Here come the activists: Corporate America girds for a challenging 2023 proxy season

Proxy season 2023 is just around the corner. And it may be a tough one for public companies.

The Conference Board’s report on the upcoming proxy season forecasts several factors that will make it tumultuous. “Big ‘A’ shareholder activism is likely to rise, due in part to the current economic environment and the implementation of the SEC’s universal proxy rule,” according to the report. Some other predicted challenges include: the overall volume of shareholder proposals will likely continue to rise, an increase in “anti-ESG proposals,” and asset managers have adopted policies that will lead to more votes against directors on “governance practices and problematic compensation packages.”

An analysis by Broadridge shows that in the 2022 proxy season, there was a decline in investor support for directors—618 directors failed to attain majority support (104 more than in 2021). And there were more shareholder proposals than at any time over the past five years.

“Corporate America has to manage investor expectations more rigorously and frequently than say 20-25 years ago,” Sandeep Dahiya, associate professor of finance at Georgetown University’s McDonough School of Business, recently told me. “We have hedge funds, activist shareholders, and a very diverse investor base.” Frequently, CFOs are taking the lead in terms of “crafting the strategy and communicating it,” Dahiya said. 

When it comes to activist shareholders, The Walt Disney Company has already been put on the front lines. In November, former CEO Robert Iger returned to the helm, ending former CEO Bob Chapek’s tumultuous tenure. Iger was tasked with turning around the company. 

In January, Nelson Peltz, a billionaire, activist investor, CEO, and founding partner of private equity firm Trian Fund Management, launched a proxy fight and announced that he would seek a board seat at Disney to try to initiate changes. But Peltz had a change of mind on Feb. 9  after Iger announced plans for a dramatic restructuring during the company’s earnings call on Feb. 8. Plans included 7,000 job cuts, $5.5 billion in cost savings, and the board would consider reinstating Disney’s dividend, which was suspended at the start of the pandemic.

My colleague Shawn Tully got the scoop on how this all played out and shares it in his latest piece, “The inside story of how Nelson Peltz got his way at Disney—and his detailed plan for a rebound.” Tully had an exclusive interview with Peltz about “his journey through the fog of proxy war.”

Tully writes: “Though Peltz hates proxy conflicts, he says they’re necessary for one overall situation: when a company he’s targeted is struggling but refuses to acknowledge that it has big problems. ‘If we can’t agree on the problem, we have to go to war,’ he told me.”

He continues: “It’s the standoff that triggered the only three proxy campaigns in Trian’s history, the salvos at H.J. Heinz, DuPont, and Procter & Gamble. In all three cases, he says, the CEOs and boards thought their companies were doing great, and showed zero interest in Trian’s proposals, though their poor numbers belied the claims that all was fine.”

You can read Tully’s complete report here.

Regarding gauging your company’s vulnerability to activist investors, “If you’re a good CEO, and a good CFO, that’s really your job,” Shane Goodwin, associate dean of graduate programs at the Cox School of Business at Southern Methodist University, once told me. “If you’re thinking about all the governance-related issues for your board, how to run your business in a profitable way, and creating value, that’s your best inoculation to any activist or any bad conversation with your shareholders, in general.”

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

Crunch Time Series for CFOs: It's Time to Get Serious About Data, a report by Deloitte, explains why creating data strategy needs to be a higher priority for finance chiefs. Deloitte's CFO Signals survey for Q4 2022 found the top priorities for CFOs this year are cost management (52%), performance (50%), and growth (38%). Just 10% of finance chiefs surveyed named data analytics/A.I./business intelligence as a priority. According to Deloitte's Crunch Time report: "From the top down, your finance organization should have a North Star data strategy. Where do you want to go? How can you get there? What benefits can you realize—not just in cost savings, but in new capabilities to strategically collaborate with the business? A clear strategy is a necessary bedrock for defining roles and responsibilities, determining priority levels, and establishing accountability."

Going deeper

Regarding proxy season, Willis Towers Watson (WTW) has released its annual review of 2022’s "Say on Pay" voting. The season was highlighted by the record number of failures within the Russell 3000 since the vote on compensation programs became mandatory in 2011, according to WTW's report. Shareholder support was marginally lower than in previous years at 89% (matching the lowest level of support recorded in 2012).

Leaderboard

Steven J. McGarry, EVP and CFO at Sallie Mae (Nasdaq: SLM), formally SLM Corporation, has entered into a retention agreement with the company. McGarry will remain an employee of Sallie Mae and continue to serve as CFO through February 2024 when he plans to retire. During this time, he will assist with the selection of the next CFO and will facilitate the transition of the role to his successor. McGarry joined Sallie Mae in 1997 as a director of investments and has served in a variety of financial roles during his more than 25 years tenure at the company. He has served as CFO for nine years. The company is conducting an extensive search to identify McGarry’s successor.

Linda Murray was named CFO at Form Bio, a computational life sciences platform. As CFO of Form Bio, Murray will lead the establishment and scaling of the financial and operating infrastructure. Before joining Form Bio, Murray served as the VP of financial planning and analysis for Cambridge Mobile Telematics. Her previous roles include serving as head of financial planning and analysis at enterprise SaaS technology companies, including BitSight Technologies and Candescent Health. Murray started her career at Morgan Stanley.

Overheard

“No, we’re not going to use it to write our standards—I would just note that."

—U.S. Financial Accounting Standards Board Chair Richard Jones told trustees of the Financial Accounting Foundation when asked how investors ingest financial reporting information these days with the use of technology like A.I., including chatbots such as ChatGPT, Thomson Reuters reported. Jones also said, "But I think it is important and that’s part of our continuous outreach with investors in understanding their ability to process data, how they’re processing data, how do we get the most important data information in our investment capital allocation decisions.”