DealLawyers.com Blog

This Latham & Watkins memo provides an overview of the basics of the “universal proxy” – and its implications for public companies. This excerpt explains why a company might want to consider using a universal proxy in a contested election:

Since 2014, there has been an average of 88 proxy contests for board seats each year, and activists sought board control in an average of 32% of those contests. In proxy contests for control of the board, a company could consider using a universal proxy that allows stockholders to mix-and-match candidates as an alternative to the current binary choice between the company’s slate or the activist’s control slate. In the context of majority- or full-board contests in particular, Hirst’s study of proxy contests found that removing the binary proxy voting mechanism would likely result in stockholders electing more management nominees and fewer activist nominees.

In addition, companies facing a proxy contest for control of the board should consider the influence and practices of proxy advisory firms. If the proxy advisory firms wish to see any degree of change at a company, they are typically willing to support some activist nominees. As activist nominees are typically not included on a company’s proxy card under the binary regime, activists can transform an advisory firm’s support for “some change” at a company into a real threat of a change of control of the board.

With a universal proxy card, proxy advisory firms can recommend less than all of the nominees proposed by an activist’s change in control slate, rather than being forced into the binary “all or none” recommendation. However, if the various proxy advisory firms recommended for different nominees it may ultimately facilitate the election of more activist nominees than any one proxy advisory firm recommends.

As I recently blogged, activists have also figured out that in some situations, the universal proxy they’ve long sought may actually work to management’s benefit. But the Latham memo makes it clear that this is a complex calculus – and it may not work out as either party expects.

– John Jenkins