Activism in the 2024 Proxy Season and Implications for 2025

The 2024 proxy season was notable for a number of reasons. Upward trends in the number of campaigns, the increased number of activists, and an increased focus on “operational” campaigns coupled with decreased success of activists in proxy fights and an uptick in settlements, as well as major developments in the domestic and international political, regulatory, and legal landscape, all promise that 2025 will be a very interesting proxy season.

I.  Market Developments

a. Number of Campaigns and Activists Increase

Barclays has counted 243 global activism campaigns last year, the highest number since 2018, with 155 U.S. campaigns – a 6% year over year increase in the U.S. Barclays has also reported that campaigns were launched by a record 160 different activists, with 45 first time activists.[1] Some practitioners have noted a shift in practices, perhaps as a result of this more crowded field, where credit-seeking activists seem less likely to work behind the scenes with a target before announcing their campaign. While this practice may be attributable to a fear of leaks regarding the campaign, which could lead to a swarm of other activists jumping in for media credit (and making fund-raising more difficult), an immediate public stance has been known to harden positions on both the target and activist side – making a quiet, mutually satisfactory arrangement more difficult to achieve.

b. Operational Campaigns and Management Turnover

Barclays has also noted that almost 25% of activist campaigns made operational demands in 2024, a recent high. Predictably, resignations by the target’s CEO also increased, as meaningful operational change is often accompanied by management change. A record 27 CEOs resigned in 2024 following an activist campaign, a 170% increase since 2020.[2] (Interestingly, public demands by activists for management change remain relatively rare; these requests have usually been made privately, or by implication. However, an increase in publicly made requests is likely as the taboo falls away.) Given our view on the persistence of operational campaigns in 2025, we believe management turnover is likely to remain a prominent feature of activism in 2025.

While at the beginning of the year there was significant optimism about M&A activity picking up, that optimism for the moment has faded in the face of the shifting policies of the new Trump administration, the potential for disruptive tariffs and the related potential for retaliation, inflation and supply chain disruption, all of which can create uncertainty around valuations. Accordingly, we are less sanguine that M&A based campaigns will displace operational campaigns in the 2025 proxy season. To the contrary, if current pessimism continues, there may well be a continued focus on operational campaigns, campaigns for spin-offs, recapitalizations, buybacks and other strategic transactions that do not rely on a robust M&A market.

Moreover, if worse comes to worst, and tariff disputes lead to a persistently falling stock market, one can anticipate more opportunistic buying by certain activists to take advantage of market dips, with the activist’s promises for a value increase being based on a trading price bump associated with a CEO replacement. A temporarily disrupted equity market may also lead potential activist targets to seek more robust defenses to ensure that short-term market disruptions do not lead to opportunistic campaigns that impair longer term value. After the failure of the Williams Companies experiment with an “activist pill,”[3] we suspect there will be a greater emphasis put on highlighting for stockholders the issuer’s long-term objectives and on implementing robust advance notice bylaws.

c. Bumpitrage

The level of M&A activity will also determine to what extent activists can play the “bumpitrage”[4] game in 2025. We expect that activists will continue to challenge announced deals regardless – 2025 has already seen one prominent example, in Ancora’s campaign against U.S. Steel – but the success and availability of the strategy will be limited unless deal activity rebounds significantly. In 2024, although five campaigns resulted in an increase in the proposed transaction price for the sale of the target in which the activist shareholders held stock, 19 campaigns did not succeed.[5] In an uncertain deal market, buyers may feel emboldened to take a hard line in the expectation that target shareholders will not risk a busted deal.

d. ESG and DEI

The number of anti-ESG and anti-DEI proposals have vastly increased during the past several years, increasing from 23 to 112 and one to 13, respectively, between 2021 and 2024.[6] As anti-ESG or anti-DEI proposals continue to proliferate, they are likely to continue receiving little support, even as support  for their pro-ESG and pro-DEI predecessors remains lukewarm.[7] Given that ISS, Glass Lewis, Blackrock, Vanguard and State Street have all very recently modified their governance policies regarding diversity – eliminating targets for diversity on boards – it is reasonable to expect that any energy behind anti-DEI proposals to further dissipate somewhat over time.

At the same time, recent Staff guidance has made it easier for companies to exclude shareholder proposals relating to issues of “broad societal impact.” The SEC’s recent SLB 14M rescinds guidance included in its predecessor (SLB 14L), which posited that certain policy issues may be so fundamental as to transcend the ordinary business operations of a company (and accordingly to escape the ordinary business exemption in Rule 14a-8).[8] By rescinding SLB 14L, SLB 14M restores the “case-by-case” approach to determining whether such proposals may be excluded from a company’s proxy materials which may decrease E&S and DEI proposals appearing in proxy statements.[9]

Given this background, in 2025, while DEI and ESG are likely to remain part of the national narrative, we anticipate that “classic” governance practices, such as executive pay, will receive more attention than DEI or E&S issues.

e. Zero Slate Proxy Campaigns

In 2024, the AFL-CIO and United Mine Workers of America leveraged the universal proxy rules to submit multiple shareholder proposals on the company’s own materials. Rather than including additional director nominees on proxy cards that they distributed, they included additional shareholder proposals. In response, the company included the proposals in its proxy materials to solicit votes against the proposals. Shareholder proposals submitted through this tactic sidestep the framework, and the bases for proposal exclusions, under Rule 14a-8. It is unclear whether others will follow this tactic, which is presumably at least somewhat more expensive and complex to implement than a 14a-8 proposal.

II. Proxy Fights and Settlements

a. Few Board Seats Won in Proxy Contests

The number of board seats awarded to activists through settlement agreements continues to far outstrip the number of board seats won by activists in proxy fights. This was particularly true in the U.S., where only six of the 49 board seats gained by activists in 2024 were won in proxy contests. And the activist record in 2024 proxy fights was far from intimidating – out of 10 proxy fights, activists won board seats in only three campaigns. Of the three “winning” campaigns, only one resulted in the activist winning all the board seats it sought – which was a modest two seats. In another “winning” campaign, an activist sought seven board seats and won three. In the final “winning” campaign, the activist sought seven board seats and won one.

b. ISS and Glass Lewis Recommendations Less Significant

Perhaps even more remarkable is the gap between ISS and Glass Lewis recommendations on activist candidates and shareholder voting. When ISS or Glass Lewis recommended an activist candidate in 2023, 74% of those candidates were elected. In 2024, only 45% of ISS or Glass Lewis recommended activist candidates were elected. This result may be an aberration, but it might also indicate that ISS and Glass Lewis’s institutional shareholder client base have realized that ISS and Glass Lewis have fallen out of step with the long-term focus of its clients.

c. Settling with Activists

In any event, it remains a remarkable fact that so many board seats are given away by boards while so very few are being won in proxy fights. Some have made the Panglossian argument that because we live in the best of all possible worlds, the large number of settlements and low rate of successful activist proxy contests indicate only that just the right number of settlements are being made. To others, it seems more likely that some number of boards may be giving in too easily. Among (many) other things, the Panglossian argument seems to assume that boards are quite free to give away board seats. It is worth remembering that in changing the composition of the board elected by the stockholders in the face of a proxy fight that may displace members of the current board, directors are adopting a defensive device which will eliminate the stockholders’ ability to vote on the changes being proposed by the activist.

Adoption of such a defensive device is tested under Unocal/Coster and requires that the board identify a threat to corporate policy and effectiveness. This threat, in the activist context, boils down to (i) the threat of short-term expense and distraction and (ii) the longer term threat that, if elected by stockholders, the activist’s original nominees will disrupt the agenda of the board to a greater extent than nominees appointed in a settlement.[10] In any event, to understand these threats, and for the threats to stand as a proper basis for taking a defensive action, the board will want to inform itself fully of the costs associated with distraction, of the plans and proposals of the activist, the qualifications of the activist’s nominees, and of the nominees’ independence from the activist. Entering a settlement agreement before this investigation is made will be hard to square with the directors’ duty of care. Gathering information pursuant to properly drafted advance notice bylaws will be critical to discharging this duty.

III. Update on Advance Notice Bylaws

In recent years, advance notice bylaws have become longer and more complex while variability in the drafting and subject matter covered has increased.[11] These bylaws in some cases are drafted in a convoluted or obfuscatory manner and at times include inappropriate roadblocks to director nominations. In striking down much of the advance notice bylaw at issue in the Kellner v. Aim Immunotech[12] case, the Delaware Chancery and Delaware Supreme Court laid out important guidelines for enforceable advance notice bylaws.  In gearing up for increased activism, boards should assess their advance notice bylaws against the key lessons in Kellner.

First, boards should ensure that advance notice bylaws are clearly drafted. Whether a board is seeking to update older generation bylaws or drafting a new advance notice bylaw from scratch, boards should be keen to ensure advance notice bylaws are easy to read and understand. Drafters should use plain English and stick with traditional fundamentals of good legal drafting, such as using succinct language and short sentences.

Second, boards should remain mindful of what is – and what is not – a proper purpose of an advance notice bylaw under Delaware law. Preventing an activist from nominating directors is not a proper purpose. Courts will invalidate a bylaw that includes inappropriate roadblocks, traps or unnecessary hooks and barbs that make it more difficult or impossible for an activist to satisfy its requirements. The bylaw should serve to regulate the orderly running of a proxy contest and to provide transparency to voting stockholders – it should not serve as a countermeasure to an activist campaign. An advance notice bylaw that serves these legitimate purposes should generally be upheld.

Third, boards should adopt their advance notice bylaws on a clear day. Presumably, only the discretionary application of an advance notice bylaw adopted on a clear day will be subject to scrutiny under Unocal/Coster. The adoption of the bylaw itself on a clear day, absent particularly controversial provisions, may not be so scrutinized. If nothing else, corporations will be significantly better off while in live proxy fights focusing on a proper response to the activist, rather than on designing a bylaw to counter an ongoing activist threat.

At the macro level, we continue to have concerns that the high degree of variability among different corporations’ advance notice bylaws, coupled with a continued increase in activist campaigns (including from newer, less traditional activists), will result in additional and disparate challenges to existing advance notice bylaws, leading to less certainty for corporations involved in a proxy challenge. In the wake of the Kellner decisions, we proposed a model advance notice bylaw that we believe responds to the lessons of Kellner while putting corporations in a better position to elicit fully transparent disclosure from activists seeking to obtain board seats – allowing the board to make informed decisions whether responding to a proxy fight or settlement proposal.[13] Adopting a common approach to drafting and otherwise encouraging uniformity will more easily allow courts to digest the various activist challenges that will surely arise, and, if necessary, will provide a clearer path for a coherent response to any court decisions going forward. Perhaps for these reasons, at the recent 37th Annual Tulane Corporate Law Institute, adopting a common model approach was encouraged by a member of the Delaware judiciary.

IV.  Regulatory Outlook: Stockholder Engagement and the SEC’s New C&DI for Schedule 13D-G

The SEC has, at least for the moment, thrown a wrench into normal shareholder engagement practices. In its recent C&DI on Schedule 13G eligibility, the SEC took the position that 13G filers (typically funds like Blackrock, State Street and Vanguard) must instead file on Schedule 13D if a fund “exerts pressure on management to implement specific measures or changes to a policy.”[14] What exactly is meant by “exerting pressure” is not particularly clear. It is clear however that risk averse, heavily regulated funds will not want to play close to a line which, if crossed, will require them to take on the operationally impossible obligation to file on Schedule 13D.

In discussions with management, funds may still express their “views on a particular topic and how its views may inform its voting decisions, without more.”[15] However, a fund will lose 13G eligibility if, for example, it “explicitly or implicitly conditions its support of one or more of the issuer’s director nominees . . . on the issuer’s adoption of [the fund’s] recommendation” (emphasis ours).[16] At the recent 37th Annual Tulane Corporate Law Institute, an SEC representative noted that in their own individual view simply publishing a fund’s governance policies (as funds are required to do) should not be deemed an attempt to “implicitly” exert pressure on management, for the reason that this publication is a general statement of policy not directed at a particular company. However, it is unclear what the result would be if, in the context of a face-to-face engagement, a fund representative notes that it will be following that policy or, if asked, simply does not abjure those policies. This lack of certainty has had predictable consequences.

Since the publication of the C&DI, we have seen a marked unwillingness of the fund complexes to engage with issuers, even in high-profile situations where the fund has actual value at stake. We understand that in meeting on more mundane matters – think ESG – certain funds are not presenting their own agenda, but rather asking the issuers to present the company’s agenda, meaning that the issuer’s priorities, rather than the fund’s priorities, will be addressed. One fund has included in its engagement policy a prophylactic statement that it does not intend to influence control of its portfolio companies.[17] Perhaps the funds and the SEC will eventually find a way to allow frank conversations to take place, but on the face of the published guidance that does not seem to be on the immediate horizon. Simply put, the C&DI impedes the funds’ ability to engage in frank and meaningful stewardship discussions.

If intended, this outcome is curious as the fund complexes originally had zero interest in adopting a stewardship role, and were dragged into this role, kicking and screaming, by the SEC itself.[18] In 2003, the SEC, licking the wounds inflicted by Enron and other scandals, decided that the funds needed to take an active role in guiding the governance of the portfolio companies and required not only that funds disclose whatever limited voting policies existed at the time, but also formulate policies on topics ranging from corporate defenses to “stock option plans and other management compensation issues, and social and corporate responsibility issues.”[19] The C&DI, in contrast, seems to be saying to funds “in the exercise of your stewardship duties, you can try to persuade issuers of the wisdom of your preferences, but you cannot use the voting rights associated with your ownership to enforce your preferences.” The question, of course, is whether the SEC intends to use the C&DI as a prelude to getting funds out of the business of stewardship – which would be a radical reversion to the pre-2003 norm – or whether something less dramatic is afoot.[20] At this point, it seems hard to predict where they will steer.

As a result, the implications for activism are unclear. Perhaps it will be possible for activist targets to arrange meetings with certain funds where the funds listen but don’t express any view.[21] Perhaps funds will simply withdraw from engagement altogether and issuers will need to make their cases to ISS and Glass Lewis instead, elevating the role of these intermediaries. In any event, it seems that issuers efforts to rally funds to their side will become more complicated for the near future, strengthening the hand of activists who will be able to have an open and frank conversation with the funds.