Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World

Chapter 12

Just Vote No and No and No Again

Another instance in which institutions and activists are beginning to work together involves corporate director elections. But unlike the abrasive proxy contests insurgents' launch, pitching activist candidates against incumbents, these elections involve only management-backed directors.

The activist strategy is to convince enough shareholders to support the removal of key problematic management-backed directors. Of course, shareholders aren't allowed to simply vote against a director candidate. After receiving a proxy voting ballot, either electronically or in the mail, shareholders typically have three options: to vote “for,” “abstain,” or “withhold” on management-nominated directors. Checking off the box that says “withhold” represents the equivalent of a “no” vote or a vote against either the proposal or the management-nominated director.

An activist's goal with this tactic, known as a “just vote no” campaign, is to convince the rest of the company's shareholder base to check off the “withhold” box next to a proposal or the incumbent director's name on the corporate ballot card.

Shareholders cannot typically remove a director with a “just vote no” campaign even if the majority of shareholders vote to “withhold” their votes for a director. But a huge showing of shareholders voting “withhold” can send a loud, often embarrassing, message to directors and executives, enough to make them either resign on their own or with the board's help. ...