2023: Insightful Thoughts on Proxy Fights and Shareholder Activism in Three Jurisdictions - Canada, the U.S., and the UK/Europe

The complex dynamics between the principal, the primary owners of a company, and the agent appointed to manage the business have evolved significantly since the global financial crisis of 2008-2009. Today, shareholders increasingly turn to proxy contests or the threat thereof as a means to enforce robust corporate governance practices within corporate boards. This article delves into the evolving proxy fight and shareholder activism, comparing its impact on modern corporate governance practices in Canada, the USA, and the UK/Europe.

Historically, board-related activism has been the predominant form of shareholder activism in both Canada and the U.S. However, in recent times, the incidence of transaction-related activism has been on the rise so much that, in 2022 transaction-related proxy contests exceeded those of board-related proxy. This also resulted in the U.S. proxy advisors, such as ISS & Glass Lewis, increasing their activities in Canadian capital markets. In addition, Institutional shareholders, including Vancouver-based activist Sandpiper Asset Management, TCI, and Elliot have increasingly used their right and influence to propose corporate governance changes, reform executive compensation, adopt say-on-pay policies, and, most recently, advocate for enhanced ESG practices.

Meanwhile, these are the key insights from ISS' 2023 Proxy Season Preview - Canada: First and foremost, in accordance with the CBCA, incorporated issuers will now be subject to a majority voting requirement. In uncontested director elections, a sizable number of companies will utilize proxy forms that allow shareholders to cast their votes as either 'For' or 'Against' director nominees, as opposed to 'For' or 'Withhold.' Secondly, executive compensation and this will be explored in detail in my next article. Thirdly, a focus on shareholder climate-related proposals, including requests for the adoption of say-on-climate votes. Lastly, significant attention is given to DEI and proxy contests.

According to Barclay, “In Europe, activity jumped 41% year over year in the first half to 41 campaigns, but in the U.S., activity fell by 23% to 54 campaigns. Canada saw the largest increase, 33%, with 13 campaigns.” Additionally, Lexology survey stated that “…in the first quarter of 2023, with 22 companies targeted by activists, marking a 29% increase from 2022 and the highest level of activity since 2019.” Noted that “financial firms, which comprise approximately 30% of the S&P/TSX Composite Index,?are infrequently targeted by activists. Approximately 17% of the S&P/TSX Composite Index comprises companies in the energy sector, and the industrials and materials sectors represent approximately 14$% and 12%, respectively.?Firms in the materials sector, most notably mining, are frequent targets.”

The REIT sector has also faced increased activist activity in recent years, and this trend will continue in 2024. Sandpiper has been particularly active, reaching a settlement with First Capital REIT in its effort to replace board trustees, as well as, Slate Office REIT has responded to the largest unitholder's request for changes to the board.

Companies have learned to respond swiftly to shareholder activists, and boards are constantly engaging their shareholders directly. This was partly because there has been a drop from 60% of companies winning a proxy fight up until 2021 to 48% in 2022, making activists winning or partially winning approx. 52% of public contests in Canada.

On one hand, this development became evident in April 2022 when Elliot criticized the board of Suncor for underperformance, stagnated share price, and the need for a robust business and management review. Elliot’s proposal included the appointment of five independent directors with extensive expertise in the Canadian energy industry. Within just three months, Suncor and the activist reached an agreement, allowing Elliot to appoint three independent directors. The agreement also included a clause to appoint additional directors if Suncor failed to meet specific performance targets. Following the appointment of a new CEO in February 2023, Elliot exercised this right by appointing an additional independent director.

On the other hand, activist investor Carl Icahn and Illumina board failed to reach an agreement, leading to a proxy fight over his opposition to the company’s $7.1 billion acquisition of cancer test maker Grail, which has faced regulatory hurdles in the U.S. and Europe. Icahn urged shareholders to vote against the company’s chairman John Thompson in May 2023, while CEO Francis deSouza narrowly escaped. Under increasing pressure from shareholder activism, deSouza had to resign in June 2023. The news caused the company’s stock to increase by 2.2% in premarketing after losing nearly 60% of stock value since the Grail deal in 2021.

In conclusion, the evolving landscape of proxy battles in Canada, the U.S., and the UK/Europe reflects a growing emphasis on corporate governance, transparency, and accountability. Recent trends, such as high-profile settlements and executive exits, demonstrate the increasing influence shareholders wield in shaping the direction of corporations. As we move forward, it is clear that these trends will continue to play a pivotal role in reshaping the corporate governance landscape in 2024 across these countries, ultimately fostering greater responsiveness to shareholder concerns and interests.