Financier Worldwide discusses hostile M&A and shareholder activism with Etelvina Martinez, Michael Vogele, Reid Pearson and George Rubis at 成人视频, and Sean Donahue at Paul Hastings LLP.

FW: How do you see shareholder activists balancing traditional value‑creation demands – such as M&A, capital allocation and governance reforms – with emerging themes like operational efficiency in the current market environment?

Donahue: Shareholder activists have recently been balancing traditional value‑creation levers with operational themes by becoming more targeted and thesis‑driven. With M&A markets still uneven and financing conditions tighter, activists continue to emphasise capital allocation discipline, board accountability and strategic portfolio moves – but they now pair these demands with sharper operational critiques. Campaigns in 2025 showed activists using operational efficiency as evidence of management credibility: benchmarking margins, scrutinising cost structures and tying governance reforms to execution risk. At the same time, evolving regulatory expectations and increasingly polarised shareholder proposals have pushed investors back toward fundamentals. Companies that articulate a coherent strategy linking capital deployment, governance and measurable operational progress tend to blunt activist narratives early, while those that drift invite focused, high‑conviction campaigns.

Universal proxy mechanisms in the 2025 season continued to reshape leverage in proxy contests, but the balance of power has become more nuanced.

— Sean Donahue

FW: How are activists adapting their tactics – such as campaign messaging, coalition building or use of media channels – to increase pressure on target companies?

Martinez: Activists are increasingly more sophisticated and targeted in how they apply pressure to companies. In recent years, messaging has expanded beyond purely financial and stock price performance, to encompass themes including governance practices, executive compensation, sustainability commitments and other themes that resonate with a wider range of stakeholders. This broader framing helps activists build credibility with audiences beyond just investors. Media strategies have also evolved. It has become more common to see these blend traditional financial press with other channels like social media or campaign-specific websites. Coalition building has always been a cornerstone of activism, but is becoming more critical in the current environment where proxy adviser influence may be eroding and institutional voting grows more fragmented.

Activists have been known to borrow shares before the record date to temporarily increase their voting block.

— George Rubis

FW: How have universal proxy mechanisms and evolving voting dynamics shifted the balance of power in proxy contests and settlement negotiations?

Donahue: Universal proxy mechanisms in the 2025 season continued to reshape leverage in proxy contests, but the balance of power has become more nuanced. Activism volumes remain high, with US campaigns up roughly 11 percent year over year and boards settling faster and earlier as universal proxy modelling improves. While activists still benefit from the ability to target individual directors, 2025 dynamics showed that universal proxy has not unleashed a wave of full contests; instead, it has encouraged partial refreshes, withhold campaigns and data-driven negotiations. At the same time, large passive investors – particularly the ‘big three’, BlackRock, Vanguard and State Street Global Advisors – retain significant influence over director elections, reinforcing the premium on director level credibility, transparent governance processes and defensible advance notice bylaws. Well-prepared issuers now counterbalance activist leverage through targeted engagement and clearer articulation of board skills and strategy.

Changes are becoming clear as investors rely more on artificial intelligence to assist with voting decisions.

— Reid Pearson

FW: How has the current movement by a number of major institutional investors to more AI-driven voting policies and methods impacted contested solicitations?

Pierson: Changes are becoming clear as investors rely more on artificial intelligence (AI) to assist with voting decisions. Certainly, the influence of proxy advisory firms Institutional Shareholder Services and Glass Lewis will continue to wane. Investors will focus more on their own internal models to evaluate key drivers in a proxy contest, such as financial performance, governance and board, and activist proposals. Not only will AI-driven voting policies drive specific voting outcomes at the institutional level, but we will see different voting among specific funds at the same institution, particularly at actively managed funds. This will make projecting vote outcomes more difficult during a contested solicitation. Both activists and companies will need to evolve the way they engage with shareholders. Historically, both parties have relied on a similar message, usually conveyed in a lengthy deck as well as filings. With the influence of AI, the message from the activist and company will need to be very tailored to not only the investor but the underlying fund manager. It is critical that companies and activists have a clear understanding of the shareholder base, particularly in a high stakes contested solicitation.

FW: Could you explain how stock loan and shorting impact activism?

Rubis: Shares on loan and shorted stock can have a meaningful impact on shareholder activism, mainly because they affect voting power and who controls the vote at the record date. The borrower of the shares receives the voting rights. As a result, the original owner of the shares – the lender – loses the ability to vote. Activists have been known to borrow shares before the record date to temporarily increase their voting block. The slight difference between shares on loan and stock that is shorted is that the latter has been sold into the market and now the new buyer of the stock holds the voting rights.

Repeated weak director votes may indicate governance concerns or gaps in risk oversight.

— Michael Vogele

FW: What indicators or early warning signs should boards monitor to assess their vulnerability to unsolicited bids or activist driven strategic demands? What preparedness programmes are available so that a board can proactively stay ahead of, or be better prepared for, a possible activist event?

Vogele: Boards should closely monitor shareholder voting outcomes. Particularly when recurring over multiple years, support well below 85 percent for director elections or advisory votes on executive compensation signals meaningful shareholder dissent. Repeated weak director votes may indicate governance concerns or gaps in risk oversight, while persistently low support on compensation proposals often reflects a perceived disconnect between pay and performance and potential misalignment with long-term strategy. An underperforming three- or five-year total shareholder return relative to peers can further heighten these vulnerabilities and attract activist attention. Proactive engagement is critical. Boards should use their proxy solicitor to help them reach out to the stewardship teams of major institutional investors to understand concerns and address them early – whether related to pay design, director qualifications or risk management. Institutional investors typically favour constructive dialogue and demonstrable improvement over adversarial campaigns. Companies can use proxy solicitors to design a year-round shareholder engagement strategy that utilises Form N-PX filings to analyse vote returns. In addition, boards can utilise solicitors and legal teams to conduct an activist preparedness audit, which should include a governance benchmarking analysis to helps spot weaknesses in a company’s governance framework.

Coalition building has always been a cornerstone of activism, but is becoming more critical in the current environment.

— Etelvina Martinez

FW: In your experience, what distinguishes successful defensive strategies from those that ultimately strengthen an activist’s case during a contested situation?

Donahue: Successful defensive strategies over the past few years share a consistent pattern: they confront the activist’s thesis directly with credible, data-driven analysis and demonstrate that the board is acting decisively. In 2025, for example, uncertainty, tariff-related developments and select Securities and Exchange Commission proposals drove some activist investors to reassess engagement practices, increasing scrutiny on whether boards were genuinely responsive. Companies relying on procedural manoeuvres or generic messaging often reinforced activists’ claims. Meanwhile, activism levels remained near long-term averages but grew more chaotic in tone, making disciplined sequencing and clear operational milestones even more important. The defences that failed appeared reactive or insular, while the ones that succeeded articulated a forward path more compelling than the activist’s alternative.

FW: Looking ahead, what structural or market conditions do you expect will most influence the next wave of M&A-related activism, including hostile or contested approaches?

Pierson: The next wave of M&A-related activism – especially hostile or contested approaches – will be driven by stronger equity markets, changing regulations, distressed opportunities and more advanced activist tactics. Activists will lean harder into M&A situations, as they are emboldened by improved dealmaking conditions, a universal proxy card and heightened sponsor appetite. Rising equity markets have historically inspired activists by increasing their assets under management. The universal proxy card has lowered the costs associated with contested situations, making them more viable. Activists are increasingly aligning with private equity sponsors to gain added leverage in their campaigns, and companies facing operational underperformance will continue to be prime targets of activism. In addition, activists are now employing more sophisticated digital strategies, such as multimedia campaigns, causing faster public escalation without the cost or delay associated with private engagement. These factors will collectively contribute to a surge in sponsor-led activity and create conditions in which activists will feel increasingly empowered to push for sales, breakups and contested transactions.

In an era when investors scrutinize every line of a proxy statement and every dollar of dilution, public companies are increasingly turning to vote projections to navigate the choppy waters of proxy season. These probabilistic forecasts, built on data, governance insight and disciplined scenario analysis, while remarkably accurate are not promises of outcomes but powerful decision-support tools. They help boards, counsel and corporate secretaries chart a course that aligns management’s strategic objectives with what shareholders are likely to approve.

Purpose: to provide a shareholder vote sensitivity analysis of potential outcomes of ballot items, including shareholder proposals, approval of equity compensation plans and increases in capital among other proposals.

What a vote projection does: A vote projection is a structured analysis that combines a company’s specific shareholder base, historical voting patterns, proxy advisor firm guidelines and influence and proposal specifics. Typically a company will want to run a few projection scenarios, as many proposals will be reviewed on a case-by-case basis by the proxy advisory firms and shareholders.

Ultimately, a vote projection will tell you whether a proposal is likely to pass a shareholder vote. In addition, a strong projection will give you a close sense of what the vote outcome is likely to be.

When are vote projections used: A vote projection can be used on any ballot item that is put before shareholders but in Alliance Advisor’s experience, the three most common ballot items are equity compensation plans, proposals submitted by shareholders and increases in authorized capital.

Equity Plan Proposals

Equity plan proposals (whether asking for new shares or an entirely new plan) are one of the most important ballot items put before shareholders. Performing a vote projection is an important step in the planning process. A projection analysis will inform you of the influence of ISS and how critical their support will be on the proposal… spoiler…rarely is ISS outcome determinative. Just as importantly, a projection will allow you to zero in on the number of shares your specific shareholder base is likely to support.

Benefits for Equity Plan Proposals:

Vote projections serve as an early-warning system to identify potential opposition before the actual vote. They allow time to address potential shareholder policy concerns and modify the proposal and disclosure, which reduces the risk of the proposal failing a shareholder vote.

They provide the foundation for targeted engagement and proposal optimization by pinpointing specific institutional investors likely to vote against. This in turn provides data to adjust the equity plan terms as disclosure to maximize shareholder support. In some cases, vote projections can indicate to management that they can seek more shares than originally proposed.

Proposals Submitted by Shareholders

Proposals submitted by shareholders are often nuisances for management but should not be taken lightly. Typically, companies want to see what the base line support would be to determine if the proposal will pass or fail and the likely vote outcome. This will help determine the appropriate proxy solicitation strategy.

Benefits for Proposals Submitted by Shareholders:

Based on the expected level of shareholder support it helps gauge whether aggressive opposition, neutral stance or acceptance is appropriate and prevents underestimating support for proposals that may pass.

Vote projections can also help with the overall proxy statement strategy and positioning of the proposal. It provides data to help craft more persuasive “Vote AGAINST” rationale based on shareholder sentiment and voting support levels, and identifies specific concerns to address in opposition statements. It can also help determine if voluntary adoption of proposal elements could defuse support.

Capital Raises

Increases in capital ballot items seek to increase authorized shares or cover private placements over 20 percent of the outstanding shares. Vote projections in this area can mean life or death for a capital-starved company, particularly small and mid-cap companies.

Benefits for Capital Raise Proposals:

For capital raises, certainty that the proposal will be approved by shareholders is the single most important benefit. Companies can reduce execution risk and enable better timing decisions by gauging shareholder support in advance. In addition, data gleaned from the research can help in identifying acceptable dilution thresholds, which help with structuring terms (warrants, conversion ratios, discounts) that maximize approval odds.

For exchange-listed companies requiring shareholder approval (e.g., >20 percent dilution under NYSE/Nasdaq rules) it helps determine if private placement or registered offering is a more viable option.

For capital-starved companies, a vote projection can help avoid failed offerings that damage market credibility. It can also help minimize legal and advisory costs from drawn-out campaigns and proxy solicitation cost associated with failed votes requiring re-solicitation.

In summary, vote projections are a valuable tool for gauging the success of any type of ballot item. They provide boards and management with actionable data on the likelihood of success, proxy solicitation strategy, and also demonstrate due diligence to board members and support informed decision-making. Companies looking to achieve certainty going into a shareholder meeting should reach out to a proxy solicitor with a demonstrable track record of delivering accurate vote projections.

New plan shares have new guidelines, and keeping the old, unawarded shares that may not get granted, just hampers dilution calculations unnecessarily.

Michael Vogele

FW: What are three key actions a company can take during the planning phase to maximise shareholder support for an equity compensation plan proposal?

Freyman: First, understand your shareholder base. You will need to make a map of what the influences are that determine how your shareholders will vote – factors such as dilution, burn rate, proxy advisers and so on. Second, build your plan within those limits. This may be choosing a new share number that matches the maximum dilution allowed by your shareholder’s specific guidelines, or that a proxy adviser will likely support. Lastly, reach out to your shareholders. Establishing a relationship with your top holders before you need their vote will give you a strong platform to talk again during the proxy process.

FW: What are the primary factors institutional investors and proxy advisers consider when evaluating an equity plan proposal?

Cioffi: Dilution, burn rate and plan features are primary factors. While dilution and burn rate are the most important factors, it is important to remember that plans that allow for repricing or contain ‘evergreen’ provisions and other problematic ‘features’ are likely to face significant blowback from institutional investors and proxy advisers.

FW: What are three common missteps companies should avoid during the planning phase of an equity compensation plan proposal?

Vogele: We find one of the most common missteps that typically older equity plan, established more than seven years ago, is where the company proposes to amend the existing plan rather than create a new plan. Frequently, legal provisions and best-market practices change over the years, and having a newly designed plan document is normally easier than finding and fixing the mistakes from the past. In a similar way, should a company be updating its plan documents, one common misstep is not removing evergreen provisions or single trigger conditions for change in controls, something many investors see as red-line issues. Another common misstep that occurs when implementing a new equity plan is not cancelling unawarded shares from the previous authorisation. New plan shares have new guidelines, and keeping the old, unawarded shares that may not get granted, just hampers dilution calculations unnecessarily.

Make sure your proxy statement tells your story as to why you are asking shareholders to approve shares for your equity plan.

Reid Perason

FW: What strategies can a company deploy to address potential investor concerns or mitigate risks associated with an equity plan proposal?

Martinez: In instances where a company anticipates opposition from one or both proxy advisers, it is imperative to reach out to shareholders directly to underscore the importance of their vote in securing approval for the equity plan. These conversations should be informed by a clear understanding of each investor’s policies, whether they prioritise dilution thresholds, plan cost, historical burn rate or a combination of these and other factors. It is equally important to assess how closely each shareholder aligns with proxy adviser recommendations versus relying on their own internal guidelines. Some may follow Institutional Shareholder Services (ISS) or Glass Lewis closely, while others apply proprietary criteria. Because each investor evaluates equity proposals through a distinct lens, outreach should be tailored to address their specific concerns and decision drivers. While technical metrics such as burn rate or dilution are important, they are not the sole factors shareholders consider. Overall, messaging for shareholders should emphasise the strategic role the equity plan plays in attracting, incentivising and retaining key talent, and how equity grants are aligned with the company’s long-term business objectives. The argument that the equity plan is a tool to drive performance can be especially persuasive when the plan benefits a broad employee base, not just the named executive officers. Finally, emphasise how the board actively stewards the plan by highlighting any shareholder-friendly features it may contain, such as minimum vesting requirements or double trigger change-in-control provisions, and takes a disciplined approach to dilution. These elements demonstrate a commitment to responsible governance and alignment with shareholder interests.

Certainly, having ISS support your plan is helpful, but it is not essential to secure shareholder approval of your plan proposal.

Etelvina Martinez

FW: How critical is obtaining Institutional Shareholder Services support for the success of an equity compensation plan proposal?

Martinez: Having the support of ISS is not critical. Certainly, having ISS support your plan is helpful, but it is not essential to secure shareholder approval of your plan proposal. Roughly 99 percent of plan proposals pass despite ISS recommending against approximately 30 percent of proposals. Planning a successful vote outcome begins with an analysis of your shareholder base. Three factors to consider are, firstly, the makeup of your shareholder base, in terms of retail investors and institutional investors. Secondly, for your institutional base, how many are influenced by ISS and Glass Lewis, and how strictly these shareholders follow those firms. And thirdly, which investors follow their own internal guidelines and what are the equity plan guidelines of these investors. Once you understand your shareholder base model, undertake several vote projections with each investor, considering factors like burn rate, voting power dilution and plan duration, among other factors. If you identity any potential pressure points with these factors, consider engaging with your investors before the proxy is filed. Do this analysis before signing up with ISS’s consulting arm.

Establishing a relationship with your top holders before you need their vote will give you a strong platform to talk again during the proxy process.

Stephen Freyman

FW: What role does transparent communication and stakeholder engagement play in securing approval for an equity compensation plan?

Pearson: Make sure your proxy statement tells your story as to why you are asking shareholders to approve shares for your equity plan. For example, your burn rate may be considered high by some investors. Perhaps you have increased headcount to focus on a new business line and provided these new employees with equity grants – make sure the proxy explains this. Many investors look at thousands of proxies every year, so make your rationale for why they should support the plan proposal easy for them to find. Also make sure to explain how your equity plan proposal ties to your overall business strategy. At many investors, it will be a stewardship or governance team that makes the vote decision, and they may not be as familiar with the business strategy as the investment side. This will be important context for them. Shareholder engagement can also be an important step in maximising support for your plan. As you are in the planning phase and you identify some potential pressure points, such as high voting power dilution, for example, you may want to set up some time to engage with your holders before you file the proxy. The feedback can be important in your proxy disclosure. Of course, you will want to follow up with your holders after the proxy is filed.

FW: How can benchmarking against peer practices and market norms strengthen the credibility and competitiveness of an equity plan proposal?

Cioffi: An understanding of peer practices and market norms is crucial for most companies that have a significant institutional shareholder base for equity plan proposals. Dilution and burn rate outside of peer and market norms can be problematic for advisory firm recommendations and individual institutional investors’ guidelines. Many of ISS’s plan features have become widely accepted over the years since the ‘Scorecard’ has been implemented, however all are not widely accepted. The most common equity plan feature is prohibiting dividends on unvested awards, and by far the least common is limiting the discretion to accelerate vesting.

The most common equity plan feature is prohibiting dividends on unvested awards, and by far the least common is limiting the discretion to accelerate vesting.

Donald Cioffi