Andrew Freedman Quoted in The Deal on the Increase in Vote-No Campaigns

Olshan Co-Managing Partner and Chair of the firm’s Shareholder Activism Practice Andrew Freedman was quoted in The Deal (subscription required) regarding the increase in vote-no campaigns as activist investors push for C-Suite succession, M&A or other goals. Differing from traditional activist campaigns in which dissidents nominate their own director candidate slates, a vote-no or withhold-vote strategy does not involve nominating an alternative slate, but rather seeks to prevent the election of company-nominated directors. “What I really like about withhold-vote campaigns,” Andy said, “is that in 99.9% of annual meetings, director elections are uncontested, and it is a foregone conclusion that whoever the board has nominated will be re-elected. That’s not democracy. Withhold campaigns present a tangible platform for shareholders to send a message of concern to the board through a vote, whether it is about executive compensation, strategy or governance.” Andy continued, “A withhold campaign can be used to signal discontent or as a referendum for change without having to go through a full nomination process.” A key question in vote-no campaigns is whether proxy advisers, like Institutional Shareholder Services Inc. and Glass Lewis & Co. LLC, will conduct a “contested analysis” with recommendation reports on the situation.  Concerning the vote-no campaign launched by Ancora Holdings LLC against three incumbent directors at Forward Air Corp. (FWRD) ahead of a June 11 meeting, Andy explained that Ancora’s Forward Air campaign was launched early enough ahead of the annual meeting that it will likely receive a full analysis by proxy advisers. Ancora employed an exempt solicitation campaign, which allows for multiple press releases. “Ancora issued a deck. Even though they don't have their own proxy, they are doing enough on the PR side of things that it’s on the radar of proxy advisory firms,” he said. Activists might be willing to launch a last-minute vote-no campaign when they are unwilling to invest the time and money in a full director contest, but they want to test the waters and perhaps consider a contest the next year. “If investors get large minority votes against directors in this situation that’s a huge turnout,” Andy explained. “You haven’t even mounted a full campaign. All you did was issue one letter and there is a clear sign of discontent. Not enough to unseat directors, but it puts a lot of pressure on the board.” Directors sometimes receive majority no votes even without an activist soliciting against board members, and in certain cases, directors who fail to receive majority support continue to serve, as boards can reject their resignation letters. These so-called Zombie directors continue to serve despite investor opposition. Andy noted that directors who receive a majority of no votes technically can be retained by boards, which typically have 90 days to review their candidacy and can reject their tendered resignation letters. However, he explained, board members targeted by activist funds that receive a majority of no votes are expected to resign without the board trying to interfere to preserve them. “Zombie directors so brazenly fly in the face of corporate democracy” Andy said. “Any board that'd refuse the resignation is only setting themselves up for further problems. You don't see it often. It never ends up well for boards. That governance committee will be hugely vulnerable if they allow a withheld director to keep their seat." He added that he would love to see Delaware and other states adopt laws requiring director resignations in these situations. However, the current system does not bother him: “Let the board make another bad decision by failing to accept the withhold recommendation.”