For a small-or mid-cap public company, an activist campaign rarely appears out of nowhere. The warning signs are often visible months before an investor publicly discloses a position, demands board seats, calls for a strategic review, or launches a proxy fight. The problem is that too many companies aren’t looking closely enough at their own shareholder base to catch those signals in time.

This is especially true in healthcare, where small-and mid-cap companies often carry valuable intellectual property, strong cash positions, promising drug pipelines, strategic assets, or depressed valuations, the exact combination that draws activist investors, event-driven funds, and potential acquirers.

Activism Doesn’t Start With a 13D Filing

One of the most common misconceptions is that a company will know when an activist is building a position. In reality, there is often a long runway between the start of accumulation and the moment an investor becomes publicly visible. An investor can build a stake below reporting thresholds, establish economic exposure through derivatives and other instruments, or quietly line up support from other shareholders long before its intentions become clear.

By the time a Schedule 13D or a public activist letter appears, the company may already be facing an organized shareholder base with a fully developed investment thesis.

The Shareholder Base Is Constantly Changing

A shareholder register is not a static document. Institutions add to and trim positions. Hedge funds rotate in and out. Passive investors rebalance. Event-driven funds position ahead of catalysts. Long-term holders exit after disappointing results, while new investors accumulate because they see the company as undervalued.

These shifts can materially change the dynamics of a shareholder vote long before management notices. For a smaller public company, it can happen fast: a board that believes it has a stable institutional base today could discover, just a few months later, that a meaningful share of the stock is now held by investors with very different objectives.

What Should Companies Actually Be Watching?

Effective monitoring goes beyond simply identifying the largest shareholders. The more useful question is: what’s changing? Companies should track several dimensions of their shareholder base on an ongoing basis.

• New institutional holders. Who has recently appeared in the stock? A new hedge fund or event-driven investor deserves a closer look, particularly if its track record is associated with activism, M&A, special situations, or balance-sheet restructuring.
• Changes in existing positions. A shareholder that quietly builds its position over several quarters can matter more than one that suddenly lands in the top 10. The trend is the signal: Is an investor moving from 1% to 2% to 3%? Are several funds with similar strategies accumulating at the same time?
• Shareholder concentration. How much of the company is controlled by its largest holders, and, just as important, how much stock is realistically in play to swing a vote? A relatively small group of investors can exert outsized influence at a small-cap company.
• Investor behavior and intent. Not every shareholder has the same horizon or objective. A long-only healthcare specialist, a passive index fund, a quantitative fund, and an activist hedge fund may all own the same stock for entirely different reasons. Understanding why an investor is in the name can matter as much as understanding how much they own.
• Trading patterns around catalysts. Unusual accumulation ahead of earnings, investor days, FDA decisions, clinical-trial readouts, strategic reviews, or financing transactions can add useful context. The goal isn’t to treat every unusual pattern as activism, it’s to flag the changes that warrant a closer look.

Healthcare Companies Are Particularly Vulnerable to Activist Pressure

Several characteristics common to healthcare companies make them attractive activist targets:

> Substantial cash relative to market capitalization
> Valuable intellectual property
> A promising drug or device pipeline
> Underperforming commercial assets
> Non-core businesses ripe for divestiture
> Licensing opportunities
> An attractive acquisition profile
> Significant tax assets
> A depressed valuation relative to peers
> A history of disappointing shareholder returns

Surveillance Isn’t About Preventing Activism: It’s About Preventing Surprise

No company can, or arguably should try to, keep every activist investor out of its stock. Activism sometimes surfaces legitimate opportunities to improve shareholder value. The real objective of surveillance is preparedness. Management and the board should be able to answer:

> Who owns us, and who is changing their position?
> Who is newly entering the stock?
> Which investors are becoming more influential?
> What share of the base is likely supportive of management’s strategy?
> Are there investors whose objectives may diverge from ours?
> Are we seeing early signs of a coordinated or increasingly concentrated position?

Without that visibility, a company is reacting to events. With it, a company can anticipate them.

The Cost of Waiting Can Be High

Once an activist campaign goes public, a company enters a very different environment. The board may need to respond quickly to public criticism. Management has to engage directly with shareholders. Legal and financial advisers get pulled in. The company may need to prepare for a proxy contest. Almost overnight, the question of who owns the stock becomes a critical strategic issue.

Trying to reconstruct a shareholder base after an activist has already gone public is far less effective than having maintained a continuous picture of ownership and investor movement all along. The real value of surveillance isn’t just the information it provides; it’s the time it creates: time to investigate, time to engage, time to communicate, time to assess vulnerabilities, and, if necessary, time to prepare a response.

From a Quarterly Exercise to Continuous Intelligence with Invictus Sentinel

For many companies, shareholder surveillance still amounts to a periodic exercise tied to quarterly 13F filings. That approach leaves significant gaps.

Alliance Advisors delivers stock surveillance through Invictus Sentinel, a proprietary, data-driven platform designed to uncover ownership changes well in advance of public filings.

Built on more than two decades of institutional proxy voting data, spanning thousands of shareholder meetings, the platform leverages a proprietary database of over 20,000 institutional investors. Our analysts continuously refine custodial mapping to accurately identify the true beneficial owners behind nominee accounts, delivering a level of transparency not available through conventional sources.

Invictus Sentinel simplifies complex trading and ownership data into clear, actionable intelligence:

> Intraweek Ownership Tracking: Monitors buying and selling activity beyond standard 13F filers, including pension funds, sovereign wealth funds, non-filing hedge funds, and foreign investors.
> Activist Surveillance: Identifies activist accumulations and divestitures early, before public filings.
> Wolf-Pack Detection: Detects “pile-on” accumulations by secondary activists, providing early warning of momentum shifts.
> Institutional Voting Intelligence Data Bank: Access detailed institutional voting profiles, policies, and proxy advisory influence—critical for evaluating likely support in contested situations.
> Options Monitoring & Short Selling Insight: Delivers early warning on options activity and increases in shares on loan and short selling activity.

The platform is designed for legal, corporate governance and investor relations professionals putting data driven ownership intelligence directly on their desktops.

As M&A deals are continuing to ramp up in the asset management industry, there is also a growing friction point that managers have to deal with when acquiring new mutual funds and ETFs from the former investment adviser — proxy-voting campaigns.

With strict rules around quorum and voting thresholds, as well as communication and cost challenges, securing the necessary proxy votes after an M&A deal is an increasingly difficult operational hurdle for asset managers, and experts say these issues will likely continue as more consolidations occur in the ETF and asset management industries.

Under the Investment Company Act of 1940, when an investment adviser is acquired by another firm, shareholders of registered funds with the SEC need to approve the change in control.

Janus Henderson Group recently went through the proxy-voting process with its acquisition by Trian Fund Management and Gene Catalyst Group Management. The proxy solicitation involved the transfer of 62 funds, 15 of which were ETFs, according to Alliance Advisors — a proxy solicitation and advisor firm that helped facilitate Janus’s proxy campaign.

Challenges for asset managers

One of the biggest challenges is getting fund shareholders — particularly ETF investors who tend to move quickly in and out of fun — to vote before the deal’s contractual closing date.

The ‘40 Act requires that shareholders representing more than 50% of the fund’s shares participate in the proxy vote, and at least 67% of the shares that are represented must vote “yes.” The alternative is getting 50% of all the shareholders in the fund to vote

“Both of these are very high thresholds, and they’re higher than what you normally see in corporate America,” said Paul Cellupica general counsel at the Investment Company Institute, a trade association representing fund managers, in an interview. “Those challenges are compounded by the fact that, unlike public companies like IBM or Exxon where you have a lot of institutional shareholders, shareholders of funds are very dispersed and tend to (include a lot of) retail shareholders.”

If a manager does not get the required votes in time for the shareholder meaning, Cellupica said the meeting will be adjourned a the acquisition could be postponed. But with most acquisition deals, when one firm is paying a lot of money to acquire another, Cellupica said managers will “pull out all the stops” to make sure they get a quorum, but it can become very expensive.

Cellupica noted that a lot of these retail shareholders in ETFs, in particular, are younger investors who are not receiving physical mail and often ignore emails and texts due to concerns about phishing attempts.

Proxy campaigns aren’t just an operational headache — they’re also very costly for managers, as they often have to spend a lot o money trying to reach large, dispersed groups of investors through various different channels.

A survey conducted by ICI in February, which included responses from 62 member firms representing $38 trillion, said that special and contested closed-end fund proxy campaigns have gotten harder and more expensive — many saying significantly so since 2020.

Between 2020 and 2025, ICI also found that total campaign costs ranged from $675 million to $1.14 billion, with many individual campaigns costing tens of millions of dollars. About 33% of managers surveyed by ICI said the cost of running proxy campaigns a significantly more expensive than they were in 2020.

These costs are primarily paid for by fund shareholders, as the fees come out of the fund’s assets, which Cellupica said does not really benefit them in any way.

Potential solutions

In the Janus Henderson deal, Alliance Advisors said digital tools — including text messages, QR codes and emails — helped secure the necessary votes by reaching investors through their preferred communication channels, allowing the transaction to close on Tim without penalties to Janus.Robert Brennan, chief operating officer at Alliance, said text-to-vote via SMS/MMS text can be rapidly deployed to large shareholder populations and has proven to be very effective in gathering votes at a much lower cost than traditional mail. E-voting follows close behind, he said, as a single email gives the holder three ways to act, by clicking a secure link, scanning a QR code to vote instantly or calling a central voting hub to speak with a live agent.

“There is no single solution that works for every campaign or every shareholder, but optionality across multiple communication mediums is key,” Brennan said.

ICI has been in talks with the SEC, urging them to implement changes in the proxy-voting process. This includes lowering quorum requirement to more than 33% of shareholder approval, as opposed to 50%, and allowing fund investors to give permission ahead of time for their shares to be voted in line with the fund board’s recommendation.

Cellupica said he suspects fund proxy voting to be an ongoing issue with more M&A deals happening.

“My hope is at some point it just becomes such an impediment to rationalization and capital formation that the SEC does take som kind of action,” Cellupica said. “The the problem is so big. There’s no one silver bullet solution. It really has to be a number of different actions.

Leveling the Playing Field for American Companies by Removing Barriers to Shareholder Access

Survey Findings on Shareholder Communications Reform

Purpose of the Survey

This survey was designed to gauge the perspectives of corporate governance executives on the OBO/NOBO shareholder designation framework. As shareholder engagement grows increasingly critical to corporate governance, this survey sought to quantify what many executives have long experienced firsthand, that the OBO designation creates meaningful barriers to effective,
cost-efficient shareholder engagement.

Survey Overview

Alliance Advisors distributed this survey during the month of June 2026 to corporate governance executives at approximately 4,100 NYSE and Nasdaq listed companies as well as mutual fund families. The response rate was approximately 7.4%, yielding a meaningful cross-section of public companies and fund families across market capitalizations¹.

Respondent Profile

Responding companies spanned a wide range of sizes, with an average market capitalization of $21.8 billion and the largest respondent reaching $347 billion. Approximately 24% of respondents qualify as large-cap companies (market cap above $10 billion), with an average market cap among that cohort of $83.7 billion. The remaining 76% were mid- to small-cap companies, averaging $1.7 billion in market capitalization — underscoring that the OBO/NOBO framework creates challenges across the full spectrum of public issuers¹.

Survey Results

The results reflect an overwhelming consensus in favor of reform:

• Q1 — Added difficulty and cost: 82.84% (251 of 303) of respondents said the OBO vs. NOBO designation has added difficulty and/or cost to their shareholder meeting and communications efforts¹.
• Q2 — Improved engagement: 95.11% (292 of 307) believe that eliminating the OBO designation and allowing full access to all shareholder identities would improve the shareholder engagement process¹.
• Q3 — Reduced proxy costs: 92.48% (283 of 306) believe eliminating the OBO designation would reduce proxy solicitation costs for meetings requiring active outreach to retail and institutional shareholders¹.
• Q4 — Universal NOBO designation: 93.11% (284 of 305) support having all shareholders designated as NOBO¹.

Across all four questions, support for eliminating the OBO designation exceeded 82%, with three of four questions surpassing the 92% threshold. The data make a compelling case that corporate governance executives at both large-cap and smaller public companies, view the current OBO framework as a material obstacle to effective, cost-efficient shareholder engagement¹.

Introduction

Transparency is a foundational value of the United States that is embedded in our democratic institutions, our legal system, our economic freedoms, and our financial markets. It is a principle that has long guided markets regulation and is central to the mission of the U.S. Securities and Exchange Commission (“SEC”). Closely intertwined with transparency is an equally fundamental premise of U.S. capital markets—that owners maintain their property better than anyone else. Markets function best when ownership is visible and when investors are able to act as engaged, informed, and accountable owners.

For decades, the SEC rules governing investor ownership disclosure have reflected these two core priorities. The registration and reporting framework ensures that large mutual fund investors are disclosed, supporting market integrity and informed decision-making. Supplemental rules governing proxy voting, shareholder communications, and the exercise of ownership rights are likewise grounded in the same principles of facilitating transparency while enabling investors to participate meaningfully in corporate governance.

These rules have also extended to retail investors. Most retail shareholders are given the option to allow companies to communicate with them directly, a status known as Non-Objecting Beneficial Owner (“NOBO”). The majority of retail investors choose this option, reinforcing the norm that transparency and direct issuer-owner communication is beneficial to both companies and shareholders. When these rules were first adopted decades ago, however, a narrow exception was created. A small number of investors holding a very limited number of shares were permitted to remain invisible to their portfolio companies by electing Objecting Beneficial Owner (“OBO”) status, even though this opacity runs counter to the twin market values of transparency and active ownership. At the time, this exception was viewed as tolerable for several reasons.

First, OBO holders were considered de minimis in both number and economic significance, such that their invisibility was not thought to meaningfully affect issuers or the broader market. Second, the rules were adopted in a paper-based era, when administrative burdens and privacy concerns for brokers were materially greater, and some accommodation was viewed as appropriate. Third, issuer communication with retail shareholders was itself impractical and costly, meaning that the loss of contact with a small subset of investors was not seen as consequential. Fourth, proxy voting by retail investors was relatively rare and generally passive, making the inability to communicate with some shareholders less significant. Finally, at the time the current framework was adopted in 1986, there was limited understanding of how opaque ownership and communication systems could enable errors in proxy vote tabulation to go undetected.

In the decades since, experience has demonstrated that opacity in the proxy plumbing system can, and has, contributed to inaccurate outcomes, including under and overvoting, reconciliation failures, and other distortions that are difficult to identify or correct without transparency. These issues were not well understood when the OBO exception was created, but they have since become increasingly evident. Thus, even though permitting OBO status was inconsistent with the SEC’s core commitment to transparency and with the capital markets’ foundational assumption that owners should be able to fully exercise their ownership, its limited scope in a paper-based, low-engagement, “Wall Street Walk” era allowed it to persist. The rationale for that tolerance, however, rested entirely on conditions that no longer exist.

Background on the OBO Classification

As noted, the conditions that once allowed the OBO exception to persist have changed rapidly and fundamentally. What was once a narrow, largely inconsequential departure from the norm of transparency has become a material and growing threat to effective ownership, and market integrity. As a result, there is now a clear urgency to revisit and modernize rules that no longer reflect how today’s markets function. Most notably, retail holdings subject to OBO and NOBO classifications have expanded dramatically in both number and economic significance. The growth in retail participation means that opaque ownership is no longer a marginal feature of the system, but a meaningful impediment to transparency and to the ability of owners to act like owners. What was once a de minimis exception has evolved into a structural issue with real consequences for issuers, investors, and the proxy process.

At the same time, the technological and operational constraints that once supported limited issuer–retail shareholder communication have largely disappeared. The market has migrated decisively from paper-based systems to digital, platform-based communications. Today, it is practical for issuers to identify, learn from, and communicate directly with shareholders of all sizes. This shift is evidenced by the rapid growth of commission-free trading platforms, the adoption of digital shareholder-engagement tools such as Robinhood’s Say Technologies, and the replication by other issuers of models pioneered by companies like ExxonMobil that allow retail investors to make informed, affirmative communication choices.

There has also been a broader recognition that all investors, not only large institutional holders, deserve a meaningful voice in corporate governance. This recognition strengthens the case for enabling direct issuer-owner communication, particularly at a time when foreign ownership of U.S. companies continues to rise and raises national security, economic resilience, and governance considerations. Ensuring that all shareholders are visible, reachable, and engaged has taken on increased importance in this context. Just as brokers and banks are required to know their customers, publicly traded companies should have the right to know who owns their company.

In parallel, proxy voting itself has become far more consequential than when the current rules were adopted. Votes on director elections, executive compensation, and major transactions now routinely hinge on relatively narrow margins, making issuers’ ability to reach and inform their shareholders materially more important than in earlier eras. Opaque ownership and indirect communication structures undermine that ability at precisely the moment when it matters most. Compounding these challenges is the growth of other sources of opacity within the proxy system, including pass-through voting mechanisms and the decline of benchmark reconciliation reports. Together, these developments further limit visibility into who is voting, how votes are cast, and whether outcomes accurately reflect investor intent. In this environment, transparency should be strengthened wherever possible, not treated as optional. Finally, investors who place a premium on privacy now have alternative means to preserve anonymity without imposing system-wide costs. The widespread availability of holding companies and similar structures allows investors to shield their identities where appropriate, without requiring the regulatory framework itself to create opacity that affects all market participants. As a result, modernizing OBO rules would not disadvantage privacy-seeking investors, but would instead reduce the broad-based harm that the current regime imposes on issuers and other shareholders.

Taken together, these developments make clear that the historical rationale for the OBO exception no longer applies. What once may have been a tolerable accommodation in a paper-based, low-engagement era has become increasingly misaligned with modern market realities—and with the SEC’s longstanding commitment to transparency and effective ownership.

The Market’s Development Since The 1980s

The shareholder landscape in 2026 is unrecognizable from the one that existed when the OBO/NOBO rules were written. The proliferation of low-cost brokerage platforms, the democratization of retail investing, and the explosive growth of exchange-traded funds have produced a seismic shift in the number of shareholder accounts in the U.S.

Just looking at Robinhood data alone, in 2016, the firm had an estimated one million funded accounts and in the latest quarter they reported 27.4 million, a twenty-seven-fold increase¹. Estimating the average number of holdings per brokerage account across the industry is difficult, but according to Charles Schwab, the average number of positions in self-directed accounts within the Schwab system is twelve across six categories of investment. Using only equities, the number is six which means that the number of holdings in brokerage accounts has grown from an estimated 69 million in 1985 to approximately 960 million in 2025, without counting mutual funds or ETF’s². This represents a fourteen-fold increase in the number of discrete shareholder-to-company relationships that the proxy communication system must serve. The cost and complexity implications are staggering, and they are borne overwhelmingly by issuers and, ultimately, their shareholders.

The explosion in share ownership is precisely the kind of structural change that demands a reassessment of the regulatory framework. The economic analysis that supported the OBO/NOBO classification in the 1980s simply did not and could not have contemplated a market with over 160 million brokerage accounts and nearly a billion shareholder positions. The costs that the framework imposes, which are driven by the number of shareholder accounts, not the number of shares, have scaled in ways that render the original cost-benefit analysis conducted at the time obsolete.

Costs & inefficiencies associated with current OBO/NOBO framework

A. Governance Costs & Inefficiencies

The financial burden of operating within the OBO/NOBO framework is significant, and it falls most heavily on the companies that can least afford it. Proxy solicitation and shareholder outreach are materially more costly when a substantial portion of the shareholder base is hidden behind the OBO classification. Because issuers cannot identify or contact OBO shareholders directly, they must rely on indirect, intermediary-driven channels of communication. This process is costly, time-consuming, fragmented, and structurally biased toward the interests of intermediaries rather than issuers and their shareholders.

These costs are fixed and do not scale with market capitalization, which means they disproportionately impact small and mid-sized companies. For a large-cap company, proxy solicitation may be significant but are manageable relative to its overall operating budget. For a small-cap or micro-cap company, however, these same costs can represent a meaningful percentage of operating expenses and can be the decisive factor in whether the company pursues a particular shareholder vote or forgoes it entirely.

Appendix A illustrates the scale of the problem. In a random sample of 70 publicly traded companies across multiple market capitalization and industry sectors, 56% of all shareholder accounts were classified as NOBO, yet these accounts held only 31% of the outstanding shares, meaning the remaining 44% of accounts (the OBOs) control a disproportionate 68% of the shares, yet are entirely invisible to company management³. Solicitation costs are driven by accounts, not shares. This asymmetry was not a factor in the economic analysis underlying the original rule because, when the rules were promulgated in the 1980s, the shareholder base was a fraction of what it is today⁴.

A recent proxy solicitation example illustrates the scale of the problem in stark terms. About a year after going public, a technology infrastructure company sought to reach shareholders to approve an increase in authorized shares. The company employed Alliance Advisors to assist in soliciting a shareholder vote. In just eight months as a publicly traded company, the company had already accumulated over 422,000 shareholder accounts. While 85% of those shareholder accounts were classified as NOBO, those accounts only represented 55% of the outstanding shares. To have a realistic chance at delivering a majority vote on a critical proposal, an aggressive solicitation campaign targeting every reachable NOBO account was necessary. While ultimately successful in securing sufficient shareholder votes, the total costs for the company exceeded $20 million. Notably, this is not an outlier anecdote. Cases like this are occurring with increasing frequency as retail share ownership continues to expand across low-cost brokerage platforms.

The mutual fund and exchange-traded fund (“ETF”) industry faces an analogous challenge. In a thirty-five-fund sample of open-ended funds, while 58% of accounts were classified as NOBO, those accounts only held 53% of the outstanding shares⁵. Moreover, in a fifteen-fund sample of ETFs and money market funds, 59% of accounts were NOBO, holding 54% of shares. Because mutual funds and ETF shareholders are overwhelmingly retail investors, the costs of soliciting proxies from the hidden OBO segment are particularly acute, and those costs are ultimately passed on to the very retail investors who the regulatory system is ostensibly designed to protect⁶.

Because companies do not have access to the OBOs, which account for 68% of outstanding shares, on average, solicitation is focused on NOBOs or small accounts that would otherwise not be actively solicited. This “over solicitation” means that the proxy solicitor must contact six accounts to achieve the same result that contacting one OBO account would produce. This results in unavoidable and outsized solicitation costs. As an example, a mutual fund family with three million shareholders would have to budget between $10 to $20 million for an across-the-board solicitation. Eliminating the OBO classification would make proxy solicitation more efficient and would, in turn, substantially reduce the costs of holding important shareholder meetings.

B. Governance Fragmentation & Uncertainty

Beyond the direct cost burden, the OBO classification introduces a pervasive element of uncertainty into the corporate governance process. When a company cannot identify a meaningful segment of its shareholder base, strategic decision-making becomes an exercise in incomplete information. Management teams and boards are forced to design engagement strategies, evaluate vote projections, and make consequential business decisions without knowing who owns a significant portion of their company. This information asymmetry creates several downstream problems:

1. Companies may avoid pursuing strategic votes, such as approvals for financing transactions, by-law amendments, or significant corporate actions, because they cannot reliably predict voting outcomes when a substantial share position is held by anonymous accounts. Small issuers often cannot absorb the costs associated with an aggressive proxy solicitation campaign, meaning that corporate actions that would benefit all shareholders may simply never go to a vote.
2. OBOs also hinder direct engagement, increase intermediary influence, and fragment governance by shielding large shareholders from the kind of constructive dialogue that is essential to sound corporate stewardship. This disproportionately impacts small to mid-sized issuers, who generally have more dispersed and retail-heavy shareholder bases, amplifying the inefficiencies because retail holders vote at lower rates generally.
3. The operational and strategic risk management implications are equally troubling. Companies may avoid strategic votes entirely because they cannot access all meaningful owners. Small issuers often cannot absorb the costs of proxy contests or even routine contested proposals that their large-cap peers take in stride. There are numerous instances of public companies that declined to pursue critical business decisions, including financing proposals and governance reforms, specifically because the OBO population made the outcome too uncertain and the cost of solicitation was too high relative to the companies resources (particularly because success is not guaranteed even if the company bears the solicitation costs).

Chilling effect on IPOs & public market participation

The SEC’s data tells a stark story about the declining appeal of U.S. public markets. The number of exchange-listed companies has fallen by roughly 40% since the mid-1990s. While the causes of this decline are multifaceted and include the rising compliance costs, litigation exposure, and expanding disclosure requirements, the OBO/NOBO framework is a contributing factor that has not received as much attention.

The connection between the OBO classification and the decision to go or remain public is both direct and indirect. Directly, the framework increased the cost of maintaining a public company by making proxy solicitation more expensive and less efficient than it needs to be. For small and emerging-growth companies, these costs represent a larger share of operating expenses than they do for large-cap peers. A company contemplating an IPO must factor in the ongoing cost of a shareholder communication system that was designed for a market with 11.5 million brokerage accounts, not 160 million. Indirectly, the OBO classification contributes to the perception that being public subjects a company to a governance framework that is cumbersome, opaque, and structurally tilted against management’s ability to communicate effectively with its own investors. This perception is particularly damaging for emerging and mid-sized companies that might otherwise consider the public markets as a source of growth capital. When the cost and complexity of engaging shareholders exceed the perceived benefits of a public listing, companies will rationally choose to remain private, depriving retail investors of investment opportunities and reducing the diversity, vibrancy and competitiveness of U.S. capital markets.

The lack of direct engagement mechanisms also runs counter to ongoing efforts to enhance U.S. public markets competitiveness. For example, corporate issuers in Asia and Europe are able to operate with significantly more transparency about who owns companies, giving them a distinct financial and strategic advantage over American counterparts. [7] Updating the OBO rule is not merely a matter of domestic regulatory housekeeping. Rather, it has implications for the global competitiveness of the U.S. capital markets.

The SEC’s priorities

The current SEC leadership has articulated a reform agenda that is directly relevant to the OBO/NOBO question. In his February 2026 testimony before the U.S. House of Representatives Committee on Financial Services, Chairman Paul S. Atkins observed that the number of exchange-listed companies has fallen by roughly 40% since the mid-1990s, from more than 7,800 to approximately 4,761 as of September 2025. Chairman Atkins characterized this decline as a “cautionary tale of regulatory creep” and outlined his three-pillar plan to reverse it: (1) re-anchoring disclosures in materiality; (2) de-politicizing shareholder meetings; and (3) providing litigation alternatives for public companies. In his December 2025 keynote address at the New York Stock Exchange, Chairman Atkins argued that decades of incremental rulemaking had “produced reams of paperwork that can do more to obscure than illuminate,” and stressed the importance of making regulatory obligations proportional to a firm’s size and maturity⁸. Further, the Division of Corporation Finance, under Director James Moloney, has confirmed that the SEC is advancing rulemaking to eliminate requirements that burden public companies without providing meaningful benefits to investors.

The OBO/NOBO framework is precisely the type of regulation that the Chairman’s agenda is designed to address. It was adopted over four decades ago under assumptions about market structure that no longer hold. It imposes costs that do not scale with market capitalization, meaning small and mid-sized issuers bear a disproportionate burden. It creates an uneven playing field by allowing certain shareholders to demand full transparency from companies while remaining completely opaque themselves. And it introduces friction into the shareholder meeting process that the SEC’s second pillar aims to streamline and de-politicize. Critically, the SEC’s current Regulation S-K review and broader disclosure reform initiative demonstrate a willingness to reexamine long-standing rules that have outlived their utility. The OBO/NOBO framework, which has not been substantively updated since its adoption in 1986, is a natural candidate for inclusion in this reform effort. Eliminating the OBO classification would remove a structural impediment that disproportionately affects the exact category of companies that the Chairman’s reform agenda is designed to support.

Policy considerations

A. Eliminate OBO Classification

The most straightforward and effective reform is the elimination of the OBO classification entirely, so that issuers may communicate with all their beneficial owners directly. This would not require novel regulatory architecture or a massive overhaul of the voting mechanisms already in place. It would simply extend to all beneficial owners the same level of transparency that already applies to registered shareholders and NOBO holders. Elimination of the OBO classification is positioned as a common-sense solution to an outdated regulation that no longer serves its original purpose. The privacy interest that the OBO option was designed to protect was, according to the SEC’s historical analysis, a concern for a relatively small fraction of investors. The Commission’s original studies found that only 8-12% of street-name holders raised an objection to disclosure, yet OBOs now represent a far larger share of shareholder bases—a development that is likely due to confusing election procedures and default settings applied by intermediaries rather than genuine investor preference for anonymity⁹.

This reform can be accomplished through SEC rulemaking. The Commission has the authority to amend Rules 14a-13, 14b-1, and 14c-7 to eliminate the OBO election and require that all beneficial owner information be made available to issuers on the same terms currently governing NOBO lists. The Commission is actively soliciting public comments on the reform of Regulation S-K and other disclosure requirements and has demonstrated a willingness to revisit long-standing rules that impose costs disproportionate to their benefits. The OBO/NOBO framework, which has not been substantively updated in decades, is precisely the kind of regulation that the Chairman’s reform agenda is designed to address.

Eliminating the OBO classification would do more than reduce costs. It would meaningfully strengthen shareholder democracy. Requiring all shareholders to be transparent to issuers levels the playing field and enhances the quality of corporate governance by ensuring that companies can engage directly with their investors and investors can trust that the companies they are invested in will be able to reach them to discuss matters of significant importance to the business. When companies can communicate with all shareholders, the quality and efficiency of corporate elections improve. Retail investors, who currently vote at far lower rates than institutional investors, are more likely to participate when they receive direct, timely communication from the companies they own. Higher participation rates produce more representative voting outcomes and reduce the risk that corporate actions are decided by a non-representative subset of the shareholder base.

Conclusion

The OBO/NOBO shareholder communication framework is a forty-year-old regulatory artifact that was designed for a fundamentally different market. When these rules took effect in 1986, the top ten brokerage firms had 11.5 million accounts. Today, that number is 160 million. The number of individual shareholder-to-company positions has grown from an estimated 69 million to approximately 960 million. The economic assumptions that supported the original framework have been overtaken by the extraordinary expansion of share ownership in the United States.

The costs and inefficiencies imposed by the OBO classification are real, measurable, and disproportionately borne by the small and mid-sized companies that have more retail-heavy shareholder bases that are dispersed and difficult to engage in the current landscape. The framework that fragments corporate governance, distorts voting outcomes, impairs management’s ability to engage with its own investors, and contributes to the perception that being a public company in the U.S. is more burdensome than it needs to be and perhaps not worth it, depending on size and revenue.

Eliminating the OBO classification is a common-sense reform that would level the playing field between companies and their shareholders, reduce the cost of maintaining a public listing, improve the quality and efficiency of shareholder democracy, and align the U.S.’s rules with the broader trend toward ownership transparency. It would directly advance Chairman Atkins’ stated goal of reducing the cost of public listings and the fixed costs associated with maintaining a public company—particularly, those costs associated with outdated rules and regulations that ought to be revisited.

Alliance Advisors manages over 900 shareholder meetings for corporations and mutual funds annually and sees firsthand the costs and disruptions that the OBO classification imposes on issuers of all sizes. We believe that reform is long overdue and that the current regulatory environment presents a historic opportunity to modernize the shareholder communication framework for the benefit of companies, investors, and U.S. capital markets as a whole.

Appendix A:

Appendix B:

OBO vs NOBO Distribution – Mutual Funds Sample

The idea that shareholder engagement should extend beyond the annual meeting window is not new. For decades, leading companies have understood that meaningful investor relationships require more than a compressed spring sprint.

What is new is the speed, sophistication and stakes of that engagement. Activists are better resourced, better organised and better informed than ever before. Index giants have built institutional stewardship operations that dwarf most investor relations (IR) departments. Artificial intelligence (AI) is arming both sides of the table with capabilities that barely existed three years ago.

The question for corporate leadership is no longer whether to engage year-round, it is whether their engagement infrastructure is truly built for what modern activism demands.

The changing shape of proxy season

The traditional proxy season has not disappeared, but it has been hollowed out as a primary battleground. Shareholder proposals are falling sharply, and the percentage reaching an actual vote continues to decline.

In 2025, ExxonMobil received zero shareholder submissions for the first time in 25 years. Apple and John Deere recorded similar drops. On the surface, this might suggest shareholder pressure is easing. The reality is precisely the opposite.

What these numbers reflect is a migration of shareholder influence away from the annual meeting and into the 11 months surrounding it. Institutional investors increasingly prefer to address sensitive or complex governance matters outside the compressed proxy window, through direct bilateral engagement, quiet pressure campaigns and behind the scenes negotiations that never produce a public vote but can result in board changes, strategic pivots or chief executive departures.

The proxy season vote has become, in many cases, the last resort reserved for companies that failed to engage meaningfully before the window opened.

Why the pressure is intensifying

Understanding why year-round engagement has become an activism-preparedness imperative requires looking at both the structural forces pushing companies toward continuous dialogue and the strategic incentives pulling them there.

On the push side, the dominance of institutional capital has made the old model untenable. Asset managers alone now hold approximately 65 percent of listed US equities. These are not passive observers. They employ dedicated stewardship teams, publish detailed voting policies and conduct year-round monitoring of their portfolio companies.

BlackRock Investment Stewardship alone conducted over 2500 engagements with boards and management teams through the 2024-25 proxy year. For companies that assume index investors will simply vote with management because they cannot sell, the recent record tells a different story and activists know it. Convincing a major index fund that incumbent management is underperforming its mandate has become a core tactic of modern campaigns. Regulatory evolution has compounded the pressure. Dodd-Frank’s say on pay provisions established the precedent that shareholders now have a legitimate, institutionalised voice in compensation decisions.

More recently, as the Securities and Exchange Commission (SEC) has moved away from issuing no-action letters on shareholder proposals, the dynamic has shifted toward direct negotiation before the proxy season begins. Companies that are not at the table year-round risk finding themselves at a disadvantage when activists are already deep into conversations with their largest holders.

Activism itself has grown in scale and ambition. There were 297 shareholder activism campaigns globally and 173 in North America in 2025 alone. Modern campaigns rarely arrive as a surprise – they are the product of months of research, holder canvassing and narrative-building.

Companies that use data driven real time stock surveillance tools, detect activist accumulation early and engage proactively, consistently achieve better outcomes than those that mobilise only once a Schedule 13D filing or a public letter forces their hand. Year-round engagement is not just relationship management, it is threat intelligence.

On the pull side, executives themselves have become more comfortable as public advocates for their companies’ strategies. The model of the reticent executive managing a firewall between the boardroom and the investor base is giving way to leaders who understand that authentic, consistent investor engagement builds a credibility reserve that pays dividends precisely when an activist attack arrives. With 58 percent of chief executives now viewing external engagement as a core function of their role, this shift is structural, not anecdotal.

Data-driven surveillance platforms can surface ownership changes before they appear in public filings. Secure messaging and digital engagement portals have made bilateral outreach scalable in ways it was not a decade ago.

“Measuring the right outcomes matters as much as executing the right activities. The temptation to track meeting volume or email open rates as proxies for engagement quality is understandable but misleading.”

The AI factor: accelerant and equaliser

No technology is transforming shareholder engagement faster or more consequentially than AI. Among institutional investors, 53 percent say AI is actively influencing their decision making.

The implication is stark: companies that are not deploying AI in their engagement operations are operating at an informational disadvantage relative to both sophisticated activists and the institutional holders those activists are attempting to mobilise.

Applications are numerous and compounding. On the intelligence side, AI enables real time sentiment analysis across investor communications and digital channels, identifying emerging concerns well before they crystallise into proposals or campaign announcements.

On the communication side, activists are using the same tools to analyse proxy disclosures at scale, assess pay for performance alignment and evaluate board responsiveness. The companies best positioned to defend themselves are those that treat AI not as a future consideration but as a current operational requirement, embedding it into their year-round engagement infrastructure now.

Opportunity in constant engagement

For companies that have built genuine year-round engagement capability, the strategic advantages extend well beyond defence.

Proactive engagement closes the information gaps that produce analyst surprises and valuation volatility. It creates the conditions under which complex strategic initiatives such as M&A, capital allocation shifts and portfolio restructuring can be framed and socialised before they require shareholder approval.

Companies like PepsiCo and Bank of America have placed continuous engagement at the centre of their corporate strategies precisely because they have experienced its value not just as risk mitigation, but as a driver of institutional loyalty and strategic execution.

Nestlé’s years-long engagement with ShareAction produced improved nutritional reporting and positioned the company ahead of a regulatory and consumer trend toward health transparency. These are not proxy season outcomes. They are the results of engagement strategies built to operate across the full calendar.

The potential further erosion of quarterly reporting requirements and the SEC’s signalled movement toward biannual earnings disclosure would make thematic, year-round communication even more important. Companies that have built the infrastructure for continuous dialogue will be far better positioned to manage the information environment in a world where structured reporting windows grow less frequent.

Building an activism-ready engagement operation

Translating the year-round engagement mandate into operational reality is where many companies still struggle. Expanding from a one-month sprint to a 12-month programme is not simply a matter of scheduling more meetings. It requires a rebuilt engagement architecture.

The foundation is shareholder intelligence – continuous, not periodic. Companies need real-time visibility into ownership changes, activist accumulation signals and shifts in institutional sentiment. Stock surveillance tools capable of surfacing this intelligence before it becomes public are no longer a competitive advantage, they are a baseline requirement for activism preparedness. Without this foundation, all other engagement activity is reactive by definition.

On the engagement itself, companies use their proxy solicitor and IR firm to build a structured annual calendar that maps every material communication event – earnings, investor days, environmental, social and governance updates, governance disclosures and strategic milestones – assigning intentional engagement objectives to each. Flexibility is essential, as activist developments or market events will require rapid pivots, but the underlying structure ensures that no six-week stretch passes without meaningful touchpoints across key holder segments.

Engagement must also be calibrated to audience. Institutional investors with active governance mandates require substantive bilateral dialogue on strategy, capital allocation and board composition, not press releases. Retail holders, an increasingly important constituency as platforms democratise market participation and the global retail market projects toward $107 trillion by 2030, require mobile-friendly communication that makes complex corporate narrative legible. Activists, whether engaged or latent, require a company that has already told its story convincingly to the holders an activist would need to persuade.

Measuring the right outcomes matters as much as executing the right activities. The temptation to track meeting volume or email open rates as proxies for engagement quality is understandable but misleading. The metrics that matter are whether voting outcomes are improving, whether activist campaigns are being deterred or neutralised earlier, and whether institutional holders are demonstrating increased confidence through their voting and continued ownership. Year-round engagement that cannot demonstrate these outcomes is, at best, expensive relationship maintenance.

Looking ahead: engagement as competitive advantage

The evolution of year-round engagement is not approaching a steady state. Several developments will continue reshaping the landscape and the demands it places on companies.

The rise of micro-engagements such as informal surveys, fireside chats and targeted digital outreach are making shareholder communication both more frequent and more granular. Companies like Microsoft are integrating investor sentiment feedback into ongoing IR processes rather than waiting for formal meeting cycles. This approach generates earlier warning signals and builds the kind of holder familiarity that makes activist narratives harder to land.

Retail investor influence will continue growing. Platforms like Robinhood have already demonstrated that retail holders can be mobilised both for and against management. As younger, digitally native investors increase their market participation, companies that have built infrastructure for accessible, ongoing retail communication will hold a meaningful advantage over those still relying on the annual report as their primary retail touchpoint.

And technology will continue to advance the possible. Digital proxy voting platforms, AI-powered surveillance tools and real-time disclosure analytics will further compress the window between an activist’s first move and a company’s ability to detect and respond to it. Companies that are continuously building and refining these capabilities will not merely be better prepared for activism, they will be operating in a fundamentally different competitive posture than those still treating engagement as a seasonal exercise.

The proxy season will remain a critical inflection point. But for companies serious about protecting their ability to execute strategy on their own terms, winning the annual meeting begins with the work done in the 11 months before it.

Financier Worldwide discusses pay transparency and pay equity with Etelvina Martinez, Michael Vogele, Reid Pearson and Peter Casey at Alliance Advisors.

FW: Why has pay transparency become such a central issue in the modern workplace?

Martinez: Pay transparency has moved to the centre of the modern workplace because it sits at the intersection of talent, culture and regulation. Employees now expect clarity on how pay decisions are made, not just what they earn, and they use external benchmarks and social platforms to compare outcomes in real time. At the same time, regulators and investors increasingly view pay equity as a core governance and environmental, social and governance issue – linking fair, explainable compensation to long-term value creation. For boards and leadership teams, opaque pay practices now translate directly into trust deficits, higher attrition and reputational risk. Transparent frameworks help organisations show that pay reflects role, contribution and market data, rather than subjective or biased judgments, which is critical for attracting and retaining diverse, high performing talent.

Pay transparency has moved to the centre of the modern workplace because it sits at the intersection of talent, culture and regulation.

Etelvina Martinez

FW: What new disclosure obligations will most significantly change how organisations manage pay?

Vogele: The most significant shift is the move from aggregate narrative disclosure to granular, data-driven reporting on pay and representation. Jurisdictions are increasingly mandating publication of gender and ethnicity pay gaps, band-level or job-level statistics, and, in some cases, individual-level pay ranges in job postings. These obligations force organisations to link job architecture, performance management and pay decisions in a coherent way that regulators, employees and investors can all interrogate. For global employers, the challenge is harmonising different local rules into a consistent policy framework while still meeting country-specific requirements around metrics, frequency and format. The practical impact is that organisations must treat pay data and governance controls with the same rigour they apply to financial reporting, including clear ownership, robust data quality and board level oversight.

The challenge is harmonising different local rules into a consistent policy framework while still meeting country-specific requirements.

Michael Vogele

FW: What are the biggest litigation and compliance risks emerging from pay transparency?

Pearson: The biggest emerging risks stem from misaligned narratives, inconsistent data and inadequate documentation. If public disclosures, recruitment materials and internal messaging promise pay equity but underlying datasets reveal unexplained gaps, organisations face heightened exposure to discrimination claims and class actions. Incomplete job architecture and manual, discretionary pay decisions create particular vulnerability, as regulators and courts increasingly ask for evidence of systematic, bias resistant processes. Cross-border employers also face compliance risk when they apply a single global pay policy, but fail to respect local transparency and reporting rules. Finally, poor data governance, including inaccurate or fragmented human resources (HR) and payroll systems, can lead to erroneous disclosures, triggering regulatory scrutiny, investor concern and reputational damage that extends beyond compensation into broader assessments of governance quality.

The biggest emerging risks stem from misaligned narratives, inconsistent data and inadequate documentation.

Reid Pearson

FW: How should organisations prepare for increased scrutiny, including audits, employee challenges and data requests?

Casey: Preparation starts with treating pay transparency as a governance programme, not a communications exercise. Organisations should map their end to end pay decision process – from job evaluation and market benchmarking to performance calibration and promotion – and document each stage in a way that can be shared with regulators or challenged by employees. A risk based internal audit of pay practices, including statistical analysis of gaps and outliers, helps identify issues before external stakeholders do. HR, legal and investor relations need a coordinated response plan for employee queries, regulatory reviews and shareholder questions, grounded in consistent data and messaging. Training frontline managers is essential. They will often be the first to face employee challenges and must be able to explain pay frameworks confidently, backed by clear talking points and escalation paths.

Preparation starts with treating pay transparency as a governance programme, not a communications exercise.

Peter Casey

FW: How can organisations build defensible pay frameworks that stand up to regulatory and legal scrutiny?

Martinez: A defensible pay framework combines robust design, reliable data and disciplined execution. Organisations should start with a clear job architecture that groups roles by impact, skills and market value, then anchor pay ranges to credible external benchmarks and an agreed compensation philosophy. From there, they need structured processes for starting pay, promotions and variable compensation, with defined criteria and approval thresholds that limit undue discretion. Regular analytics – for example regression-based pay equity studies or cohort analyses by gender, ethnicity and location – help identify and correct unexplained gaps. Finally, documentation matters. Policies, governance minutes and rationale for exceptions all contribute to a record that regulators, courts and investors can review and understand, demonstrating that decisions were made systematically rather than arbitrarily.

FW: How is greater pay transparency changing the relationship between employers and employees?

Vogele: Greater pay transparency is reshaping the employer-employee relationship from one based on implicit trust to one grounded in explicit, data backed fairness. Employees now expect to understand how their pay compares to peers, what drives progression through ranges and how performance translates into reward. This pushes organisations to articulate their compensation philosophy in plain language and to engage in more sophisticated, two way conversations about value, contribution and development. Transparency can strengthen relationships when it reveals coherent, equitable structures. It can also surface tensions where legacy practices have created inconsistencies. Over time, organisations that embrace openness are likely to see higher engagement and retention, while those that resist may face ongoing scepticism, escalations and challenges to leadership credibility.

FW: What does ‘good’ pay transparency look like in practice in a mature organisation?

Pearson: In a mature organisation, good pay transparency is embedded rather than episodic. Employees have access to clear pay ranges for roles, understand how their position within the range reflects experience and performance, and can see realistic pathways for progression. Managers are equipped with tools and training to discuss compensation confidently, supported by dashboards that show team level pay equity metrics and trends. Externally, the organisation publishes concise, investor-friendly disclosures on pay gaps and governance, linking actions to measurable outcomes over time. Crucially, transparency is integrated with broader inclusion and talent strategies – for example targeted development and succession planning for underrepresented groups, so that pay becomes one visible component of a holistic approach to fairness and opportunity.

Shareholder activism is a market-driven governance mechanism that pressures companies to close the gap between potential and performance. Over the past decade, the relationship between shareholders and companies has evolved from an episodic exercise into a year-round strategic discipline, with artificial intelligence acting as a significant accelerant. As its influence continues to grow rather than
decline, shareholder activism is becoming increasingly ubiquitous, multidimensional and integrated into mainstream corporate governance.

FW: Could you outline the fundamental purpose of shareholder activism in today’s corporate governance ecosystem?

Glover: The goal of most activists is to achieve positive investment returns for themselves and their investors. They launch campaigns because they hope they can trigger changes that will lift the target company’s share price, or because they want the company to pay a large dividend or engage in M&A transactions that they expect will generate value. Many market observers argue that activist self-interest serves a broader, beneficial purpose. In their view, activists’ pursuit of returns helps improve governance, forces boards to confront flawed strategies and ensures that strategic plans are reevaluated rather than left to run on autopilot. These advocates reason that activists impose discipline in a way that a passive shareholder base cannot. Other market observers take a different view. They argue that activism’s focus on short-term returns is often value destructive. In their view, activists sometimes force boards and management teams to adopt measures that prevent the implementation of strategies that would generate more favourable long-term returns.

Marese: In theory, shareholder activism attempts to serve as a market-driven disciplinary mechanism that aligns corporate management with investor interests, maximises firm value and enforces rigorous organisational accountability. It directly attempts to address the classic principal-agent conflict by empowering shareholders to challenge executive and board of director passivity, strategic stagnation or management entrenchment. Shareholder activism’s key objectives attempt to drive this intervention within the corporate governance structure of a particular publicly trading entity. Activists, for example, may demand operational efficiencies, capital structure adjustments, spin-offs or strategic mergers. Investors may push for enhanced board independence through a refresh of those seated as directors, executive compensation limits and minority voting rights. Campaigns may also focus on environmental, social, and governance (ESG) standards to mitigate regulatory and reputational liabilities. Ultimately, shareholder activism bridges the information asymmetry between corporate insiders and external market participants – ensuring public companies remain transparent, fiscally disciplined and strategically agile for long-term stakeholder benefit.

Tetelbaum: The existence of activism in a market is a testament that the economy has robust capital markets, and that substantial value exists in public companies. Activist suggestions to unlock value tend to concentrate around various forms of financial engineering, such as share repurchases, sum of the parts arguments to break up the company, or trying to get the company put in play. Operational improvements take time, and activists do not tend to have the investment horizons and patience to see them through. A company is served best in being open-minded to suggestions from activists, while staying focused on the purpose and values of the company to the benefit of its value investors.

Lu: Shareholder activism is fundamentally an extension of value investing. Activist investors seek to generate returns, often over a relatively short-term horizon, and their objectives may not always align with the creation of long-term shareholder value. While activists often portray themselves as a necessary source of corporate discipline, research suggests that activist campaigns tend to have a negligible impact on long-term shareholder value. Public companies already face relentless pressure from shareholders and the markets to deliver results. In many campaigns, the ideas advanced by activists are not entirely new and the debate is often less about what should be done than how quickly and how aggressively management should pursue initiatives already under consideration. Activism’s key contribution to corporate governance is that it helps underscore the importance of distinguishing between strategies that generate durable long-term value and those that merely boost short-term returns, and often at a cost to the long-term health of the business.

Herka: Shareholder activism is a central governance tool that pressures companies to close the gap between potential and performance. Activists use ownership rights voting, engagement, proposals and campaigns to question strategy, capital allocation and board effectiveness, often surfacing issues long before they show up in the stock price. From an issuer standpoint, activism is both a risk and an opportunity. Poorly managed, it can distract and destabilise. Managed well, it can catalyse necessary change and sharpen the company’s equity story. Boards should view activism as a signal from the market that something is wrong either from a corporate governance or a performance standpoint.

FW: In your opinion, how has the relationship between companies and shareholders evolved over the past decade?

Marese: Over the last decade, the relationship between companies and shareholders has fundamentally evolved from passive ownership to proactive co-governance. Historically, retail and institutional investors primarily expressed dissatisfaction by selling their shares – a practice known as the ‘Wall Street walk’ or in the context of a proxy vote, ‘vote with their feet’. Today, several major macroeconomic shifts drive this evolution. For example, mega-managers like BlackRock, Vanguard and State Street cannot easily divest. In essence, they have become permanent money within these corporations. The result leads to forcing them to engage directly with boards through their internal stewardship teams. Also, regulatory updates have lowered the structural and financial barriers for shareholders to vote for individual independent directors at contested annual meetings for the election of board directors. Another shift has seen social platforms and environmental mandates give decentralised retail investors and ESG advocates the leverage to run highly public campaigns. Consequently, best practice among modern corporate boards no longer treats shareholder communication as an annual formality.

A company is served best in being open-minded to suggestions from activists, while staying focused on the purpose and values of the company to the benefit of its value investors.

Elina Tetelbaum – Watchell, Lipton, Rosen & Katz

Tetelbaum: The shareholder-company relationship has transformed dramatically over the past decade in a highly positive manner. Companies regularly hold on- and off-season shareholder meetings. Investor relations teams have become remarkably sophisticated, leading to a feedback loop between boards and investors that has become genuinely bilateral. Shareholders raise concerns, companies listen and adapt, and that dialogue has made governance stronger. Investors are top of mind in virtually every boardroom decision, from capital allocation to executive compensation to M&A. Still, this evolution has not and cannot change a fundamental principle of corporate law: the board remains the steward and fiduciary of the enterprise. Directors typically possess information about strategy, operations and competitive dynamics that even the most engaged shareholder does not. It is still paramount for companies to not permit shareholder preferences to substitute for board judgment. The board’s obligation is to listen carefully, but ultimately to exercise its own informed, independent discretion in the long-term interest of the company.

Lu: The biggest change is that shareholder engagement has evolved from an episodic exercise into a year-round strategic discipline. Ten years ago, many companies engaged investors primarily in response to a specific issue. Today, boards and management teams increasingly recognise that strong shareholder relationships are built through year-round dialogue. Companies have learned that maintaining a regular cadence of engagement with key investors helps them identify and address emerging concerns before those concerns become the foundation for an activist campaign. At the same time, institutional investors have become increasingly sophisticated in their assessment of companies, focusing not only on financial performance, but also on strategy, execution, risk oversight, capital allocation and governance. The result is a far more dynamic engagement landscape. Many well-advised companies are no longer simply communicating results – they are building trust and credibility with key shareholders long before a crisis or activist situation emerges.

Herka: Working with issuers of all market capitalisations, we have seen relationships with shareholders shift from seasonal, proxy driven contact to continuous year-round strategic dialogue. Stewardship teams at major institutions now expect regular engagement on strategy, governance and sustainability, not just a once a year meeting around the proxy statement. Activism has accelerated this trend. Boards that experience or observe campaigns often invest in more proactive outreach, perception studies and governance roadshows to reduce surprises later. It is important to treat engagement as part of the yearly governance operating rhythm with clear ownership, investor intelligence and tailored messaging so that when activists appear, companies are not starting from scratch with building relationships with key shareholders.

Glover: Companies have become much more focused on shareholder engagement in recent years, and activists can take at least part of the credit for that shift. Activists have become an omnipresent feature of the corporate landscape, and virtually no company enjoys immunity from activist threats. As a result, most companies have become more disciplined about engaging in a continuing dialogue with their owners. This dialogue better enables companies to determine the extent to which shareholders support corporate strategy and use that information to make adjustments before an activist arrives. Engagement also puts them in a much stronger position to respond if and when an activist appears. If the company has been talking to its shareholders, it can determine much more quickly whether the activist’s arguments are likely to gain traction and will be in a better position to make counterarguments that resonate with shareholders. For these reasons, engagement has moved from being a courtesy to a core strategic function.

FW: How significant is the influence of large institutional investors in determining outcomes in modern activist campaigns?

Tetelbaum: There is a perception of enormous influence, but the reality is subtler. Most activist situations result in settlement. Only a fraction ever reach the point where the large institutional investors cast their votes. More than power and influence, what drives any campaign is uncertainty. A majority of the shareholder vote is decided at the eleventh hour. Few boards can tolerate months of uncertainty while trying to execute on a strategy and retain management. It is that uncertainty, and not necessarily influence, which drives settlements. Index funds remain the last great bulwark against short-termism, as they take a longer-term view in their voting and frequently support management’s strategic vision. Unfortunately, the perception of outsized index-fund influence stands to diminish the voice of index funds. If that stabilising counterweight were weakened, boards would lose a key piece of the shareholder base that enables them to pursue value creation over quarters and years rather than weeks and months.

Successfully engaging activist investors and defending long-term strategy requires boards to recognise that their critical audience is not necessarily the activist, but the shareholder base writ large.

Carmen Lu – Paul, Weiss, Rifkind, Wharton & Garrison LLP

Lu: The largest institutional investors often play a critical role in determining the outcome of modern activist campaigns. At many public companies, the combined ownership of the ‘Big Three’ index fund managers alone represents approximately 15 to 20 percent of the vote – giving them influence comparable to that of proxy advisers. While proxy advisers have historically sided with activists in roughly half of contested situations, the largest index funds tend to evaluate campaigns through the lens of patient capital, focusing on sustainable value creation. They are generally less focused on short-term catalysts and more focused on whether management has articulated a credible long-term strategy, demonstrated strong governance and established a track record of execution. As a result, a company winning the support of large passive investors can significantly narrow an activist’s path to victory. A supportive passive voting bloc can effectively neutralise the influence of proxy advisers or even tip the outcome. This dynamic could become more pronounced as customised voting policies proliferate and voting decisions become increasingly investor-specific.

Glover: Institutional investors play a critical role in almost every activist campaign. Because index and active funds often hold large blocks of shares, their support can tip the balance in a contested situation either way. Historically, many large institutional investors were not especially receptive to activists’ arguments, and would often default to support for incumbent management. That has changed. There are now numerous examples of large institutions siding with an activist when the activist’s arguments make good economic sense. Activists increasingly design their arguments specifically to appeal to a company’s institutional holders and the proxy advisers who guide them. The company, for its part, must continuously monitor what its large institutional investors think. If a challenge is launched and the company believes that the activist positions will resonate with the institutions, the company should move aggressively to explain why it thinks the activist is wrong, or consider making adjustments and concessions.

Herka: In most situations, large institutional investors are the decisive audience in an activist campaign. Their voting influence can either validate an activist’s thesis or reinforce support for the incumbent board. Investors’ priorities and historical voting patterns need to be understood, with engagement shaped and disclosed accordingly. Successful defence or constructive settlement almost always involves winning the confidence of key institutions by demonstrating credible long term strategy, responsive governance changes and a disciplined capital framework. Activists know this too, which is why their materials increasingly mirror the language and focus areas of leading stewardship teams.

Marese: The influence of large institutional investors is absolutely decisive in determining the success or failure of modern activist campaigns. Because activist hedge funds typically hold only 1-3 percent of a target company’s stock, they lack the sheer voting power to force changes unilaterally. Institutional investors shape modern activist outcomes through several key dynamics. First, passive giants like BlackRock, Vanguard and State Street Global Advisors collectively can control a significant number of shares at many publicly trading companies. In many cases, their ownership can be roughly 20 to 25 percent of the shares outstanding. An activist hedge fund, in most instances, cannot win a proxy fight unless it convinces these long-term asset managers that its strategic plan has the potential to generate sustainable, long-term value rather than a short-term cash payout, which is a self-serving outcome for the activist. Second, because corporate boards track institutional sentiment closely, a clear signal that major asset managers favour an activist’s ideas will usually force corporate management to settle privately. Higher levels of institutional passive ownership are statistically tied to an increased likelihood that activists will secure board representation or successfully push for corporate sales via private settlement.

FW: How should boards strike the right balance between engaging activist investors and defending long-term strategy, particularly in the context of first-time activists and increasingly fragmented investor coalitions?

Herka: Our core message to boards is simple: prepare early, engage seriously and defend strategy with data. When activists, including first time entrants, approach, boards should assume the campaign will be scrutinised by sophisticated institutions and proxy advisers. The first step is an honest internal assessment of performance and vulnerabilities, followed by structured dialogue that separates legitimate concerns from purely opportunistic demands. We help clients build playbooks that outline when to listen, where to compromise and how to explain decisions to the broader shareholder base. The goal is to refine the long term plan where warranted, while resisting pressure that would undermine resilience or push the company into unsustainable financial engineering.

Marese: To balance activist engagement and long-term strategy, boards must shift from a reactive defence to proactive, data-driven relationship management among its various ownership constituencies. To that end, boards should track individual stewardship guidelines within fragmented investor bases and avoid treating institutional holders as a monolith. The impact of proxy advisory services, such as Institutional Shareholder Services and Glass Lewis, upon voting outcomes must be understood. Boards need to maintain independent director dialogue with core long-term shareholders outside proxy season to secure their trust early. Also worth developing is a retail-focused investor relations programme, where such ownership is a key voting bloc. Objective, outsider-style audits can be conducted to pressure-test operational performance and identify valid criticisms before activists do, while activists can be screened to separate high-value strategic insights from short-term noise. Boards are also well-advised to defend the long-term plan with transparent, measurable milestones that prove its superior value over immediate breakups or other financial engineering.

Glover: The right answer varies case by case. The target company’s board must assess the activist itself. Who is it and what is its playbook? How aggressive will it be? Is it willing to engage in proxy contests or does it tend to work constructively with management? The board must also assess the arguments that the activist is making and whether they will appeal to the company’s shareholders. A board may need to consider departing from its long-term strategy when it knows that an activist is likely to apply significant pressure and is making a case that shareholders may find persuasive. Ultimately, the board’s duty is to make decisions that the directors reasonably believe are in the best interests of the company and its shareholders. If the activist makes a compelling argument that adjusting company strategy will better serve shareholders, the board should give that argument serious consideration rather than defend the status quo reflexively. Even if the merits of the activist’s position are debatable, the board must take into account the corrosive impact of an extended battle with the activist and determine whether it is better to bear that impact or make concessions.

Lu: Successfully engaging activist investors and defending long-term strategy requires boards to recognise that their critical audience is not necessarily the activist, but the shareholder base writ large. While some activists may be open to persuasion, others may have firmly established views shaped by a mandate to deliver short-term returns. Accordingly, successful engagement can be less about changing an activist’s mind than ensuring the activist understands that the broader investor base remains confident in the board’s strategy. If shareholders remain confident in the board’s and management’s vision for long-term value creation, a campaign or proxy contest becomes far less likely to succeed. This approach is particularly important when dealing with first-time activists, as they often lack the track record, credibility and investor relationships that established activists have built over time. Boards that effectively communicate with their broader shareholder base can often make it difficult for a first-time activist to gain the support necessary to build momentum behind a campaign.

Tetelbaum: Understanding how an activist views a company is a valuable exercise for boards – the so-called ‘be your own activist’ advice. But that should not result in boards substituting their own judgment for measures designed primarily to pacify an activist. Board composition, capital allocation and broader strategy are all matters in which reasonable minds can and do differ. One of the greatest innovations of corporate law is the business judgment rule, and the willingness to defer to the judgment of a well-informed, unconflicted board on key strategic matters. A board must be prepared to defend its views if, after thoughtful evaluation, it concludes that an activist’s proposals would sacrifice long-term value for near-term returns. A board that invests in year-round shareholder engagement – long before an activist ever shows up – has an easier time convincing investors to trust the board’s judgment, even in the face of an underperforming track record.

FW: What explains the growing preference for private engagement and fast settlements over public proxy battles – and is that trend sustainable?

Marese: The shift toward private engagement and fast settlements is driven by several factors, chiefly universal proxy rules, soaring costs and corporate risk aversion. Under universal proxy regulations, board elections can be highly unpredictable. This uncertainty is pushing companies to settle early. Public battles can potentially cost millions and be deeply distracting to management. Consequently, most activist board seats are now won via swift, behind the scenes agreements – often in under three weeks – rather than prolonged proxy contest campaigns culminating in public shareholder votes. However, this trend faces sustainability challenges. Institutional investors increasingly push back against these ‘backroom deals’, arguing they sideline the broader shareholder base and lack adequate transparency. Furthermore, quick settlements often prioritise short-term peace over fixing deep operational flaws, sometimes resulting in repeat activism, multi-year campaigns.

Over the last decade, the relationship between companies and shareholders has fundamentally evolved from passive ownership to proactive co-governance.

Bob Marese – MacKenzie Partners, Inc.

Glover: From the company’s perspective, proxy battles are enormously expensive and deeply disruptive. They consume lots of time and attention and carry significant reputational risk. Moreover, outcomes are difficult to predict. Even when the board believes that an activist challenge is misguided, it must consider the risks and costs of engaging in a proxy battle. The activist faces a similarly difficult decision. It also must take into account the fact that it will incur large costs, and the risks that its reputation may be damaged and that its efforts may not be successful. Universal proxy rules have sharpened this calculation. They make it easier for an activist to secure an individual seat or two on a company board but harder to sweep a full slate. Faced with so much uncertainty, both sides often feel significant pressure to settle rather than gamble on a vote.

Lu: The simple answer is cost and efficiency. Most companies and activists would rather spend their time creating value than fighting a proxy contest. Proxy contests are expensive and distracting, and the outcome is often uncertain. Activists recognise that constructive engagement can achieve many of the same objectives as a public campaign, while boards have become increasingly willing to consider settlements when terms are reasonable and doing so serves shareholder interests. This trend is sustainable – but only up to a point. Proxy contests remain an essential resolution mechanism when there are fundamental and irreconcilable disagreements between the activist and the company. And the credible threat of a proxy contest is what gives private engagement its force. One consequence of this settlement-driven environment has been an increase in multi-year campaigns. Because settlements often reflect compromise, activists may return in subsequent years to pursue objectives they did not fully achieve. Activism today may be less public, but it can be more persistent.

Tetelbaum: Most well-advised companies today are conducting year-round vulnerability analyses with their financial and legal advisers – rigorously pressure-testing their strategy, capital allocation, portfolio and board composition. Because of this work, if an activist does surface, there is often less daylight between the company and the activist than the public narrative would suggest or may have been the case historically. The activist is frequently knocking on an open door, in that the company has already identified the same operational improvements or governance enhancements and is working through the timing and sequencing of execution. In those circumstances, a costly, distracting and protracted public proxy fight over ideas that are fundamentally in sync is value destructive for everyone and thus leads to private engagement and faster settlements. The best outcomes are the ones nobody reads about.

Herka: We see a strong preference for private engagement and negotiated resolutions, driven by pragmatism on both sides. Boards recognise that prolonged public contests consume management time, amplify uncertainty and can damage stakeholder relationships, while activists understand that quiet, credible settlements can deliver faster, more certain outcomes. Institutional investors often favour this path, provided they see genuine responsiveness and governance improvement. The role of proxy solicitors and legal advisers is to help clients use private channels to test ideas, adjust board composition, refine capital plans and improve disclosure without appearing defensive or secretive.

FW: To what extent is market volatility reshaping activist strategy? Does it create opportunity or force caution?

Herka: Across campaigns, we see volatility creating both openings and constraints. Dislocated valuations and stressed capital structures can make some companies prime targets, allowing activists to craft compelling ‘value gap’ narratives. Yet uncertain macro conditions also make investors more cautious about aggressive restructurings or highly leveraged strategies. Boards can use volatility to proactively revalidate their strategy, capital allocation and investor messaging. When activists appear, companies that can clearly distinguish structural underperformance from market-driven noise are better positioned to persuade institutions that their plan appropriately balances risk and opportunity.

Lu: Market volatility can be a double-edged sword for activists. While volatility can create more potential targets, it may also force greater selectivity and patience. Depressed or dislocated share prices can create attractive entry points because activists are fundamentally value investors. But for a company to become an attractive activist target, there must also be a clear and credible path to value creation. Volatile markets can make that path much harder to identify. Shifting macroeconomic conditions, fluctuating financing markets and changing investor sentiment can make it difficult for activists to determine which objectives will resonate with shareholders and be realistically achievable. Volatility can also blur accountability. When performance is affected by broader market forces, it becomes harder for activists to lay blame squarely at the feet of management and the board. That, in turn, can make it more difficult to build investor support for change and pressure companies to take decisive action.

Tetelbaum: Market volatility is the new normal – or perhaps, more accurately, the new abnormal. On the one hand, volatility makes it harder for activists to feel confident in the return profile of any given investment. But more often, volatility is opportunity under another name. Activists build positions when they deem a stock to be undervalued, and volatility makes an entry price even more compelling. Depending on when the economic entry point aligns with the proxy calendar, an activist may be a day from the nomination deadline or months, and campaign tactics differ based on timing realities. For companies, a low stock price is a moment of peak vulnerability, especially if that price is dislocated with respect to peer performance or dislocated from the fundamental value of the company.

Activists have become an omnipresent feature of the corporate landscape, and virtually no company enjoys immunity from activist threats.

Stephen I. Glover – Gibson, Dunn & Crutcher LLP

Glover: Volatility makes life more difficult for both targets and activists. On the company side, volatility makes it harder for a board to discern long-term trends and defend the strategic case with confidence. For example, if the stock price drops, should the board make major changes to reduce its vulnerability to an activist challenge? If the stock price goes up sharply after an activist challenge is launched, should the board interpret the increase as a sign that investors strongly support the challenge or as a product of other market forces? How does the board judge what is in the shareholders’ best interest when the near-term signal provided by the stock market is so noisy? Volatility also complicates the activist’s decisions. For example, if the activist establishes a position in a target when the stock price is low and the price then moves up, it faces a dilemma: should it continue to maintain its investment position or claim victory, sell and walk away? Volatility creates openings for both activists and companies, but it can also punish them if they misread a temporary move for a lasting one.

Marese: Market volatility heavily fuels activist strategy by primarily creating valuation discrepancies and strategic entry points into publicly traded stocks – though it can also concurrently force a measured, highly selective degree of caution regarding deal execution and prolonged proxy fights. In terms of opportunities, market dips expose mispriced small- and mid-cap companies, giving activists cheap entry points into these stocks. In addition, frustrated directors struggling with depressed stock prices can be more open to strategic alternatives or outright sales proposed by an activist. And increasingly, activists are leveraging volatility to push for corporate carve-outs, pure-play separations and asset sales rather than messy operational turnarounds. On the flip side, contested board seats have grown harder to win outright amid shifting voting landscapes. Instead of hostile proxy showdowns, funds favour quiet, year-round negotiations and early settlements to mitigate macro unpredictability.

FW: How do you see shareholder activism evolving over the next five years?

Lu: Artificial intelligence (AI) is likely to accelerate activist activity while lowering barriers to entry. AI is making it easier to analyse disclosures, identify vulnerabilities and develop sophisticated campaigns at a fraction of the historical cost. Consequently, we may see an increase in the number of smaller activist investors deploying AI to help launch campaigns at public companies. Of course, the reverse is also true: companies will be able to deploy AI to help develop more sophisticated assessments of their vulnerabilities and response strategies. Second, as proxy fights remain costly and disruptive, and as the growing adoption of customised voting policies increases uncertainty around the outcome of a contest, we will likely continue to see a preponderance of activist campaigns result in settlements or ongoing engagement that stretches beyond a single proxy season. In short, activist campaigns may become lower-octane but more persistent. Activists will also continue exporting their playbook internationally, pursuing opportunities in markets where governance and valuation gaps remain significant and the potential for value creation is compelling. As shareholder rights and governance standards continue to evolve globally, activists are likely to find an expanding universe of opportunities beyond the US.

Tetelbaum: I expect that over the next five years, activism will be the same story but with a somewhat different cast, as more activists put out their shingles and seek to run the activist playbook on public companies. For those that are not sufficiently well-resourced at the outset, I would expect to see the continued use of withhold campaigns for activists to apply pressure without ever fielding a slate. Ultimately, unless companies are able to persuade value-oriented investors that activist tactics are not aligned with long-term value creation, the activist universe will keep broadening. The distraction, disruption and expense of activism will continue unabated. Activism will remain a permanent feature of public markets requiring constant vigilance by boards and management teams.

Glover: The trajectory points to more of what is already emerging rather than a sharp break. Activism is more likely to grow than diminish. Large activist funds will continue to play a significant role, launching high-profile campaigns. But the proliferation of smaller activist funds and funds pursuing activist strategies for the first time will also continue. Settlements will remain the default route to resolution, given the cost and uncertainty of contested fights. Companies’ focus on shareholder engagement and activism preparedness will increase as companies seek to deepen their engagement with their owners. Activists will adjust their strategies over time, depending on market conditions. For example, when the M&A markets are hot they will be more likely to press for value generating M&A transactions. The specific economic sectors that activists target will also shift over time.

Marese: Over the next five years, I believe shareholder activism will become more sophisticated, global and technology-driven. Among the core drivers of this evolution will be an increasing number of activists launching campaigns against large-cap corporations, using advanced data analytics and screening tools to find vulnerabilities in companies previously considered too large to challenge. I also expect to see campaigns being tied directly to M&A in an attempt to force companies to break up, divest underperforming assets or seek premium buyers. The technology and financial services sectors, I believe, will see a surge in campaigns targeting capital allocation, operational efficiency and AI integration. All sectors will face some level of AI scrutiny from activists. At the same time, regulatory reforms and corporate governance mandates in markets such as Japan and South Korea will accelerate international growth, making activism a truly global phenomenon. Ultimately, companies must adopt an ‘always-on’ activist mindset, proactively addressing operational, financial and governance gaps before outside funds intervene.

Dislocated valuations and stressed capital structures can make some companies prime targets, allowing activists to craft compelling ‘value gap’ narratives.

Tyler Herka – Alliance Advisors

Herka: Activism will become more ubiquitous, multidimensional and integrated into mainstream governance. We expect a broader mix of players using AI to uncover vulnerabilities generating more campaigns to influence corporate direction. Themes will continue to expand beyond classic M&A and capital structure to encompass climate strategy, human capital, political exposure and digital risk. For boards, this means activism preparedness cannot be an occasional exercise; it needs to be embedded into investor engagement, board evaluations and succession planning. We are increasingly seeing a focus on building ‘activism resilient’ boards and narratives so that when campaigns surface, they are meeting an already engaged, well prepared governance structure rather than a reactive one.

Public companies also have baseline disclosure obligations that exist independent of proxy advisor scoring. Under SEC Regulation S-K Item 201(d), companies must report outstanding awards, shares available for future issuance, and whether each plan received shareholder approval.

Because shareholder support can make or break a vote, many companies work through meeting strategy well before the vote takes place. Guidance from the shareholder meeting advisory and solicitation compendium can help companies prepare for that process.

Our team at Alliance Advisors works directly with boards and management teams to build a shareholder communication strategy that supports a successful equity plan vote, particularly when institutional and retail shareholders need to be reached on tight timelines.

Bringing It All Together

An equity plan is far more than a compensation formality.

It’s a strategic tool that ties executive and employee performance to shareholder value. It also requires careful navigation of proxy advisor expectations and shareholder sentiment.

Companies that design their programs thoughtfully, and prepare early for the approval process, put themselves in a stronger position heading into their next annual meeting.

At Alliance Advisors, we’ve guided companies of all sizes through this process. From initial plan design through the shareholder vote itself, contact us to learn more about how we assist your business today.

Each group pursues change differently, but all rely on the same lever: voting power.

Common Tactics an Activist Shareholder Relies On

Activist shareholders don’t follow one single playbook. Depending on the goal, tactics may include:

• Shareholder proposals submitted for a vote at the annual meeting
• Proxy contests to nominate rival board candidates
• Public and media campaigns built to apply outside pressure
• Litigation threats used to force a response from leadership

These tactics escalate together. A private conversation can turn into a public fight within weeks, especially during M&A, activism, and special situations.

The Growing Impact of Activism

Shareholder activism isn’t slowing down. In fact, 2025 set a record for activist activity, with 255 campaigns launched globally, which surpassed the previous high of 249 set back in 2018.

Governance and ESG issues remain common targets. First-time activists continue to enter the space as shareholder activism becomes a year-round feature of the public markets rather than a proxy-season event.

How Companies Can Respond

Boards don’t have to wait for a full campaign to act. The strongest response starts before the first letter arrives.

A few steps that Alliance Advisors recommend prioritizing right now:

1. Stock Surveillance using Invictus Sentinel to monitor ownership shifts so changes in institutional and retail holdings don’t come as a surprise.
2. Build a clear governance narrative before an activist shareholder has the chance to write one for you.
3. Strengthen ongoing shareholder engagement so investors hear from the company directly, not just from activists.Companies that treat engagement as a year-round habit, rather than a proxy-season scramble, fare better once pressure hits.

Not sure how to build this habit for your company? Alliance Advisors can help.

We combine proprietary retail outreach, institutional relationships, and real-time ownership monitoring to help boards build a defense before an activist ever appears.