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Will Arnot
Senior Editorial Specialist

IN-DEPTH: As activists assess tactics, where will shareholder proposals feature?

January 31, 2025
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Activists assessing shareholder proposals

This article first appeared on Diligent Market Intelligence's Activism newswire. To register for a demonstration and trial of the product, click here.

As primary- and partial-focus activists prepare for a new season of engagement, many will examine the potential for more creative tactics in their push for additional reforms.

One such novel approach employed in 2024 saw Starboard Value, an activist better known for proxy fights, advance an advisory shareholder proposal in a bid increase pressure on News Corp. to dismantle its controversial dual-class share structure. Soliciting its own proxies, while more costly, gave the activist control over its mailings and more visibility into voting patterns.

"We believe eliminating the dual-class share structure will promote shareholder value, improve governance, and increase News Corp’s accountability to investors," the 1.9% shareholder argued.

While Starboard's use of this method in September was atypical, it quickly racked up support from fellow activists, with Irenic Capital backing the demand while adding a disclaimer that "high-vote" shareholders like itself should receive a premium for converting their holdings. “We believe paying a substantial premium for the News Corp Class B common stock to convert to a single-share structure is appropriate,” Irenic said at the time, highlighting that in recapitalizations at Constellation Brands, Forest City and Hubbell Incorporated, “high-vote” shareholders were paid a premium of between 26% and 31% to convert their shares. Proxy advisors also lent their support to Starboard with Institutional Shareholder Services (ISS) arguing it would establish a capital structure in which voting power is commensurate with economic ownership and economic exposure.

The proposal ultimately won 35.2% support at News Corp’s November 20 annual meeting, with such demands to end dual-class structures recording average support of 33% at U.S. targets in the first 10 months of 2024. The Nathan Cummings Foundation and H.E.S.T. Australia had previously pushed for recapitalization at News Corp back in 2016, winning 32% support from the votes cast.

News Corp’s founding Murdoch family holds 41% of the voting power under its Class B common stock, so why did Starboard opt to pursue such a shareholder proposal given such levels of insider ownership?

“First, they thought they needed to make this demand somehow, and a shareholder proposal for which they solicit proxies demonstrates a level of seriousness that any other public demand, such as a mere news release, would not show," Michael Levin of The Activist Investor blog told DMI. "Second, they had a small chance of success, since the Murdoch family does not have absolute voting control, and a previous effort did attract material support.”

The activists most likely to turn to shareholder proposals

According to Diligent Market Intelligence (DMI) data, 38 non-binding shareholder proposals were filed at U.S.-based companies by primary- and partial-focus activists in the first 10 months of 2024, largely in line with the same period in 2023 and up from 25 recorded in 2021. However, the vast majority of proposals concern two big themes.

Activists operating in the closed-end fund space regularly lean on shareholder proposals as they push for change. Those most recently advanced by Saba Capital Management have typically called for the termination of an investment advisory agreement, including at nine separate BlackRock managed funds in 2024.

Others are typical as part of a proxy contest, with activists asking their targets to repeal bylaws adopted in the lead up to a vote.

In their recent respective campaigns at Southwest Airlines and Walt Disney, Elliott Investment Management and Nelson Peltz’s Trian Fund Management had – along with their demands for board representation – submitted shareholder proposals calling for the repeal of any amendment to the company’s bylaws made by the board and without shareholder approval, in the months leading up to the vote.

While Elliott and Southwest’s campaign eventually ended in a settlement agreement, Trian’s proposal went to a vote at Disney’s April 3 annual meeting, with support from 29.3% of the votes cast.

A means to an end

In another notable campaign in 2024, London-based activist Bluebell Capital targeted investment management giant BlackRock with a proposal calling for the separation of the chair and CEO roles, held by Larry Fink since he founded BlackRock in 1988.

The proposal, however, won just 13.1% support from the votes cast at BlackRock’s May 15 annual meeting, with the target accusing Bluebell of making ‘‘multiple misguided, incorrect and contradictory criticisms" of its policies.

Looking ahead, while Levin expects that the use of shareholder proposals by primary- and partial-focus activists may become more common “as traditional activists have the resources to solicit proxies, unlike ESG proponents,” others are not so sure, concluding they are more likely to be used as a secondary arm to a wider campaign.

"Activists are economically motivated. They may suggest governance improvements for a number of reasons, but governance is generally a means to an end rather than the primary focus of a campaign," David Whissel, managing director at Spotlight Advisors, told DMI.

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