Financier Worldwide discusses hostile M&A and shareholder activism with Etelvina Martinez, Michael Vogele, Reid Pearson and George Rubis at ³ÉÈËÊÓƵ, 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.

Introduction

2025 marked a decisive shift in the UK investment trust landscape. What began as a prolonged period of wide discounts evolved into a sustained test on balance sheets, permeating into corporate governance, as boards were increasingly required to demonstrate that the closed-ended structure continued to serve shareholder interests.

At the centre of this shift was a series of high-profile activist campaigns led by Saba Capital, whose actions since late 2024 have reshaped expectations around board accountability, corporate actions, and shareholder engagement across the sector.

Our analysis examines these developments through a governance, M&A, and activism lens, highlighting how shareholder expectations have evolved and why boards are increasingly judged on their ability to deliver tangible outcomes within the closed-ended structure. Alongside this, Nepean’s contribution provides a complementary perspective on the strategic communication challenges facing boards, particularly in the context of the Saba campaigns.

Activism in Focus: Saba Capital’s Campaigns (Late-2024 to 2025)

Since the end of 2024, Saba Capital has mounted coordinated campaigns across multiple UK investment trusts, seeking outcomes ranging from board change and enhanced discount-control mechanisms to structural reform, including mergers, wind-ups, or conversion to open-ended vehicles.

While many of Saba’s formal resolutions were ultimately defeated, the broader impact of these campaigns has been significant. The activism demonstrated that:

• large shareholders are prepared to challenge the legitimacy of the closed-ended structure where discounts persist;
• board composition, tenure, and responsiveness are now regularly challenged; and
• corporate actions once considered exceptional are increasingly viewed as normal.

For issuers, the key lesson is that “Winning the vote” is no longer the end-game. Even unsuccessful activist campaigns have materially influenced board behaviour, disclosure standards, and strategic positioning. Activists are also focusing on their financial returns, which they believe will be enhanced by making changes to the governance structure of funds.

Developments since 2025 suggest a further escalation. Activism is no longer limited to proposing change, but increasingly about controlling outcomes. Large shareholders have demonstrated their ability to block strategic transactions, including mergers. They have also shown the ability to shape board decisions indirectly through ownership concentration. Overall, the events represented a meaningful shift in board dynamics. It is also a reminder that activism can evolve from persuasion to leverage.

Net Asset Value (NAV) Discounts as a Governance Indicator

Perhaps the most enduring theme of 2025 was the treatment of discounts to Net Asset Value (NAV) as a live measure of governance quality. For investment trusts, the market’s message was clear:

• persistent discounts are no longer seen as a purely cyclical or technical issue;
• they are interpreted as a reflection of board effectiveness, engagement quality, and structural credibility.

Where discounts remain elevated despite buybacks and engagement, investors are increasingly questioning whether the closed-ended structure itself remains appropriate.

The Impact of US-Style Activism on UK Investment Trust Sector

Saba’s role is particularly noteworthy given its identity as a US-based hedge fund exerting influence over UK-listed investment trusts. This has introduced several new dynamics into the market:

1. A different activism playbook: Unlike traditional UK stewardship-led engagement, Saba’s approach has been more overtly transactional and structural, framing persistent discounts as evidence of governance failure rather than market conditions. This has accelerated the pace at which boards are expected to respond.
2. Shareholder concentration risk: Saba’s campaigns highlighted how significant minority stakes can be leveraged to block or influence corporate actions, including mergers. This has sharpened boards’ focus on developing a more granular understanding of their shareholder base and the risks associated with concentrated ownership.
3. Market-wide signalling effect: Even where Saba did not prevail, its campaigns signalled to other investors that boards can be challenged and that the investment trust sector is increasingly open to activist intervention.

Implications for Boards and Issuers

As a result, issuer expectations have shifted: boards are now expected to anticipate activism, not merely respond to it. The experience of 2025 suggests that inaction is now the highest-risk strategy. The developments across 2025 give rise to several clear governance implications:

1. Engagement must be proactive, not reactive: Waiting for an activist requisition before engaging shareholders is no longer sufficient. Boards are expected to demonstrate a deep understanding of strategy and the systemic risks to the funds.
2. Structural questions cannot be deferred indefinitely: Where discounts persist despite buybacks and engagement, boards should expect pressure to consider more fundamental options, including consolidation or conversion.
3. Corporate actions require activist-proofing: M&A proposals must be stress-tested against shareholder fairness, mandate alignment, and value transfer optics.
4. Shareholder register monitoring is critical: Understanding who holds influence—and how that influence might be exercised—has become a core governance responsibility
5. Structural changes must be considered for contingency: Boards should not wait until pressure escalates to consider alternatives such as mergers, wind-downs, or structural change.

Conclusion: 2025 as an Inflection Point

For UK investment trusts, 2025 was an inflection point. Developments into 2026 suggest it is becoming something more — a structural reset in governance expectations.

The combination of sustained activism, persistent discounts, and increasingly contested corporate actions has fundamentally altered how boards are assessed.

For issuers, the lesson is not that activism must always be resisted or conceded, but that credible governance, clear strategy, and early engagement are now essential defences. In these events, governance is measured by how well the board translates strategy into fruitful shareholder outcomes.

As the sector moves forward, boards that can articulate why the closed-ended model works, and how they will protect shareholder value within it, will be best placed to navigate the next phase of scrutiny.

Through the first quarter of 2025, investors were coming to grips with the adverse consequences of rising tariffs. The S&P 500 Index fell 4.3% during the first quarter and the S&P 500 Equal Weighted index fell just 1.1%, reflecting broader participation in the market this quarter. Investors and the general public alike found themselves wrestling with the uncertainty that arose from the current administration’s intent on implementing higher tariffs on imported goods from most trading partners, which weighed heavily upon investors. To that end, we at ³ÉÈËÊÓƵ decided to research one particular segment of the investment community, deep value investors, to see where they were looking for best opportunities. In combing through the portfolios of close to 95 investors who classify their investment strategy as Deep Value, we searched for sectors that had the greatest difference between the number of firms that bought than sold. This analysis found these investors were net most bullish on Health Services and Communications sector stocks, while the largest net number of investors were most aggressively reducing exposure to Producer Manufacturing and Technology Services.

Health Services

To understand what drove the attraction to the Health Services sector, we analyzed the largest buyers of this sector, which proved to be Dodge & Cox, Davis Selected Advisers LP and Barrow, Hanley, Mewhinney & Strauss LLC. Across all three investors was one common stock purchase – CVS. The fund having the greatest impact on Dodge & Cox’s Health Service investment trend was the Dodge & Cox Stock Fund, led by David Hoeft. In the fund’s first quarter investment commentary, the investment team commented, “In 2024, the Health Care sector faced significant challenges due to margin pressures and concerns about the potential for adverse regulatory changes. After being 2024’s largest detractor, Health Care was the top-contributing sector to the Fund’s relative performance during the first quarter of 2025. Our activity in the shares of CVS Health is an example of our contrarian, long-term approach. CVS has rebounded strongly after weak 2024 performance, up over 50% in the first quarter. 2024 was a difficult year for CVS due to weaker sales at its pharmacies and higher medical costs in its Medicare Advantage health insurance segment. The company’s results rebounded in the fourth quarter under new CEO David Joyner, who joined in October. The strong results fueled investor hopes for a turnaround. Consistent with our contrarian approach, we added to CVS during 2024 and early 2025 to take advantage of the company’s depressed valuation and our positive long-term outlook for the company.”

Another stock that was fancied by these same investors was Cigna. Davis Selected Advisers’ Davis NY Venture Fund managers Chris Davis and Danton Goei recently commented, “…our investments in this important sector [healthcare] have focused on those companies that play a part in moderating or reducing the natural rate of increase in healthcare spending. Companies such as Cigna and Humana, for example, offer programs like Medicare Advantage which deliver patients a higher quality of care at a lower cost.”

Communications Sector

The Communications sector saw the second largest net number of buyers over sellers but recorded the smallest capital inflows of all the sectors with positive net inflows. Unlike with the Heath Services sector, there were no commonalities with particular stocks that were driving the trend. Interestingly though, much of the funds driving the buying trends within this sector were non-US focused (i.e. Emerging Market, Global, International, etc.). This non-US focus directly ties back to the theme at the beginning of this paper – tariffs. The fund management team of the Brandes Emerging Markets Value Fund commented in their 1Q quarterly commentary, “We have also observed substantial value potential in select businesses in Mexico as the market remains concerned about tariffs… The Fund’s other Mexican holdings, such as telecom services provider America Movil, have significant exposure to non-Mexican peso currencies.”

Sources of Capital

“Our examination of what sectors were used as sources of capital for aforementioned purchases, we note:

• Deep Value investors rotated away notably from Technology Services and Producer Manufacturing sectors.
• Technology Services saw the largest outflows, totaling $6.2 billion in Q1 2025.
• Major driver was selling of Alphabet stock.
• Alphabet was the top performance detractor for Harris Associates’ Oakmark Global Fund.
• Fund manager David Herro noted Q4 2024 earnings met consensus, except for a slight miss in Google Cloud revenue growth due to short-term capacity issues.
• Long-term growth outlook for Google Cloud is viewed as strong.
• Alphabet seen as a collection of strong businesses benefiting from AI capabilities.
• Shares trading at ~15x next year’s estimated earnings, considered significantly undervalued.
• Despite this, the fund reduced its Alphabet exposure by approximately 13%.”

Trading Activity

High activity (>75%) occurred in 10 sectors, such as Producer Manufacturing (97.8%), Finance (94.6%), and Technology Services (92.5%). Lower activity in winners like Communications (51.6%) implies steadier, conviction-driven buying. High-volatility sectors like Retail Trade (88.2%), where elevated trading is already jumpy amongst deep value investors, tariffs hitting consumer goods could trigger even more instability within the sector.

Sector Diversification & Implied Value

Most sectors showed a negative diversification with deep value investors (indicating a higher concentration among a few holders, and investors maintaining more liquidity). With only three positives: Finance (5.6%), Technology Services (1.7%), and Process Industries (0.4%). Lowest were Consumer Non-Durables (-8.7%), Consumer Durables (-7.6%), and Retail Trade (-4.5%). Lower diversification in outflow-heavy sectors like Technology Services could amplify deep value investors sentiment to the downside, while Finance’s high diversification offers a buffer during high levels of volatility and uncertainty.

Conclusion

With political uncertainty weighing heavily on investors’ minds, institutional capital clearly leaned into sectors offering defensive growth and contrarian opportunity. Health Services emerged as a standout beneficiary, not merely due to favorable stock selection but because it aligned with deep value investors’ broader goal: to uncover temporarily depressed, misunderstood, or structurally undervalued assets that offer return potential.

The strategic overweight in health services stocks, specifically in companies like CVS and Cigna, underscores this conviction. Investors collective interest in CVS encapsulates deep value behavior: buying into fear, anticipating recovery. Cigna, too, illustrates a value-aligned thesis centered not just on recovery, but operational relevance. These stocks weren’t merely ‘cheap’; they were strategically resilient, less sensitive to geopolitical shocks like tariffs, and positioned for normalized earnings rebounds in 2025.

In contrast, sector outflows in Technology Services and Producer Manufacturing reveal the flip side of this rotation. Technology, once favored for growth, faced valuation compression and earnings-related disappointment (e.g., Alphabet), making it less attractive to value-driven allocators. Despite consensus expectations being met, underperformance in key segments like Google Cloud triggered reassessments and partial exits. This suggests that for deep value investors, valuation alone is not sufficient, companies must also exhibit short- to mid-term operational catalysts or margin of safety in times of volatility.

The larger takeaway: deep value investors in Q1 2025 demonstrated an active rotation strategy, exiting richly valued or high-volatile sectors like Technology and Manufacturing, while embracing sectors perceived as both oversold and politically insulated. High activity in Finance and Retail suggests anticipation of volatility, but the conviction buying in Health Services, along with low diversification plays, marks a targeted move toward sectors with tangible recovery paths.

This behavior affirms that deep value is not passive or reactive, it is forward-looking and willing to withstand short-term volatility in pursuit of long-term gains. As regulatory visibility improves and regulatory uncertainty stabilizes, many of these 2024-depressed health stocks may continue to serve as core holdings, reflecting the discipline and patience that define deep value capital allocation.

With investors turning to unique ways to uncover stocks that will flourish in these uncertain times, Alliance can assist Investor Relations professional in crafting the proper message while also identifying which investor portfolios your stock is best aligned. Alliance offers dedicated institutional targeting specialists with proprietary algorithms that can maximize engagement efforts and reduce the ‘courtship’ period of cultivating new shareholders.

In the second half of 2024, there was a pronounced spike in the number of activist investing campaigns which took place in the UK with over 50 companies publicly targeted across the year, a rise of 30% vs the previous year as activist activity reached its highest levels since 2019. This continued into 2025 with some of the largest FTSE companies facing activists demands and despite tariffs provoking market volatility, the UK remains ripe for opportunity with activist activity expected to remain elevated for the foreseeable future as it experiences a new wave of shareholder activism.

For the best part of a decade prior to the pandemic, there was a gradual crescendo in UK activism with over 130 companies facing public demands from activist investors in a two-year period between 2018 and 2019. The UK was consistently the second busiest market (behind the US) for activism and frequently accounted for more than 50% of the campaigns across the whole of Europe.

However, while activism has quickly bounced back in North America over the past couple of years with activity recovering to pre-pandemic levels, activism campaigns in Europe have remained depressed with UK activity remaining especially low post Brexit. Activism activity in Asia has now surpassed European levels with Japan replacing the UK as the ‘hot’ market for activist investors outside of the US.

Macroeconomic factors have largely been responsible for this with geopolitical uncertainty, the global energy crisis, high interest rates and inflation being felt more keenly in Europe than on other continents. US investors, who had been driving the majority of activism in the UK previously, turned their attention back home to focus on unlocking value within the newly shaped US corporate landscape which the pandemic had created. Additionally, governance reforms in Japan and Korea alongside attractive balance sheets with value waiting to be unlocked also saw US investors turn their attentions further east.

However, with a price to earnings ratio averaging 50% lower than their US counterparts, UK stocks remain cheap which is attracting US investors back to the UK. Prominent US activists, Elliott Management (BP), Trian Partners (Rentokil), Third Point (Soho House) and Engine Capital (Smiths Group) all ran public campaigns in the past 9 months. The common theme has been to push UK companies to look at divestitures and/or sales given the favorable conditions for take private deals and the desire for activists to streamline businesses so that they can become more efficient and profitable as they focus on long-term growth. Similarly, asking companies to move their listings to the US or another jurisdiction is an increasingly popular demand with Third Point allegedly having engaged with a number of large FTSE companies encouraging them to relocate from London to New York in order to bring valuation multiples in line with industry peers. In the case of Rio Tinto, Palliser Capital argued that unifying the company’s DLC structure would unlock significant shareholder value and ensure better alignment between the global mining giant’s workforce and operational focus should it move its primary listing to Australia.

In addition to Palliser, other ‘homegrown’ activists have also returned to the fore with Harwood Capital, Gresham House, Gatemore, Metage and Sparta Capital all particularly active in 2024. Furthermore, several new activist hedge funds have been established in London, notably Finch Bay Capital which was founded by Elliott and ValueAct alumni Leo Markel and Daniel Urdaneta, alongside Spur Value Partners whose principal, Til Hufnagel, recently left Petrus Advisers to start his own fund.

In the UK investment trust sector, Saba Capital took the unprecedented step of requisitioning EGMs at seven different companies at once in order to put pressure on funds to narrow their NAV discounts and achieve higher returns. While this approach was notable for its aggression, there has been a broader trend of activists conducting more of their engagement in the public arena as they look to amplify their concerns to boards. There appears to be a collective frustration across not just shareholder bases but other key stakeholder groups when it comes to the performance of not just individual companies but the UK capital market as a whole, with a strong desire to see changes made in order to reverse the post-Brexit decline. Activists appear to be tapping into this feeling by using stronger rhetoric as a way of putting companies under pressure, knowing that this is more likely to resonate with investors and other stakeholders, helping them win support given the appetite for change.

Several investors have mentioned that as the gap between the US and UK markets has widened over the past decade or so, there is currently a huge amount of unrealized value at UK companies, with ample opportunity to enact M&A or operation changes in order to boost shareholder returns. Prior to the pandemic, M&A demands frequently accounted for more than half of the activism campaigns in the UK and so if M&A picks up in the second half of 2025 as anticipated, there will be more opportunities for activists to both make and disrupt deals ensuring that activity levels remain high and maybe even surpass the previous highs we saw at the end of the last decade. ³ÉÈËÊÓƵ ranked in the top five global activism practices in 2024 and remains well placed to help companies and investors both prepare for campaigns ahead of time and achieve success when the stakes are at their highest.

Introduction

Executive remuneration remains one of the most debated aspects of corporate governance globally. While the United States and the United Kingdom are developed, market-oriented economies with well-established corporate sectors, they differ significantly in how they approach executive pay. These differences are rooted in regulatory frameworks, governance philosophies, cultural expectations, and the broader socioeconomic landscape. We have written this paper based on ongoing discussions and debates with our Clients, colleagues and peers, trying to outline how our ecosystem handles executive remuneration practices, highlighting the implications on the US/UK divide when it comes to corporate strategy, investor relations, shareholder activism and long-term value creation.

Regulatory Frameworks

One of the most noticeable differences between the two countries lies in the regulatory oversight of executive remuneration.

In the United Kingdom, executive pay is governed by a combination of the UK Corporate Governance Code, the Companies Act 2006, and shareholder engagement standards set by entities such as the Investment Association. UK-listed companies must submit a binding vote on their remuneration policy every three years and an annual advisory vote on the implementation of the policy (the remuneration report). This structure ensures that shareholders have both strategic influence (on policy design) and operational oversight (on how pay was awarded).

By contrast, the United States follows a more flexible regulatory framework, primarily shaped by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Public companies must conduct an annual “Say on Pay” vote, but it is advisory only. Boards are not legally bound to change pay practices even if a majority of shareholders vote against the proposal. Furthermore, there is no mandatory requirement to submit the entire remuneration policy for shareholder approval. Regulatory oversight is primarily enforced by the Securities and Exchange Commission (SEC), which focuses on disclosure and transparency rather than prescription.

Governance and Committee Structures

In both jurisdictions, remuneration committees—typically made up of independent non-executive directors—play a critical role in determining executive pay. However, the governance culture differs considerably.

The UK Corporate Governance Code places strong emphasis on board independence, transparency, and fairness. It mandates that remuneration committees consider workforce remuneration and conditions when setting executive pay. It also expects companies to disclose pay ratios (CEO-to-median employee) and justify remuneration decisions based on long-term company performance.

In contrast, US governance standards—guided by NYSE or Nasdaq listing requirements—also require board independence but place a heavier focus on performance incentives and shareholder returns. Although CEO pay ratio disclosures are now required under the SEC’s rules, there is less emphasis on internal equity or fairness relative to the broader workforce.

Structure of Executive Pay Packages

While both countries use a combination of base salary, annual bonus, and long-term incentives, the structure and scale of these packages differ markedly.

In the United States, executive compensation is generally higher in absolute terms, particularly among S&P 500 companies. A large portion of total pay often comes from stock options and performance shares, designed to align management interests with shareholder value. US CEOs may also receive retention bonuses, signing bonuses, and perks (e.g., personal use of corporate jets, security expenses) that are far less common in the UK.

The United Kingdom, especially among FTSE 100 firms, tends to emphasize long-term incentive plans (LTIPs) that vest over three to five years. There is also a growing trend toward simplification of pay structures, moving away from complex, multi-scheme plans toward more transparent arrangements. Moreover, UK companies often have shareholding requirements for executives, requiring them to hold a multiple of their salary in shares for a certain period even after leaving the company.

Shareholder Activism and Say-on-Pay Votes

Another significant governance trend is the rise of shareholder activism in the US and UK. Institutional investors, particularly those under stewardship codes, whether they be regionally or global, have become more vocal about executive pay.

The binding nature of UK votes on remuneration policy gives shareholders significant power over how executives are paid. Shareholder revolts are not uncommon, especially when pay increases are awarded despite weak financial performance or when bonus criteria are considered too lenient. Public backlash and media scrutiny often lead to remuneration policy revisions or leadership changes.

In contrast, US shareholders have less formal power despite active engagement. Even when say-on-pay votes receive majority opposition, boards are under no obligation to amend pay packages. However, investor pressure from large institutional shareholders such as BlackRock, Vanguard, and ISS has led to some voluntary reforms, particularly around clawback provisions and performance metric disclosure.

Cultural Attitudes Toward Pay and Inequality

Cultural and societal attitudes toward pay differ significantly between the two nations.

In the UK, there is a stronger emphasis on moderation, fairness, and social responsibility. Excessive CEO pay is often seen as a reputational risk and a sign of poor governance. The UK’s approach reflects broader European values around equity and stakeholder capitalism.

Conversely, in the US, high executive compensation is more widely accepted, often viewed as a reward for success and innovation. The broader American business culture is more individualistic and tolerant of income disparity, particularly when tied to corporate performance. This cultural difference is reflected in the much higher CEO-to-median employee pay ratios in the US, often exceeding 300:1 in large firms, compared to roughly 100:1 in the UK.

Inclusion of ESG and Non-Financial Metrics

A recent area of divergence is the integration of Environmental, Social, and Governance (ESG) metrics into executive remuneration.

The UK has taken a proactive approach, with over half of FTSE 100 companies incorporating ESG factors into their incentive schemes. These include targets related to carbon reduction, diversity, and employee engagement. Regulators and investors in the UK increasingly expect ESG to be material, measurable, and linked to long-term business strategy.

In the US, ESG-linked compensation is growing but remains more controversial and politically polarised. Some investors support its inclusion, while others—especially in certain states—oppose it on the grounds of overreach or ideological bias. As a result, uptake is slower and varies significantly by sector and region.

Clawback and Risk Management

The UK has established malus and clawback provisions as standard in executive contracts, particularly in financial services. These provisions allow companies to reduce or reclaim bonuses and LTIP awards in cases of misconduct, restatements, or risk failure. Companies are also expected to disclose how and when such provisions are applied.

In the US, clawback policies have historically been weaker but are now strengthening. The SEC’s 2023 Clawback Rule mandates that companies recover incentive-based compensation if it was awarded based on financial statements that are later restated. However, practical enforcement remains inconsistent.

Conclusion

While both the UK and the US share a commitment to aligning executive pay with performance, their approaches differ fundamentally. The UK adopts a more structured, stakeholder-oriented model, with binding shareholder votes and broader social accountability. The US, by contrast, emphasises flexibility, high-powered incentives, and shareholder returns within a more market-driven framework.

These differences are not merely technical—they reflect divergent cultural, legal, and governance traditions. As global investors and regulators push for greater alignment between pay, performance, and purpose, understanding these contrasts becomes essential for boards, investors, and executives navigating international business.

Through the first quarter of 2025, the S&P Composite 1500 / Energy Index has reached heights only achieved twice (in 2008 and 2014), leading investors to believe that valuations of the Energy sector have pushed into over-valued territory. The S&P Energy Select Sector Index has similarly reached heights only broached twice before and so far this year, energy stocks lead all S&P 500 sectors. Understanding what has underpinned this performance helps explain the drivers of smart-money sentiment. While prices were relatively flat for all but one of the key energy products in 2025’s first quarter, only natural gas prices that have risen, rallying nearly 25%.¹ Since hitting $80 a barrel on January 15, West Texas Intermediate crude oil has fallen by nearly 30%, hitting sub $57 just recently. This scenario played nicely into the broader market sentiment that saw many factors create a “risk-off” environment, prompting a rotation out of growth-oriented sectors into more defensive and/or value-focused areas.

With this backdrop in mind, ³ÉÈËÊÓƵ conducted shareholder analysis to see which investors were buttressing the sector’s performance. We reviewed mutual fund holdings within our innovative investor intelligence platform, Invictus®, to understand which mutual funds were the most bullish supporters of the Energy Minerals sector, and the results proved interesting. Our initial screen was for actively managed mutual funds based in the United States that have been increasing their exposure to Energy Minerals sector stocks by more than $5 million. We then filtered out any funds that did not hold at least five (5) Energy Minerals sector stocks so as to remove any anomalous outliers. When sorting this list by the percentage of purchased to owned investments, a clear trend emerged. The most bullish funds in the Energy Minerals sector were not industry funds (Oil, Gas, Commodities, etc), but rather Value focused funds followed by Global funds. Leading the list was the Allspring Large Company Value Fund managed by Ryan Brown and Harin de Silva. Underpinning the fund’s sector investment theme was a rotation into mega cap names (ConocoPhillips, EOG Resources, and Exxon Mobil) at the expense of mid- and large-cap names (Ovintiv, National Fuel Gas, and Diamondback Energy).

Similarly, the Avantis US Large Cap Value Fund managed by Eli Salzmann and David Levine, the second largest percentage increase in the sector, was also seen rotating into meg cap sector names (Chevron, Exxon Mobil, ConocoPhillips and EOG Resources) at the expense of smaller capitalization companies (HF Sinclair, PBF Energy, Civitas Resources, SM Energy, and APA Corporation). Helping Chevron during this period was the US President weighing a plan to extend Chevron’s license to pump oil in Venezuela, as per Reuters.

The Neuberger Berman Large Cap Value Fund, the third largest increase with a dedicated value focus, seemed to apply a comparable approach by heavily increasing exposure to EOG Resources and Chevron, though instead of sourcing capital from smaller market capitalization companies chose to rotate within the mega cap space by reducing exposure to Exxon Mobil and Phillips 66. In the fund’s April commentary, fund manager David Levine wrote, “From a sector allocation standpoint, the Fund benefited from an overweight positioning in energy and an underweight positioning in information technology”.

In shifting to the Global funds, the most bullish fund was the BlackRock Advantage International Fund managed by Raffaele Savi, Kevin Franklin and Richard Mathieson. This fund mirrored the earlier trends of increasing exposure to mega cap names, though those outside of the United States (Shell PLC, Equinor ASA, and TotalEnergies SE), each within the Integrated Oil industry. When highlighting the contributing factors to performance, the fund’s most recently commentary stated,

Fundamental quality measures focused on sustainability of earnings and penalizing companies with high wage pressures were the top contributors… Collectively, stock selection was strong across Europe through a preference for domestic financials and defense stocks over those reliant on global trade.

Another globally-focused fund exhibiting bullish sentiment in the Energy Minerals sector was the Kopernik Global All Cap Fund managed by Alissa Corcoran and Dave Iben. This fund made a rotation into North America with its three largest purchases in Canada’s MEG Energy, US-based Expand Energy and Range Resources. This trend follows in line with the fund’s driving principle that being an opportunistic portfolio will have a low correlation to other managers. The fund’s primary philosophy and process is designed to capitalize on market dislocations based on fear and greed.

The period for which these holdings analysis encompassed was historically unique, as the overarching influence on investor sentiment was the US President’s ever-changing tariff strategy. Crude benchmarks suffered from demand concerns related to these tariff concerns. After providing initial headwinds, a decision to pause tariffs on non-retaliatory nations for 90 days and lowered reciprocal tariffs to 10% provided some tailwinds. Also, tanker data had Russian, Iranian and Venezuelan crude exports all rebounding in March, despite US sanction threats.

For corporates looking to influence their shareholder constituents, Alliance’s team of market experts can help you understand shifting market dynamics to ensure your time is spent with the “right” shareholders instead of the traditional peer-focused investors.

¹ Energy Information Administration

Leveling the Playing Field of Corporate and Shareholder Transparency – Interview with Optimizer Magazine

A Call to Action from Joseph Caruso, CEO, ³ÉÈËÊÓƵ 

JOE CARUSO: Over the past few years, there’s been a growing call for greater corporate transparency, especially from government agencies, institutional investors, and proxy advisory firms. But are we really creating a level playing field when it comes to shareholder transparency? 

OPTIMIZER: It seems that we’re still far from that. You’ve highlighted a key issue: not all shareholders are playing by the same rules of transparency, particularly when it comes to the OBO classification. Can you explain what that is and why it’s a problem? 

JOE: Absolutely. First, let’s understand what an OBO is. Shareholders can hold their shares in one of two ways: directly with a company, making them “registered” or “record” holders, or indirectly through a brokerage or custodian—these are called “beneficial owners” or “street name shareholders.” The SEC established a framework in the 1980s to classify beneficial owners into two groups: Objecting Beneficial Owners (OBOs) and Non-Objecting Beneficial Owners (NOBOs). OBOs are shareholders who do not want their identity, share position, or contact information disclosed to the company. On the other hand, NOBOs agree to share that information. This classification system gives OBOs a distinct advantage—they can hold a meaningful number of shares without the company knowing who they are or being able to communicate with them directly. This creates an uneven playing field and undermines the transparency we’re striving for.  

OPTIMIZER: That’s a huge problem, especially when companies are striving for more transparency and open communication with their shareholders. Can you give us an example of how OBOs disrupt shareholder engagement?

JOE: Sure. Let’s say a hedge fund or large individual investor owns 100,000 shares in a company as an OBO. Typically, higher net worth investors or institutional investors hold larger positions in OBO form than average beneficial NOBO holders. These investors hold sizable positions per account, but because the company can’t directly engage with these holders, management is forced to reach out to potentially hundreds or even thousands of smaller shareholders who own fewer shares to make up the difference. This outreach process is inefficient, time-consuming, and expensive. If management knew who owned those 100,000 shares, they could contact the OBO holder directly, streamlining the process and saving significant resources.  

OPTIMIZER: So, it’s not just an issue for large companies, but for smaller issuers as well. Could you elaborate on the impact OBOs have on small companies?  

JOE: Exactly. Smaller companies, often majority-owned by individual retail investors, bear much of the cost of shareholder outreach. Retail investors tend to vote less frequently than institutional investors, which means smaller companies often must spend much more to ensure they get the votes they need to pass key proposals. In some cases, a sizable OBO population can prevent these companies from reaching quorum or securing a vital vote, such as for a financing or bylaw amendment. The impact is even more pronounced in the mutual fund and ETF industry. These funds are mostly held by retail investors, and the costs associated with soliciting proxies from OBOs can run into the millions. In fact, the Investment Company Institute has advocated for lower quorum requirements for mutual fund meetings to address this. But, in my opinion, that’s just a band-aid solution—it doesn’t address the root problem. 

OPTIMIZER: It sounds like the costs associated with OBOs are not just a nuisance—they’re a significant barrier to shareholder democracy and engagement. What’s the solution? 

JOE: The solution is simple: eliminate the OBO classification. If management could communicate directly with all beneficial owners, whether they’re OBOs or NOBOs, the entire shareholder engagement process would be more transparent, efficient, and cost-effective. The SEC’s current shareholder communication framework, which hasn’t been updated in more than four decades, simply doesn’t reflect the modern business environment. By eliminating OBOs, companies could drastically reduce costs related to proxy solicitations, reach shareholders more directly and efficiently, and enhance overall transparency. This would be a win-win for both companies and their shareholders.  

OPTIMIZER: You’ve mentioned ³ÉÈËÊÓƵ’ work in handling shareholder meetings. How has the OBO problem affected your day-to-day work?  

JOE: At ³ÉÈËÊÓƵ, we manage over 750 shareholder meetings annually, and we see firsthand how disruptive and costly the OBO classification can be. In many cases, it forces companies to spend more time and money trying to engage with shareholders who are effectively “hidden” from them. We’ve had situations where, due to the large percentage of shares held by OBO holders, companies didn’t pursue a shareholder vote on a critical measure for fear they couldn’t get the necessary votes or absorb the potential cost of achieving success. This dissuades management and can potentially harm the company and its investors. That’s why we formed the Shareholder Ownership Transparency Alliance (SOTA). SOTA’s sole mission is to eliminate the OBO classification and give companies equal access to all their shareholders. We’re asking executives of publicly traded companies, mutual funds, and their respective industry trade groups to support our petition, which we’ll eventually present to Congress and the SEC.  

OPTIMIZER: That’s a major initiative! What’s next for SOTA?  

JOE: We’re working to gather as many signatures as possible from executives and industry groups who understand the need for change. We believe that when we present a united front with enough support, Congress and the SEC will have no choice but to act. We’re not asking for money—just for people to sign the petition and show their support for leveling the playing field. Once we feel we have the necessary backing, we’ll bring this issue to policymakers in Washington and push for the elimination of the OBO classification. 

OPTIMIZER: So, eliminating the OBO classification is about more than just reducing costs—it’s about restoring fairness and shareholder democracy, right? 

JOE: Exactly. The current system is outdated and creates an unfair advantage for certain shareholders, at the expense of others. Transparency is supposed to be a two-way street—companies need to be able to communicate directly with all their shareholders, and shareholders deserve to have their voices heard. Eliminating the OBO rule would restore balance and ensure that companies and their shareholders are all playing by the same rules. This is a common-sense solution that’s long overdue.  

OPTIMIZER: Joe, what else should we know about leveling the playing field with beneficial ownership disclosure?  

JOE: Back in 2021, Congress passed the bipartisan Corporate Transparency Act (CTA) to combat illicit activities such as tax fraud, tax fraud, money laundering, and terrorism financing. The goal was to get more transparency on who owns U.S. private companies, LLCs, and S corporations that operate in or have access to the U.S. market. This law doesn’t apply to public companies, though. 

By eliminating OBOs, companies could drastically reduce costs related to proxy solicitations, reach shareholders more directly and efficiently, and enhance overall transparency. This would be a win-win for both companies and their shareholders. 

Under the CTA, most businesses now have to file a Beneficial Ownership Information (BOI) Report with the U.S. Department of Treasury’s FinCEN, which lists the individuals behind the company. The idea is to stop people with malicious intentions from hiding their ownership in U.S. companies to run illegal operations—something that threatens national security and the economy. As a result, banks and brokers must know their customers and private companies must report their beneficial owners to FinCEN. However, the largest companies in the world are still not permitted to know who their actual owners are. We believe it’s time for this to change. 

OPTIMIZER: Yes, it certainly sounds like it’s time for a change. How can people get involved?  

JOE: People can get involved by visiting our website and signing the petition at Sotanow.org. We need as much support as possible to make this happen. The more people we have backing this effort, the stronger our case will be when we present it to Congress and the SEC.  

OPTIMIZER: Thank you, Joe. It’s clear that eliminating the OBO classification would benefit both companies and shareholders, and we’re excited to see how SOTA moves this important issue forward.  

JOE: Thank you! It’s time to level the playing field and ensure that transparency is truly a two-way street for everyone involved. 

Scan here to sign the petition:

With the shareholder meeting season rapidly approaching it is important for companies to be aware of the shifts in corporate governance trends. To that end companies need to know not only which institutional investors own their stock but also how they behave. For example, do they outsource their voting decisions or are decisions made internally? And if decisions are made in-house which teams own or participate in the voting decision? The investment team or the stewardship team?

Also, to muddy the waters even more, which institutions have loaned their stock out thereby reducing their votable share position on record date. The effects of institutional investors loaning stock to short sellers are an often-overlooked analysis especially for companies with large short positions in their stock.

To provide an accurate roadmap, ³ÉÈËÊÓƵ has outlined 5 key considerations a company must undertake before finalizing their proxy statement.

With the shareholder meeting season rapidly approaching it is important for companies to be aware of the shifts in corporate governance trends. To that end companies need to know not only which institutional investors own their stock but also how they behave. For example, do they outsource their voting decisions or are decisions made internally? And if decisions are made in-house which teams own or participate in the voting decision? The investment team or the stewardship team?

Also, to muddy the waters even more, which institutions have loaned their stock out thereby reducing their votable share position on record date. The effects of institutional investors loaning stock to short sellers are an often-overlooked analysis especially for companies with large short positions in their stock.

To provide an accurate roadmap, ³ÉÈËÊÓƵ has outlined 5 key considerations a company must undertake before finalizing their proxy statement.

Every corporation at some point in its corporate history will have to deal with disseminating unfavorable news.  Whether it takes the form of an earnings miss, corporate restructuring, key executive departure, product recall, natural disaster, macro-economic or political event, companies need to be prepared to handle corporate crises effectively.

Bad new handled improperly is akin to throwing gasoline on a fire which can allow bad news to pile on top of bad news and the crisis never ends. Conversely a strategy that revolves around accountability and transparency can build trust in the executive team during challenging times.  How a company responds is directly corelated to how quickly a company recovers from adverse news.

The following is a check list of time-tested guidelines that every company should follow:

• Take Responsibility and Be Accountable: Companies must address the issues head on, immediately. Long gone are the days of releasing bad news on a Friday afternoon after the market has closed. Unfavorable news travels instantly through hundreds of distribution points and in some cases the “Street” may have the news before the company does. Companies need to own the mistake or problem before it spirals out of control.
• Be Upfront and Honest: Correct false information right away don’t let short sellers or uninformed press circulate false information. Being transparent helps prevent or rein in speculation and serves to control the narrative. Communicating the timeline for corrective actions and providing a clear plan for rectification does not allow for bad news hang around.
• State Facts to Increase Credibility: Focusing on factual information to enhance trustworthiness don’t veer off script. Executives must avoid being emotional and stay away from defensive language. Saying you are going to sue a short seller in a fit of anger get you nowhere.
• Provide Actionable Steps: Every response in a crisis must be accompanied with a plan of action or solution otherwise you are just stating the obvious that there is a problem. Outline the steps the company is taking to rectify the situation. Explain preventive measures to avoid recurrence. Being solution-oriented in a crisis is a powerful response from management that they are on top of the problem. Actional steps will help a battered stock recover faster as savvy investors will look at it as an entry point in the stock.
• Don’t Over-Communicate or Make Excuses Be Clear and Concise: Stay on topic and don’t elaborate. It is dangerous to overshare information or provide justifications.  Bad news can exist without a “spin” especially if it’s the type of problem that was created by external forces such as a strike, natural disaster or similar.
• Coordinate Internal and External Communication: Consistency across all communications is key.Aligning the company’s message internally and externally to avoid mixed signals.
• Throw in the Kitchen Sink: If you have bad news get it all out of the way in one shot. This would be especially true in restructurings or write downs if you are going to write down thrown in everything including the kitchen sink, as the saying goes on Wall Street. At all costs companies must avoid multiple bad news events, one after the other.
• Turn Negative PR Into a Marketing Opportunity: Providing solutions and action items on the issue can be a positive marketing message. In many cases companies have turned negative events into a win.
• Monitor Social Media and Clarify Misleading Statements: Stay on top of social media conversations. Companies must address and correct misleading or harmful statements quickly.
• Be Mindful of Regulatory Compliance (Reg FD): Avoid side conversations that could violate regulations. Ensuring consistent messaging by preparing talking points for the team. Designate a single spokesperson for clear communication.
• Crisis Preparedness: Every company should have a realistic crisis plan in place with the role of a call tree and designated response protocols. Crisis teams, specifically the IR, Shareholder Engagement, law firm and PR teams should be set out in advance.

By following these best practices, a company has a much better chance of recovering from a crisis with its reputation intact. Showing accountability and transparency during crises builds long term value in the company and its management.