the board. We are particularly interested in understanding how risk oversight processes evolve in response to changes in corporate strategy and /or shifts in the business and related risk environment. Comprehensive disclosure provides investors with a sense of the company’s long-term operational risk management practices and, more broadly, the quality of the board’s oversight. In the absence of robust disclosures, we may reasonably conclude that companies are not adequately managing risk.

Policy Segment: Capital Structure
Capital structure, mergers, asset sales, and other special transactions

The capital structure of a company is critical to shareholders as it impacts the value of their investment and the priority of their interest in the company relative to that of other equity or debt investors. Pre-emptive rights are a key protection for shareholders against the dilution of their interests.

Dual class shares

Effective voting rights are basic rights of share ownership and a core principle effective governance. Shareholders, as the residual claimants, have the strongest interest in protecting company value, and voting rights should match economic exposure, i.e., one share, one vote.

In principle, we disagree with the creation of a share class with equivalent economic exposure and preferential, differentiated voting rights. In our view, this structure violates the fundamental corporate governance principle of proportionality, and results in a concentration of power in the hands of a few shareholders, thus disenfranchising other shareholders and amplifying any potential conflicts of interest. However, we recognize that in certain markets, at least for a period of time, companies may have a valid argument for listing dual classes of shares with differentiated voting rights. In our view, such companies should review these share class structures on a regular basis or as company circumstances change. Additionally, they should seek shareholder approval of their capital structure on a periodic basis via a management proposal at the company’s shareholder meeting. The proposal should give unaffiliated shareholders the opportunity to affirm the current structure or establish mechanisms to end or phase out controlling structures at the appropriate time, while minimizing costs to shareholders.

As always, independent directors are expected to protect the interests of all shareholders and BlackRock will potentially vote against re-election of independent directors in companies with dual class share structures if valid concerns arise relating to the economic interests of unaffiliated shareholders being compromised.

Mergers, asset sales, and other special transactions

In assessing mergers, asset sales, or other special transactions, BlackRock’s primary consideration is the long-term economic interests of our clients as shareholders. Boards proposing a transaction should clear- ly explain the economic and strategic rationale behind it. We will review a proposed transaction to determine the degree to which it can enhance long – term shareholder value. We find long-term investors like our clients typically benefit proposed transactions have the unanimous support of the board and have been negotiated at arm’s length. We may seek reassurance from the board that the financial interests of executives and/or board members in a given transaction have not adversely affected their ability to place shareholders’ interests before their own.

Related-party transactions

Due to the evolution of the various regional economies and role of the state, many Asian companies conduct transactions with connected / related parties. These can be categorized as non-recurring transactions and recurring / continuing services agreements. Where shareholders are required to vote on such transactions, BlackRock expects companies to follow the associated listing rules and principles of disclosure outlined in the relevant corporate governance code. BlackRock also believes that the independent directors should ratify substantial transactions and related parties should abstain from voting. Where the above information is not disclosed or action is not taken to protect the rights of independent shareholders, BlackRock will consider voting against such proposals. For non-recurring transactions between related parties, the recommendation to support should come from the independent directors, and ideally, the terms should have been assessed through an independent appraisal process. In addition, it is good practice that it be approved by a separate vote of the non-conflicted shareholders.

Policy Segment: Compensation and benefits

The key purpose of compensation is to attract, retain, and reward competent directors, executives, and other staff who are fundamental to the long-term sustainable growth of shareholder value, with reward for executives contingent on controllable outcomes that add value.

One of the most important roles for a company’s board of directors is to put in place a compensation structure that incentivizes and rewards executives appropriately. There should be a clear link between variable pay and a company’s operational and financial performance. Performance metrics should be stretching and aligned with a company’s strategy and business model. BIS does not have a posi- tion on the use of sustainability-related criteria in compensation structures, but in our view, that where companies choose to include these components, they should be as rigorous as other financial or operational targets. Long-term incentive plans should encompass timeframes that 1) are distinct from annual executive compensation structures and metrics, and 2) encourage the delivery of strong financial results over a period of years. Compensation committee should guard against contractual arrangements that would entitle executives to material compensation for early termination of their employment. Also, pension contributions and other deferred compensation arrangements should be reasonable in light of market practice.

We are not supportive of one-off or special bonuses unrelated to company or individual performance. Where discretion has been used by the compensation committee or its equivalent, we expect disclosure relating to how and why the discretion was used, and how the adjusted outcome is aligned with the interests of shareholders. We acknowledge that the use of peer group evaluation by compensation committees can help ensure competitive pay; however, we are concerned when the rationale for increases in total compensation at a company is solely based on peer benchmarking rather than a rigorous measure of outperformance. We encourage companies to clearly explain how compensation outcomes have rewarded performance.

We encourage boards to consider building clawback provisions into incentive plans such that companies could clawback compensation or require executives to forgo awards when compensation was based on faulty financial statements or deceptive business practices. We also favor recoupment from or the foregoing of the grant of any awards by any senior executive whose behavior caused material financial harm to shareholders, material reputational risk to the company, or resulted in a criminal investigation, even if such actions did not ultimately result in a material restatement of past results.

Whilst the level of fixed compensation is not considered to be particularly controversial in the majority of Asian companies, administration and disclosure of the structure of equity-based incentive schemes can be an issue. Generally, we believe independent directors should not be eligible for equity-based incentives and executives should not sit on the compensation committee. In addition, if a share-based incentive plan could potentially lead to over 10% cumulative dilution over ten years inclusive of existing plans, or if a plan is not transparent in demonstrating the distribution of share-based awards between senior executives and other staff, we may consider voting against such proposals.

We use third party research, in addition to our own analysis, to evaluate existing and proposed compensation structures. We may vote against members of the compensation committee or equivalent board members for poor compensation practices or structures.

Policy Segment: Material Sustainability-related Risks and Opportunities

It is our view that well-managed companies will effectively evaluate and manage material sustainability- related risks and opportunities relevant to their businesses. As with all risks and opportunities in a company’s business model, appropriate oversight of material sustainability considerations is a core component of having an effective governance framework, which supports durable, long-term value creation.

Robust disclosure is essential for investors to effectively evaluate companies’ strategy and business practices related to material sustainability-related risks and opportunities. Long-term investors like our clients can benefit when companies demonstrate that they have a resilient business model through disclosures that cover governance, strategy, risk management, and metrics and targets, including industry-specific metrics. The International Sustainability Standards Board (ISSB) standards, IFRS S1 and S2, provide companies with a useful guide to preparing this disclosure. The standards build on the Task Force on Climate-related Financial Disclosures (TCFD) framework and the standards and metrics developed by the Sustainability Accounting Standards Board (SASB), which have converged under the ISSB. We recognize that companies may phase in reporting aligned with the ISSB standards over several years. We also recognize that some companies may report using different standards, which may be required by regulation, or one of a number of voluntary standards. In such cases, we ask that companies highlight the metrics that are industry – or company-specific.

We note that climate and other sustainability-related disclosures often require companies to collect and aggregate data from various internal and external sources. We recognize that the practical realities of data collection and reporting may not line up with financial reporting cycles and companies may require additional time after their fiscal year-end to accurately collect, analyze, and report this data to investors. That said, to give investors time to assess the data, we encourage companies to produce climate and other sustainability-related disclosures sufficiently in advance of their annual meeting, to the best of their abilities.

Companies may also choose to adopt or refer to guidance on sustainable and responsible business conduct issued by supranational organizations such as the United Nations or the Organization for Economic Cooperation and Development. Further, industry initiatives on managing specific operational risks may provide useful guidance to companies on best practices and disclosures. We find it helpful to our understanding of investment risk when companies disclose any relevant global climate and other sustainability-related standards adopted, the industry initiatives in which they participate, any peer group benchmarking undertaken, and any assurance processes to help investors understand their approach to sustainable and responsible business practices. We will express any concerns through our voting where a company’s actions or disclosures do not seem adequate in light of the materiality of the business risks.

Climate and nature-related risk

While companies in various sectors and geographies may be affected differently by climate-related risks and opportunities, the low-carbon transition is an investment factor that can be material for many companies and economies around the globe. We seek to understand, from company disclosures and engagement, the strategies companies have in place to manage material risks to, and opportunities for, their long-term business model associated with a range of climate-related scenarios, including a scenario in which global warming is limited to well below 2°C, considering global ambitions to achieve a limit of 1.5°C. As one of many shareholders, and typically a minority one, BlackRock does not tell companies what to do. It is the role of the board and management to set and implement a company’s long-term strategy to deliver long-term financial returns. Our research shows that the low-carbon transition is a structural shift in the global economy that will be shaped by changes in government policies, technology, and consumer preferences, which may be material for many companies.⁷ Yet the path to a low-carbon economy is deeply uncertain and uneven, with different parts of the economy moving at different speeds. BIS recognizes that it can be challenging for companies to predict the impact of climate-related risk and opportunity on their businesses and operating environments. Many companies are assessing how to navigate thelow-carbon transaction while delivering long-term value to investors. In this context, we encourage companies to publicly disclose, consistent with their business model and sector, how they intend to deliver long-term financial performance through the transaction to a low-carbon economy. While available, we appreciate companies publishing their transaction plan.⁸

Consistent with the ISSB standards, we are better able to assess preparedness for the low-carbon transition when companies disclose short-, medium-and long-term targets, ideally science-based where these are available for their sector, for scope 1 and 2 greenhouse gas emissions (GHG) reductions and to demonstrate how their targets are consistent with the long-term financial interests of their investors.

While we recognize that regulators in some markets are moving to mandate certain disclosures, at this stage, we view scope 3 emissions differently from scopes 1 and 2, given methodological complexity, regulatory uncertainty, concerns about double-counting, and lack of direct control by companies. We welcome disclosures and commitments companies choose to make regarding scope 3 emissions and recognize these are provided on a good-faith basis as methodology develops. Our publicly available commentary provides more information on our approach to climate-related risks and opportunities.

In addition to climate-related risks and opportunities, the management of nature-related factors is increasingly a component of some companies’ ability to generate durable, long-term financial returns for shareholders, particularly where a company’s strategy is heavily reliant on the availability of natural capital, or whose supply chains are exposed to locations with nature-related risks. We look for such companies to disclose how they manage any reliance and impact on, as well as use of, natural capital, including appropriate risk oversight and relevant metrics and targets, to understand how these factors are integrated into strategy. We will evaluate these disclosures to inform our view of how a company is managing material nature-related risks and opportunities, as well as in our assessment of relevant shareholder proposals. Our publicly available commentary provides more information on our approach to natural capital.⁹

Key Stakeholder interests

In order to advance long-term shareholders’ interests, companies should consider the interests of the various parties on whom they depend for their success over time. It is for each company to determine their key stakeholders based on what is material to their business and long-term financial performance. For many companies, key stakeholders include employees, business partners (such as suppliers and distributors), clients and consumers, regulators, and the communities in which they operate.

As a long-term shareholder on behalf of our clients, we find it helpful when companies disclose how they have identified their key stakeholders and considered their interests in business decision-making. In addition to understanding broader stakeholder relationships, BIS finds it helpful when companies consider the needs of their workforce today, and the skills required for their future business strategy. We are also interested to understand the role of the board, which is well positioned to ensure that the approach taken is informed by and aligns with the company’s strategy and purpose.

Companies should articulate how they address material adverse impacts that could arise from their business practices and affect critical relationships with their stakeholders. We encourage companies to implement, to the extent appropriate, monitoring processes (often referred to as due diligence) to identify and mitigate potential adverse impacts, and grievance mechanisms to remediate any actual adverse impacts. In our view, maintaining trust within these relationships can contribute to a company’s long-term success.

Policy Segment: Shareholder Proposals

In most markets in which BlackRock invests on behalf of clients, shareholders have the right to submit proposals to be voted on by shareholders at a company’s annual or extraordinary meeting, as long as eligibility and procedural requirements are met. The matters that we see put forward by shareholders address a wide range of topics, including governance reforms, capital management, and improvements in the management or disclosure of sustainability-related risks.

BlackRock is subject to legal and regulatory requirements in the U.S. that place restrictions and limitations on how BlackRock can interact with the companies in which we invest on behalf of our clients, including our ability to submit shareholder proposals. We can vote, on behalf of clients who authorize us to do so, on proposals put forth by others.

When assessing shareholder proposals, we evaluate each proposal on its merit, with a singular focus on its implications for long-term value creation by that company. We believe it is helpful for companies to disclose the names of the proponent or organization that has submitted or advised on the proposal. We consider the business and economic relevance of the issue raised, as well as its materiality and the urgency with which our experience indicates it should be addressed. We would not support proposals that we believe would result in over-reaching into the basic business decisions of the company. We take into consideration the legal effect of the proposal, as shareholder proposals may be advisory or legally binding depending on the jurisdiction, while others may make requests that would be deemed illegal in a given jurisdiction.

Where a proposal is focused on a material business risk that we agree needs to be addressed and the intended outcome is consistent with long-term value creation, we will look to the board and management to demonstrate that the company has met the intent of the request made in the shareholder proposal. Where our analysis and/or engagement indicate an opportunity for improvement in the company’s approach to the issue, we will support shareholder proposals that are reasonable and not unduly prescriptive or constraining on management.

We recognize that some shareholder proposals bundle topics and/or specific requests and include supporting statements that explain the reasoning or objectives of the proponent. In voting on behalf of clients, we do not submit or edit proposals or the supporting statements – we must vote yes or no on the proposal as phrased by the proponent. Therefore, when we vote in support of a proposal, we are not necessarily endorsing every element of the proposal or the reasoning, objectives, or supporting statement of the proponent. We may support a proposal for different reasons from those put forth by the proponent, when we believe that, overall, it can advance our clients’ long-term financial interests. We would normally explain to the company our rationale for supporting such proposals. Alternatively, or in addition, we may vote against the election of one or more directors if, in our assessment, the board has not responded sufficiently or with an appropriate sense of urgency. We may also support a proposal if management is on track, but we believe that voting in favor might accelerate efforts to address a material risk.

Policy Segment: Other corporate governance matters

In our view, shareholders have a right to material and timely information on the financial performance and viability of the companies in which they invest. In addition, companies should publish information on the governance structures in place and the rights of shareholders to influence these. The reporting and disclosure provided by companies helps shareholders assess the effectiveness of the board’s oversight of management and whether investors’ economic interests have been protected. We believe shareholders should have the right to vote on key corporate governance matters, including changes to governance mechanisms, to submit proposals to the shareholders’ meeting, and to call special meetings of shareholders.

Amendments to articles of association

These proposals vary from routine changes such as reflection of regulatory change, to significant changes that substantially alter the governance of the company. We will review these proposals on a case-by-case basis and support those proposals that we believe are in the best interests of shareholders.

Anti-takeover devices

BlackRock believes that transactions or practices that are intended to impede a potential takeover can be limiting to shareholders. BlackRock will generally not support proposals that introduce or renew anti-takeover devices.

Bundled proposals

We believe that shareholders should have the opportunity to review substantial issues individually without having to accept bundled proposals. Where several measures are grouped together, BlackRock may reject the overall proposal if it includes those that contradict or impede the rights and economic interests of shareholders.

Voting Choice

BlackRock offers a Voting Choice program, which provides eligible clients with more opportunities to participate in the proxy voting process where legally and operationally viable. BlackRock Voting Choice aims to make proxy voting easier and more accessible for eligible clients.

Voting Choice is currently available for eligible clients invested in certain institutional pooled funds in the U.S., UK, Ireland, and Canada that utilize equity index investment strategies, as well as eligible clients in certain institutional pooled funds in the U.S., UK, and Canada that use systematic active equity (SAE) strategies. Currently, this includes over 650 pooled investment funds, including equity index funds and SAE investment funds. In addition, institutional clients in separately managed accounts (SMAs) continue to be eligible for BlackRock Voting Choice regardless of their investment strategies.¹⁰

As a result, the shares attributed to BlackRock in company share registers may be voted differently depending on whether our clients have authorized BIS to vote on their behalf, have authorized BIS to vote in accordance with a third-party policy, or have elected to vote shares in accordance with their own policy. Agreements with our clients to allow them greater control over their voting, including which policies they have selected, will be treated confidentially consistent with our treatment of similar client agreements.

Policy Segment: Private Placement
Private placement (From BlackRock’s EMEA voting guidelines.)

BlackRock will generally support private placements where the purpose of the proposed transactions to raise funds or repay debt. Companies should seek annual shareholder approval for any standing authorities to make private placements. Such authorities should specify the maximum proportion of issued capital that could be placed privately and the maximum discount that could be applied, where relevant.

Taiwan

Regulatory environment and policy direction

The framework for Taiwan’s corporate governance is centered upon The Company Act (the Act), the Securities and Exchange Act (the SEA), Taiwan Stock Exchange Corporation Rules Governing Review of Securities Listings, and the Taipei Exchange Rules Governing the Review of Securities for Trading on the TPEx (Listing Rules).

The Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies (the Principles) published in 2002 first set out market aspirations on key governance issues such as protection of shareholder rights, corporate boards and their fiduciary duties, and transparency. Since 2013, the Financial Supervisory Commission (FSC) has stepped up its efforts on corporate governance reform by establishing the Center for Corporate Governance under the Taiwan Stock Exchange and publishing three Corporate Governance Roadmaps with specific governance improvement objectives in 2013, 2018 and 2020. The 2020 Roadmap lays out key objectives over 2021 to 2023, including action plans to strengthen board functions, enhance transparency, and encourage participation of external shareholders in corporate governance.

Boards and Directors

Corporate governance in Taiwan started with a two-tiered board structure comprising a board of directors and a board of supervisors. The role of supervisory board is to provide oversight of management and financial reporting. Regulators have since changed stance and decided to opt for a single-tiered board structure. Over the past decade, companies have been asked to adopt audit committees to replace supervisors and set up independent audit committees. Through several phases of introduction, all listed companies should complete the establishment of audit committees by the end of 2022. As the audit committee must consist of no less than three members with all members being independent directors and at least one with auditing or financial background, all listed companies should have at least three independent directors by 2022, where overall board independence must be no less than one-fifth. Large companies¹¹ must achieve no less than one-third board independence.

Where the structure of a board including key committees does not meet the requirements set above, and a cogent explanation has not been provided, BlackRock will consider voting against the re-election of director(s) deemed responsible.

Non-compete restriction

Article 209 of the Act states that “a director who does anything for himself or on behalf of another person that is within the scope of the company’s business, shall explain to the meeting of shareholders the essential contents of such an act and secure its approval.” This means that shareholder approval is required to release directors from this restriction. Approval of such proposals allows company directors to serve on the boards of other companies and conduct activities which may be considered to compete with the business affairs of the company.

When assessing such proposals, BlackRock expects, as a minimum, disclosure of the following:

• Name of the other companies that the director intends to serve as a director.
• Full details of the businesses in which these other companies operate

Where we believe that there is no potential conflict of interest if the director serves on the other identified boards, BlackRock will generally support such proposals. Where, however, the above information has not been disclosed or we are concerned that there is potential conflict, BlackRock may consider voting against such proposals.

Legal entity directors

The Act allows legal entities (including government agency and juristic person) to be elected as a director through a natural person as its proxy. The legal entity director may switch the designated natural person proxy without shareholder approval, effectively removing the right of shareholders to elect directors. BlackRock opposes the practice of legal entity directors and urges companies to refrain from utilizing such a structure. When there is no representative on legal entity directors at the time of director’s election, BlackRock will consider voting against the re-election of director(s) deemed responsible.

Contested director elections and special situations (From BlackRock’s policy for U.S. securities.)

Contested elections and other special situations are assessed on a case-by-case basis. We evaluate a number of factors, which may include: the qualifications and past performance of the dissident and management candidates; the validity of the concerns identified by the dissident; the viability of both the dissident’s and management’s plans; the ownership stake and holding period of the dissident; the likelihood that the dissident’s strategy will produce the desired change; and whether the dissident represents the best option for enhancing long-term shareholder value.

We will evaluate the actions that the company has taken to limit shareholders’ ability to exercise the right to nominate dissident director candidates, including those actions taken absent the immediate threat of a contested situation. BIS may take voting action against directors (up to and including the full board) where those actions are viewed as egregiously infringing on shareholder rights.

We will consider a variety of possible voting outcomes in contested situations, including the ability to support a mix of management and dissident nominees.

¹ See Singapore Council for Board Diversity; SGX Consultation Paper on Climate and Diversity.
² See Malaysian Code on Corporate Governance.
³ See South Korea’s Financial Investment Services and Capital Markets Act.
⁴ Large companies in South Korea are defined as those with KRW 2 trillion (USD 2 billion) or more in assets.
⁵ Large companies in Taiwan are defined as constituents in MSCI Taiwan index.
⁶ The objective of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information is to require an entity to disclose information about its sustainability-related risks and opportunities that is useful to primary users of general-purpose financial reports in making decisions relating to providing resources to the entity. The objective of IFRS S2 Climate-related Disclosures is to require an entity to disclose information about its climate-related risks and opportunities that is useful to primary users of general-purpose financial reports in making decisions relating to providing resources to the entity.
⁷ BlackRock Investment Institute, “Tracking the low-carbon transition”, July 2023.
⁸ We have observed that more companies are developing such plans, and public policy makers in a number of markets are signaling their intentions to require them. We view transition plans (TPs) as a method for a company to both internally assess and externally communicate long-term strategy, ambition, objectives, and actions to create financial value through the global transition towards a low-carbon economy. While many initiatives across jurisdictions outline a framework for TPs, there is no consensus on the key elements these plans should contain. We view useful disclosure as that which communicates a company’s approach to managing financially material, business relevant risks and opportunities – including climate-related risks – to deliver long-term financial performance, thus enabling investors to make more informed decisions.
⁹ Given the growing awareness of the materiality of these issues for certain businesses, enhanced reporting on a company’s natural capital dependencies and impacts would aid investors’ understanding. In our view, the final recommendations of the Taskforce on Nature-related Financial Disclosures may prove useful to some companies. We recognize that some companies may report using different standards, which may be required by regulation, or one of a number of other private sector standards.
¹⁰ Read more about BlackRock Voting Choice on our website here
¹¹ Large companies in Taiwan are defined as constituents in MSCI Taiwan index.

SPAC fundamentals: There have been 882 special purpose acquisition companies(SPAC) listed in the US market in the year 2021. The US$162 billion raised in 2021 is more than double the yearly average for the same period the previous year. As a result of the successful SPAC in the US market, we see significant opportunities in Asia.