IN-DEPTH: Activists turn to withhold votes for cost-effective influence
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Nominating an alternative slate of directors is about the best leverage an activist can get. But some are choosing a leaner, less costly approach, urging shareholders to withhold votes from incumbent board members.
Unlike traditional proxy battles, withhold campaigns skip nominating a new slate or waging lengthy solicitation wars. Instead, activists call for the removal of specific directors, often those responsible for compensation or governance issues, to send a message without escalating to a full confrontation.
The Diligent Market Intelligence (DMI) editorial team has reported on 33 distinct activist withhold campaigns over the 12 months ending June 17, up from 23 such campaigns in the same period of 2023–24 and 24 campaigns over the same timeline in 2022–23.
A strategic starting point
Withhold campaigns are unlikely to replace proxy contests outright, but they can serve as a starting point or fallback for investors. They can also lay the groundwork for more aggressive moves.
“There could be a change in circumstances following the closure of the nomination deadline,” said Ryan Nebel, partner at Olshan Frome Wolosky. “Maybe 30 days ago they were on the fence and gave [management] the benefit of the doubt, and then something happens after the nomination deadline closes. So, it’s a way to hold these guys accountable somehow.”
Case in point is Jonathan Litt’s activist hedge fund Land and Buildings, which has launched multiple campaigns this year against executive pay practices in the U.S. REIT sector, urging shareholders to vote against compensation committee members at nearly a dozen companies.
“We’re not under the delusion that the board members would be voted out because of this,” Litt told DMI. “But I think this is really a call to action for these directors.” He noted that while none of the companies he publicly named have responded, many of their institutional investors have reached out to state their support.
Ancora Advisors’ withhold campaign at Forward Air, however, did succeed in forcing out directors. Incumbents George Mayes, Javier Polit, and Laurie Tucker, who were targeted by Ancora and fellow activist Lakeview Investment Group, resigned following the company’s annual meeting on June 13. The company said Polit and Tucker received a majority of the votes for their reelection but chose to resign voluntarily, while Mayes appeared to have failed to win majority support.
At Harley-Davidson, H Partners spearheaded a high-profile “Free the Eagle” campaign that criticized the board for pivoting toward electric bikes and lifestyle branding, arguing it came at the expense of the motorcycle maker’s chrome-and-steel heritage. Backed by Purple Chip Capital, the campaign urged shareholders to withhold support from CEO and Chair Jochen Zeitz, as well as directors Sara Levinson and Tom Linebarger.
While all three candidates were reelected, H Partners noted that nearly half of all shares cast voted withhold on the targeted directors, and almost 90% of the non-passive institutional shares voted withhold.
“With such a large withhold vote, we call on the board to follow through on these promises," the activist stated, indicating it could reignite the campaign if disappointed by management follow-through.
At Wex, Impactive Capital also warned of future action after a May withhold campaign resulted in CEO and Chair Melissa Smith gaining just 66.6% support, while Lead Independent Director Jack VanWoerkom secured 59.2% backing. Calling the vote ‘‘a clear message’’ that Wex shareholders no longer have confidence in the current board, the 7% shareholder said it intends to nominate “at least four directors for election at next year’s annual meeting, barring a significant reversal of the company’s underperformance or approach to engagement in the coming months.”
The trend extended overseas. In Japan, Oasis Management launched withhold campaigns against senior leaders at Kyocera, Taiyo Holdings, and Kusuri No Aoki. 3D Investment Partners targeted two directors at Nippon Steel, and Hibiki Path Advisors escalated its fight at Japan Pure Chemical by encouraging shareholders to oppose the company’s board slate after activist proposals were rejected. In the U.K., ESG activist Follow This led a withhold vote against BP that coincided with financially motivated activism at the oil supermajor.
Cost and context fuel appeal
Part of the appeal concerns cost. A full proxy fight can cost millions, with legal filings, PR consultants, and shareholder outreach. The 2024 Disney proxy battle with Trian Fund Management and Blackwells Capital cost close to $70 million, according to proxy statements issued by each party. In contrast, withhold campaigns often require only an exempt solicitation, a public letter, or a sharply worded X post.
The tactic also aligns with the current market mood. With political and economic uncertainty running high, many investors are hesitant to commit to a full-fledged campaign, according to people who spoke with DMI.
Regulatory changes are also reshaping the landscape. In February, the SEC issued Staff Legal Bulletin No. 14M (SLB 14M), reinstating a more company-specific approach to evaluating shareholder proposals, making it easier for companies to exclude proposals unless they are significantly related to the company's day-to-day business.
And in early June, a Federal court upheld changes to SEC Rule 14a-8 that raise the threshold for shareholder proposals: holders must now have $25,000 invested for at least one year, up from $2,000, with lower levels only after longer holding periods.
“There is now a very plausible future in which shareholder activists cannot get proposals on the management ballot,” said Sara Murphy of The Shareholder Commons. “14a-8 seems exquisitely vulnerable... because of our changes at the judiciary level.” Withhold campaigns, which sidestep the management ballot, provide a flexible alternative.
Bylaws determine impact
The effectiveness of withhold campaigns depends heavily on company bylaws. Many firms use plurality voting, where candidates with the most votes win, allowing directors to retain seats despite majority withheld votes. However, more companies now adopt majority-vote standards with resignation policies, requiring boards to address significant withhold votes or face shareholder backlash.
According to DMI data, 45 companies globally faced shareholder resolutions calling for the adoption of majority voting in 2024, up from 14 in 2023 and 16 in 2022. There have been 30 such resolutions filed in the almost six-month period to June 23 this year.
Even in companies with weaker bylaws, the reputational damage of a withhold campaign can resonate. Directors facing opposition may lose seats on other boards or face tough questions from investors.
“Opposition to a director as low as 11.4% can yield desirable behavior change at the company,” Murphy said, citing work by Dr. Ellen Quigley at the University of Cambridge. “There's even research that found that even as low as 6% opposition to a director will prompt that person to take very, very serious notice.” She added, “Directors are humans. They don't like to be opposed, and they do take notice when their shareholders are not supporting their candidacy.”
