January 29, 2019

Activism: The “First Mover” Advantage in Proxy Fights

Proxy contests are probably more about politics and the art of persuasion than they are about law – and this recent study says that activists who get in front of investors before the incumbent board gain a significant advantage. This excerpt discusses just how big that advantage can be:

I find that the dissident’s communication strategy has an important effect on voting outcome and on proxy advisors’ recommendations, controlling for firm and dissident characteristics. Effective strategies entail the use of various communication channels, especially investor presentations, and the reflection of logical reasoning in the content.

Investor presentation is potentially a snapshot of all dissidents’ demands, so I focus on understanding how it affects voting outcome. As investors have limited attention, I investigate whether the timing of the presentation affects the voting outcome. Although the dissident is the first to bring proposals to the management, in only 49% of cases is the dissident the first to make a presentation.

Strikingly, I find that the dissident is 55 percentage points more likely to win if they are the first to make an investor presentation, after controlling for firm and dissident characteristics, ISS recommendations, the severity of issues in the firm, potential solutions provided by the dissident, and third party endorsements of the dissident.

The study says that the biggest factor behind the first mover advantage is investors’ limited attention spans. The first investor presentation simply gets a lot more investor attention than the second. Not surprisingly, that’s less true when it comes to institutional investors – and the first mover advantage is magnified when a company has a large number of retail investors.

John Jenkins