In September 2022, the US Securities and Exchange Commission (SEC) amended the Universal Proxy Rules for Director Elections to require corporate board elections to use cards listing all candidates on both sides. This means that investors can now pick and choose individual candidates from either the company or activist slate — a change that arguably tilts the field in favor of the activist challenger and will encourage an increased initiation of proxy fights.
Haystack Needle has a long history of creating successful campaigns for both the activist and defensive sides of proxy fights, but the new ruling required a strategic rethink of how we conduct client campaigns.
Haystack’s CEO, Townsend Belisle, sat down with Creative Director, Zach Niles, to discuss the new tactics we’re employing to help companies and their boards protect themselves in light of these changes.
Zach: In September, the SEC enacted the use of universal proxy cards. Please briefly discuss the effect of that ruling and what it means for future proxy fights.
Townsend: Public companies are overseen by corporate boards. So, if an activist investor wants to make a change at a public company that its board doesn't agree with, then the investor can advocate to change the board members. In the past, the choice was binary — either investors voted for the company’s slate of board members or the activist’s alternate options. Whoever’s slate won the most votes also won the fight. Our job has always been to convince investors to vote for our client’s full slate. But with the universal proxy card, it’s no longer a zero-sum game. For an activist to be successful and change a company’s course, they may only need to get a few of their candidates elected, which makes each board member a potential target. These big proxy contests can come down to one-on-one battles for each board seat.
This means that proxy fights are beginning to resemble political campaigns, with each board member needing to defend their seat by highlighting their experience, record, and vision; “I have a wealth of experience as an executive and on various boards. I’ve been on a compensation committee, led a CEO search, and I believe this company is fantastic and has the right strategy to grow. I am the best choice for such a position, so please vote for me.” Hence, board members are becoming more visible to investors, which is something they might not be ready for or necessarily want.
Zach: With these changes in mind, what strategies should a company and its board of directors use to defend themselves from an activist attack?
Townsend: Ultimately, companies must acknowledge that the game has changed. It’s not an all-or-nothing approach anymore. The mindset has to shift from generalized support of the board to a more focused plan to protect the reputation of individual board members, promote their strengths, and increase their visibility, likability, and trustworthiness. How do we go about this? Without revealing too much of our playbook (these are proxy fights, after all), we’ve begun to employ two parallel strategies that are proving effective.
OPTIMIZED DIGITAL PROFILES
One key tactic is to optimize each board member’s digital reputation. This means cleaning up all existing relevant and positive information and making it easy to discover in search engines and social media. For example, is their bio easily found? Is it up to date? Are they worthy of a Wikipedia entry? Are there articles about them or photos and videos of them? All of this is valuable, evergreen content that can help make a case for why a board member’s experience is a perfect match for the governance of a particular company.
Many board members are practically invisible online or have Google results that are all over the place. Many don’t even show up on the sites of the companies they serve. Our team can optimize a board member’s online presence and ensure that their digital profile includes the best, most relevant information.
VIDEO PROFILES
Another tactic we employ is producing video profiles of each director. Investors, whether institutional or retail, often perform significant research to understand directors’ experience and expertise. A short-form video is an ideal mechanism to meet board members virtually. Users are reading less and less - and a video adds a personal touch with authenticity. We’re often hired, in tandem with a board meeting, to capture videos of individual board members in the next room. Much like a political campaign will often produce a video profile of its candidate, we create a profile of each board member. These videos highlight the board member’s experience and how it prepared them for their current position while also speaking to the company strategies they support.
Compiling this content in a video profile humanizes the board member and allows an investor to quickly get a sense of whether or not they're the right member for that board. It’s also crucial to ensure these videos are readily available, interlinked with other content, and easily searchable online. Otherwise, you’re fighting with one hand tied behind your back.
Zach: With the expected increase in proxy fights due to the Universal Proxy Rules, do you imagine only using these tactics after activists have targeted a board, or do you suggest preemptively putting them into play as standard practice?
Townsend: Great question. We’ve learned that the best time to initiate a proactive defense is now. First, establishing a working digital reputation takes time. By getting ahead of the game, you can put your tactics into play when you need them most. Second, having this information and these videos already circulating and easily accessible will help to mitigate activism in the first place. Third, building the defensive wall of a robust digital reputation around your board members will make it harder for activists to find weak spots to target. And frankly, it costs a lot less and is more strategically beneficial when you are not in an emergency mode and can take the time to do it right.
Zach: What is your overarching recommendation to large companies now that it is even more likely that they will face activist challenges in the future?
Townsend: The nature of the universal proxy card is one where the bigger the company, the higher the chance that there will be activism, and the threat can resurface year after year. I think it makes sense for companies and boards of directors to get a jump on implementing defensive measures as soon as possible. Give the algorithms time to do their work, and give the creatives time to make compelling content. Invest in protecting your board members now, and you’ll be on the right foot when the inevitable proxy fight comes knocking.
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