With the proxy season in full swing, it’s a good time to take stock on what is happening on a macro level:
1. Extent of Change Has Never Been Greater – Being in the journalism biz, I used to worry about a lack of new developments and thus a dearth of content to offer you. I haven’t had to worry about that for quite some time as the extent of change only grows over time. Yet I can’t recall a time where the extent of change is so great that it’s difficult to grasp because it’s so vast. The proxy season as we know it won’t be recognizable within a few years. That’s basically the only thing I know for sure.
2. Pace of Change Will Only Quicken – The breathtaking nature of this change extends to the pace of change as well. Things are happening so fast – month-by-month – that it’s challenging to wrap my head around it. Exactly how many service providers are offering “off-the-shelf” voting policies for institutional investors? How many investors are using these services? What’s the impact of this on voting results? This is just one example of many unknowns.
3. AI Is Driving Most Change – As hinted at by the prior item, artificial intelligence is at the heart of driving change as it is for most industries. This blog by Proxywise AI provides much ‘food for thought’ as to where we might be headed – and thus may provide tea leaves as to how the process of drafting – and the content itself in – the proxy may need to evolve to match how institutional investors may be analyzing proxies and deciding how to vote. AI has truly diminished the influence of the traditional proxy advisors on voting outcomes overnight it seems.
More tea leaves as to what we might be facing comes from this Paul Weiss memo entitled “Five Ways AI Could Transform Coming Proxy Seasons,” which details how AI will likely increase the level of activist activity – and that the speed and intensity of proxy contests will accelerate. That the cadence and frequency of shareholder engagement will shift. That investors might develop more granular policies tailored to their specific funds so that there may be fewer ‘house votes.’
All of this means the loss of predictability for companies as to how their actions – and the reflecting proxy disclosures they make – corresponds to the type of voting outcomes they can expect. The need to understand many more voting policies will be necessary – although many of these policies might not be publicly available. Use of proxy supplements will be less effective as AI agents will be making voting decisions based on what resides in the core proxy.
Knowledgeable staff – people that also have many contacts in the proxy voting world and who know how to draft effective disclosure – will be at a premium.
4. Regulatory Change Is a Close Second – Considering the breadth of change in the regulatory world over the past year, it gives one pause to note that AI has even had a more profound impact. The SEC decided to not referee the Rule 14a-8 process this season. More proponents than ever before have sued to keep their shareholder proposal in the proxy. Half the companies being sued have settled those lawsuits by agreeing to put the proposal in the proxy – or in one case, to implement the proposal.
And the SEC has a dozen rulemaking projects in the hopper that are moving fast that should radically alter what is required to be disclosed. Two biggies here are disclosures in the executive pay area – which is such a sensitive disclosure area – as well as how frequently companies report their periodic disclosures (eg. semi-annual rather than quarterly reports).
5. Help Is On the Way – I felt I needed to say something positive so here it is. AI will help you in your job. Hopefully not so much that you lose your job. Which I doubt will happen, at least if you are seasoned.
And there’s a cadre of advisors like Labrador available to help you keep abreast of change as they have multiple clients going through the same struggle and thus have a better base of knowledge to work from…
