Warner Music has fended off attempts by former employees to nominate themselves to its board of directors. It’s the most high-profile attempt to date to use new governance rules to wage a board battle as U.S. companies prepare for a similar wave of activist challenges next year.
Former WMG executive Dorothy Carvello launched a campaign to run for the board in early December, relying on SEC rule changes that went into effect earlier this year.
Carvello, who sued the company behind Lizzo and Bruno Mars separately, alleges a culture of sexual assault and harassment dating back to her days as a secretary and talent scout for the Atlantic record label in the 1980s.
However, Carvello did not meet the paper requirements of the company’s board nomination process, WMG told the Financial Times. According to her spokesperson, she planned to try again next year.
In September, the SEC made it easier for even small activist shareholders to scrutinize large investors. It also allowed investors to vote for any combination of board candidates, rather than choosing between a company-selected competitor and its adversary.
“The SEC has enacted legislation that allows minority shareholders to run for the board. I am a shareholder in Warner Music Group and I wanted to take advantage of that,” Carvello told the FT earlier this month.
WMG gave Carvello more time to correct an error in the notice appointing her to the board, but she did not meet certain requirements under the articles of association, a company spokesman said. She purchased her shares through Robinhood, an online brokerage, and was therefore not a registered shareholder of hers.
With WMG Vice Chairman Leonard Blavatnik in control, it was almost certain that Carvello would not be able to secure a seat on the board. Still, Elisabeth Gonzalez Sussman, a partner at Olshan Frome Wollowski’s activist investment practice, described her tactics as a “wise strategic move” and said that rather than pursue her claims through litigation, she would rather have her claims filed. It is likely that the cost of raising awareness of
WMG said it has “substantially enhanced” its policies and procedures in recent years, adding that it takes allegations of misconduct seriously and is “consistently working to eliminate all forms of discrimination and harassment.” .
SEC rule changes heralded ‘more aggressive agents’ [voting] It’s a campaign season with more participants and new rebels,” said Columbia Law School professor John Coffee.
“There will be many new smaller armed groups that cannot afford the costs of traditional proxy warfare, but [now] I was able to nominate one candidate,” he said. “So you see a lot of one-shot, single candidates. [nominee] Slates are often being pushed by utilities or those who are not established players in the space. ”
Shareholder activism slowed in the US early in the coronavirus pandemic and in 2021. But according to Lazard, 2022 will see him see the largest number of new campaigns since 2019.
With many companies opening windows to nominate new directors from now until spring 2023, expectations are high that SEC changes will drive more campaigns in the coming weeks.
Aimco, a $5 billion real estate investment firm, received enough votes last week to be one of two board nominees for activist investor Land & Buildings to replace the chairman of the company’s investment committee. said.
The new rules were also used in a campaign for small biotech company Aim ImmunoTech, but Aimco’s vote was the first time it played a role in overthrowing an incumbent board member.
These campaigns have caught the attention of law firms that advise big companies to defend themselves against activist attacks, and some companies have rewritten their charters to make it harder for activists to nominate directors. .
Carvello’s campaign also shows the looming fear of companies. The SEC’s new rule provides activists with a cheap way to attract the attention of large institutional investors, even if the campaign is likely to fail.
Strive Asset Management — a conservative investor who has criticized sustainable investing — claimed victory at ExxonMobil earlier this month when the oil giant announced two new board members.
Earlier this year, Strive asked the company to replace a director characterized as overly focused on climate change risks. ExxonMobil said it rejected the proposal, but Strive welcomed the board appointments as evidence of the company’s “shareholder impact.”
“[Companies] Melissa Sawyer, partner at law firm Sullivan & Cromwell, said:
SEC rule changes that allow activists to solicit shareholder votes by mailing postcards rather than masses of materials “has significantly reduced the cost of running activist campaigns,” she said. said. The activist said, “We still have something to mail, but from page 100 she’s two pages. When you have to mail 100,000 shareholders, the cost is actually a meaningful difference.” ”