Across the Board

A brand new SEC rule means individual directors—rather than just the company—are more likely to become direct targets of a public activist campaign.

Effective September 1, a new SEC rule requires the use of a universal proxy card in public solicitations involving contested director elections allowing shareholders to “mix and match” nominees from the company’s and dissident’s slates of nominees.

So what does that mean?

Funds of any size and with no ownership threshold may easily and relatively inexpensively put forth board nominees.

Regardless of their value to the company, long tenured directors, older directors who have been retired for several years, academics and family members or connected directors will likely be the most vulnerable.

What should companies do to prepare?

  • Consider investor materials vital communications tools in support of directors, not just legal documents with limited messaging.
  • Ensure materials clearly communicate the skills and value the directors bring to the board in language the voting decision makers at governance oriented institutions can understand.

Many governance-oriented shareholders don’t have bandwidth to engage with every company. Consider alternative communication methods, including:

  • Video packages of directors posted to website.
  • Mid-year updates by directors on various ESG programs.
  • Making directors available at investor days.

Every company is different and needs to communicate their directors’ value in a way that’s natural and comfortable to them – a cookie cutter approach will not be effective.

When to act

Companies should take steps now to better communicate the benefit each board member brings. Once a company receives a nomination from a dissident, change in communication can only be viewed as reactive.