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.

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.

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.

Environmental, social and governance (ESG). M&A. Short attacks. Every year, executive suites and boards are warned of the shareholder threats likely to dominate the next 12 months, and 2026 is no exception.

As another proxy season looms, ‘vote-no’ campaigns are the danger of the moment and have the potential to scupper corporate plans from New York to Tokyo.

Sometimes known as ‘withhold’ campaigns, vote-no campaigns are an alluringly simple way for disgruntled shareholders to make their presence felt. Asking investors to vote against the election of one or more directors – but without offering up alternatives – is a strategy far cheaper and faster than old-school proxy fights.

As so often, these strengths are reflected in the numbers, with Diligent Market Reporting finding there were 33 vote-no campaigns in the year to June 2025, up 10 from 2024.

The vote-no threat

Beyond the headline numbers, ‘withhold’ activism is rising across corporate boardrooms. That is clear enough among US firms just in the last few months. Notably, fast-food firm Jack in the Box’s board chair faced a campaign from an institutional investor.

Nor is the US unique here. In Japan, the chief executive at manufacturing firm Taiyo was challenged by a vote-no campaign, while ESG activists in London pulled the same trick with BP.

How, then, to explain these varied fights? The answer ultimately involves contrasting vote-no campaigns to traditional proxy fights. The latter, after all, imply a hostile takeover of a company, or at least an attempt to force a particular policy on unwilling executives.

Such fully fledged battles are unsurprisingly expensive, with activists spending an average of $1.8m during the 2025 season. They are time-consuming too, often encompassing a barrage of solicitation efforts, from private meetings to public letters, and to media rounds. Incidentally, Accenture has found proxy fights typically last a full year.

Compared to all that, vote-no campaigns are appealingly straightforward. As the name suggests, they are basically negative in outlook – not aiming to impose policies or board members, just expelling stalwarts or perceived underperformers from their posts. That immediately cuts costs, with activists not needing to identify and promote their own nominees, even as savings are obvious elsewhere too.

Consider here the time and cost of repeated press releases. Withhold campaigns can be instigated with a single public letter, explaining why a shareholder plans to vote against a particular director. Cheap in its minimalism, this approach also is not considered solicitation under Securities and Exchange Commission rules. Only by expressing an opinion, it does not campaign for alternatives, making it cost-effective from a regulatory perspective too.

All the while, the speed of vote-no campaigns can make them a boon for activists – and a threat for executives and boards. Putting aside the limited need to produce campaign materials, they can also be started even after advance-notice deadlines for proxy votes have passed.

And if that again hints at the basic flexibility of vote-no activism, so too do the intended outcomes. To be sure, many withhold campaigns are aimed at dislodging specific nominees for perceived mistakes. If shareholders are even contemplating voting against a board nominee, something has already gone seriously wrong.

At the same time, withhold campaigns are often less about particular personalities, and more simply a way of expressing shareholder discontent. In May 2025, for instance, an institutional investor with a 7 percent share in WEX launched a vote-no campaign against several company directors – less an indictment of them, and more because the payment services giant had refused to split its business segments and open up board seats.

And if that again speaks to the pleasing adaptability of vote-no activism – for activist investors anyway – so too does the fact that even defeat can spark change. That is arguably true at Harley-Davidson. The motorcycle firm’s directors may have won re-election to the board, yet its chief executive still retired soon after. Activists piled on similar pressure at WEX, with shareholder support for board nominees slumping by 30 points and the insurgents planning to propose their own candidates at the next AGM.

A serious challenge

All told, then, there are plenty of reasons for executives and board members to worry about vote-no activism.

More fundamentally, complacency over vote-no campaigns is deeply damaging for what it says about a firm’s investor engagement stance. If angry shareholders have reached the point where they are actively campaigning against incumbent board members – either to genuinely depose them or merely make some general point about a firm’s failings – executives have failed already.

That is especially true when savvy leaders have countless tools to keep shareholders onside: stock surveillance platforms that help them spot aggressive investors before they strike are the first line of defence. In addition, companies that conduct year-round shareholder engagement and audits of their governance framework stand a much better chance of heading off such campaigns.

“Combined with the reputational damage caused by vote-no campaigns – and the ease and low cost with which investors can now launch them – serious executives can no longer afford to ignore withhold activism.”

Particularly vulnerable companies should use their proxy solicitor, investor relations and legal team to develop an activist preparedness audit to identify ownership concentrations, voting vulnerabilities, governance gaps and messaging weaknesses early – so they can proactively engage shareholders, reinforce support and head off potential ‘vote-no’ campaigns before they gain traction.

Combined with the reputational damage caused by vote-no campaigns – and the ease and low cost with which investors can now launch them – serious executives can no longer afford to ignore withhold activism.

In this evolving landscape, the most forward-thinking boards treat proxy season not as an annual event but as a year-round discipline. Partnering with an experienced proxy solicitor early can be transformative.

Beyond execution during contests, a skilled firm brings deep expertise in vote modelling, shareholder intelligence and targeted outreach strategies that maximise support for management’s nominees and initiatives. By stress-testing vulnerabilities and crafting precise messaging well in advance, companies can bolster voting outcomes, strengthen board credibility and turn potential threats into opportunities for deeper investor alignment.

In the end, the boards that thrive are those that engage relentlessly – and leverage professional proxy expertise to ensure their message lands effectively when it matters most.

Artificial intelligence is beginning to reshape how institutional investors approach stewardship, particularly in the high-stakes areas of executive compensation and board elections. As asset managers look for ways to evaluate more ballot items with greater speed and precision, AI is emerging as a powerful tool for analyzing pay practices, governance structures, and voting patterns at scale. That shift has important implications for boards of public companies, especially as institutional shareholders apply increasing scrutiny to compensation committees and director oversight.

AI Gives Institutions the Ability to Conduct Proxy Analysis at Scale

One of the clearest effects of AI is the ability to scale proxy analysis far beyond what stewardship teams could historically do through manual review alone. AI tools can rapidly ingest proxy statements, compensation tables, peer pay data, governance disclosures, and prior voting outcomes, allowing investors to identify perceived outliers across large portfolios much faster than before. For issuers, that means compensation proposals and director slates are more likely to be screened against consistent criteria, with less room for weak disclosure, unclear rationale, or misalignment between pay and performance to escape attention.

AI is also likely to increase consistency in stewardship decision-making. Large institutional investors often manage voting across thousands of companies and multiple internal teams, and AI can help standardize how voting policies are applied from one issuer to the next. That can reduce uneven treatment, but it also raises the stakes for boards because issues that once may have been viewed as company-specific judgment calls can now be flagged more systematically, particularly where there are recurring concerns around compensation design, director responsiveness, or governance quality.

Deeper Scrutiny of Pay for Performance Alignment & Director Accountability

Another implication is deeper scrutiny of pay-for-performance alignment. Proxy advisers and institutional investors already assess whether executive compensation reflects long-term shareholder outcomes, and AI will likely make that assessment more sophisticated by connecting financial results, total shareholder return, incentive plan structure, disclosure quality, and prior voting history in a more integrated way.

The same logic extends to board elections. AI can help stewardship teams identify patterns involving director over boarding, committee accountability, poor responsiveness to shareholder concerns, or governance structures that appear out of step with investor expectations. In practice, that means voting decisions on directors may become more data-informed and more closely tied to a board’s handling of compensation, disclosure, and shareholder engagement over time.

Advance Preparation is Critical

This environment makes advance preparation more important, not less. Where AI-driven review is surfacing potential red flags earlier, boards and executives should work with their proxy solicitor well before the proxy is filed to conduct vote projections, pressure-test compensation proposals, identify likely institutional shareholder concerns, and refine disclosure around the committee’s rationale. Proxy solicitors can help management and directors map investor priorities, organize outreach, and assess whether the company’s pay narrative will withstand review by institutions that are now using Ai as a key input in their decision-making.

For companies, the takeaway is clear: as investor stewardship becomes more technology-enabled, successful outcomes will depend not only on the substance of compensation and governance decisions, but also on how effectively boards prepare, explain, and defend them to the institutional shareholders who ultimately decide the vote.

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

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

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

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

— Sean Donahue

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

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

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

— George Rubis

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

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

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

— Reid Pearson

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

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

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

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

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

— Michael Vogele

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

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

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

— Etelvina Martinez

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

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

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

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