CONFIDENTIAL OCTOBER 2019
LAZARD'S SHAREHOLDER ADVISORY GROUP Review of Shareholder Activism - Q3 2019
Lazard has prepared the information herein based upon publicly available information and for general informational purposes only. The information is not intended to be, and should not be construed as, financial, legal or other advice, and Lazard shall have no duties or obligations to you in respect of the information. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
Key Observations on the Activist Environment in Q3 2019
159 campaigns were launched at 145 companies in 2019 YTD, compared to 185 campaigns at 171 companies in 2018 YTD Although 2019 still lags 2018’s record pace, the 51 new campaigns launched in Q3 2019 is a ~19% increase over Q3 2018 2019 Closing the Gap 1 With Prior Years Capital deployed in Q3 2019 surpassed the Q3 2018 total—$11.0bn vs. $8.7bn—with Elliott’s $5.2bn of capital deployed across Following Busy Q3 new campaigns driving quarterly activity and making them the leading activist, both by number of campaigns and capital deployed Starboard and Elliott’s pace is unmatched, together launching 25 total campaigns, as many as the rest of the top 101 activists combined
Activists launched a record 20 new campaigns in Europe, reducing their historical concentration in the U.K. by shifting into other Record Pace Of jurisdictions, such as Germany, Switzerland and France 2 European Activism in Q3 European campaigns notably targeted both underperforming small-cap companies and well-performing large-cap targets Non-U.S. activity continues to account for ~40% of campaign activity, in line with recent years
45% of all activist campaigns in 2019 YTD have had an M&A thesis, the highest proportion to date M&A Persists as Attempts to scuttle or sweeten transactions were the most common type of M&A-related thesis 3 Primary Campaign Over half of all capital deployed ($19.1bn) has been in campaigns with an M&A thesis Thesis Technology and energy companies were the top targets for M&A campaigns, with high-profile pushes for divestitures at eBay, Marathon Petroleum and Sony
98 Board seats have been won by activists YTD2 and over 800 have been won by activists since the start of 2013 4 Activists Effecting Nominating long slates remains a popular tactic, with a record 16 nominated in 2019 YTD, but the majority of Board seats are Board Change secured outside of the proxy process Activists have been successful in five of 21 proxy fights that have gone to a vote in 2019 YTD, resulting in 15 Board seats
2019 Proxy Season Support for ESG proposals increased as investors further link these issues to corporate strategy and performance 5 Highlights Complex “Overboarding” was a factor in many narrow Director elections in 2019 due to stricter institutional investor policies Reality for Companies Investors continued to seek strong ties to strategy and performance in executive pay programs
The “Big 3” index funds (BlackRock, State Street and Vanguard) continue to make themselves heard on ESG issues, with over ETF Growth Supports 4,000 combined company engagements over the past year3 6 Passive Investor Influence The enduring popularity of ETFs, the number of which has grown by ~6% annually since 2015, supports continued, growing passive investor influence
Source: FactSet, ETFLogic, press reports and public filings as of 9/30/2019. Note: All data is for campaigns conducted globally by activists at companies with market capitalizations greater than $500 million at time of campaign announcement. 1 1 As measured by campaigns launched in 2019. 2 Represents Board seats won by activists in the respective year, regardless of the year in which the campaign was initiated. 3 Represents 12-month totals for BlackRock and Vanguard since July 1, 2018 and 6-month total since January 1, 2019 for State Street. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
1 Campaign Activity and Capital Deployed ($ in billions)
Annual Campaign Activity Quarterly Campaign Activity1
# of Campaigns Initiated 1 248 Q3 campaign Companies Targeted Through Q3 248 Companies targeted below four-year 255 212 activity returning to 212 205 205 average of 149 187 63 historical levels 187 226 205 49 159 159 55 34 FY Mean: 194 190 43 200 155 195 169 41 52 53 51 145 171 105 73 46 36 40 51 141 139 145 100 55 63 65 70 69 57 5
-45 2015 2016 2017 2018 2019 YTD 2015 2016 2017 2018 2019 YTD Q1 Q2 Q3 Q4 Capital Deployed in New Campaigns2 Capital Deployed by Sector, 2019 YTD2
8 21% 60% $66.4 21% $63.8 7 $57.7 18% Driven by Elliott’s 50% 7.8 13.5 6 $3.2bn stake in AT&T Q3 capital deployed 11.4 14% 40% up year-over-year 5 18.7 8.7 12% 4 30% $35.7 17.6 $30.5 3 19.0 20% 11.0 6.0 20.9 2 4% 2% 3% 2% 13.2 3% 10% 1 $0.7 12.8 13.0 $7.7 $7.5 $6.5 $4.9 $4.2 $1.6 $1.1 $0.9 $0.6 25.3 0 0% 6.0 16.5
15.4 11.7 Retail
5.7 Media
Telecom
Financial
Industrials
Consumer
Institutions
Healthcare
& Infra. & Real Estate Real
2015 2016 2017 2018 2019 YTD Technology Power, Energy Power, Q1 Q2 Q3 Q4 Above/Below 2015-18 Avg. Source: FactSet, press reports and public filings as of 9/30/2019. Note: All data is for campaigns conducted globally by activists at companies with market capitalizations greater than $500 million at time of campaign announcement. 2 1 Companies spun off as part of campaign process counted separately. 2 Calculated as of campaign announcement date. Does not include derivative positions. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
1 Notable Q3 2019 Public Campaign Launches and Developments—U.S. ($ in billions) Launch Company / Launch Company / Date Market Cap Activist Highlights Date Market Cap Activist Highlights
Icahn acquired a 12.6% stake and expressed Reports surfaced that D.E. Shaw had built a disapproval with the recent merger between stake in Emerson and would push for it to split 9/19 8/19 Cloudera and Hortonworks up its Automation and Commercial & $1.8 Less than two weeks after Icahn revealed his $39.5 Residential Solutions businesses initial stake, Icahn settled for two Board seats
In July, Icahn formally nominated Directors to Elliott released a presentation calling on replace four incumbents at the Company Marathon to split itself into three separate In August, Occidental completed its acquisition 9/19 5/19 companies of Anadarko and Icahn sent a letter criticizing $36.5 The activist made similar demands in 2016 $44.0 the Company for considering adding two new Directors who were not from Icahn’s slate
In August, Mantle Ridge disclosed its investment in Aramark in a regulatory filing, but did not disclose any objectives ValueAct disclosed a 5.2% stake in LKQ but 9/19 did not specify a thesis for the Company 5/19 Aramark’s CEO announced his retirement $10.0 $8.6 shortly after the stake disclosure Post-9/30 update: Mantle Ridge and Aramark settled with six new Directors appointed
In September, eBay’s CEO tweeted that he Elliott disclosed a $3.2bn stake and asserted was resigning, saying that he was “not on the that AT&T could unlock further value if it same page” as the rest of the Company’s 9/19 divests assets, follows a more disciplined M&A 1/19 Board $268.0 approach, de-levers its balance sheet and $31.7 In response, eBay noted it was continuing its overhauls leadership and oversight previously announced review of its businesses and would provide an update later in the fall
Starboard disclosed a 7.5% stake and said that shares "were undervalued and represented an At EQT’s July AGM, the Rice Group’s slate of The Rice seven candidates was elected to EQT’s Board 8/19 attractive investment opportunity” 12/18 Group with over 80% shareholder support, with Toby $2.2 Box’s CEO said that it would seek to engage $5.0 Rice being named CEO productively with Starboard
Source: FactSet, press reports and public filings as of 9/30/2019. 3 REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
1 Notable Q3 2019 Public Campaign Launches and Developments—Rest of World ($ in billions) Launch Company / Launch Company / Date Market Cap Activist Highlights Date Market Cap Activist Highlights
Ferguson announced that it would spin off its Elliott disclosed a stake in CNH amid the U.K. operations in order to create two Company’s plan to split its agricultural and separately listed and focused companies commercial segments $13.0 9/19 6/19 Trian had reportedly pushed for such a Several media outlets reported that Elliott was move, believing that the Company traded at $15.0 looking to form a constructive relationship with a discount relative to its peers because of the controlling Agnelli family its U.K. listing
Active Ownership Capital disclosed a stake in Sunrise Communications and said that it would Nordea announced a new CEO in early vote against the Company’s acquisition of UPC September; later in the month, Cevian called 9/19 12/18 $34.2 $3.4 Separately, Axxion requested that Sunrise add on the Company to review its wholesale resolutions to remove two Directors at its next banking activities shareholder meeting
Third Point reportedly built a stake of at least 1.2% in the Company but has not disclosed intentions Thyssenkrupp announced that it was making 8/19 $63.7 5/18 management changes, including replacing its Reports suggest that Third Point is pushing the $15.8 CEO, which Cevian publicly supported Company to resolve internal issues and accelerate value creation
Elliott pushed Scout24 to divest its AutoScout24 business Olympus announced a nearly $1bn share 8/19 $6.0 Pelham Capital separately nominated a 5/18 $12.0 repurchase program, supported by Sony selling Director to the Company’s Board, who was its 5% stake in the Company elected at the Company’s AGM
Elliott disclosed an investment in Unizo amid a Land & Buildings opposed a take-private offer hostile takeover bid from fellow Japanese led by a consortium of bidders, including the company H.I.S. Company’s Chairman, and called for the 8/19 $1.1 H.I.S. dropped its hostile bid after Unizo 6/17 removal of the Chairman received a competing takeover bid from $1.2 Catalyst Capital led a tender offer for shares in Fortress Investment Group Hudson’s Bay to attempt to block the take- Elliott increased its stake in September private 4 Source: FactSet, press reports and public filings as of 9/30/2019. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
1 Largest New Activist Targets in Q3 2019—U.S. and Rest of World ($ in billions)
U.S. Rest of World
Company Activist Market Cap Company Country Activist Market Cap
$268.8 $63.7
39.6 15.0
39.5 6.2
10.0 6.0
4.3 4.9
3.4 4.2
3.1 3.5
2.9 2.3
2.9 2.0
2.7 1.7
2.4 1.6
2.2 1.5
1.8 1.4
1.6 1.1
1.4 1.0
Cumulative Market Cap of Top 15: $386.7 Cumulative Market Cap of Top 15: $116.3
5 Source: FactSet, press reports and public filings as of 9/30/2019. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
1 The Broadening Activist Landscape in 2019 YTD ($ in billions) While Elliott and Starboard remain the most active players, first timers account for a quarter of all new campaigns and traditional, long-only investors are increasingly vocal and active Activist Activity by Campaigns Launched, 2019 YTD1 Activist Activity by Capital Deployed, 2019 YTD 14 $8.4 11
4 $2.6 $2.4 $2.3 3 3 3 3 3 3 3 $1.7 $1.2 $1.1
$1.0 $0.7 $0.7
Value
Icahn
JANA
Capital
Legion
Value
Icahn
Partners Partners
Starboard
Eminence
Investors
Associates Point Third
Starboard
Silchester
Sachem D.E.Shaw Partners
Associates Point Third Mgmt. Inv.
Elliott Mgmt. Elliott
International
Praesidium
Asset Mgmt. Asset
MantleRidge
Southeastern
Elliott Mgmt. Elliott
Taiyo Taiyo Pacific
Head Capital Head
Trian Partners Trian Cevian Cevian Capital Investors Launching Campaigns Instances of Activism/Vocalism by Traditional Long-Only Investors Date Shareholder Company Action “First Timers” 131 Publicly supported management in face of 118 8/19 109 Elliott campaign 100 103 Issued press release stating voting support 7/19 for dissident Rice Group slate 91 Withheld vote for Company Board in 4/19 87 response to Anadarko acquisition 73 86 77 Group nominating Directors to Company 4/19 Board; incumbents re-elected Nominated Directors and publicly criticized 4/19 Company; later settled 40 23 30 23 31 Nominated Directors following capex 3/19 disagreement 2015 2016 2017 2018 2019 YTD Filed first 13D in opposition of Celgene % of 2/19 Campaigns by acquisition; deal later approved 23% 29% 21% 31% 26% Reached Board refreshment settlement “First Timers” 1/19 with Company amid activist campaign
Source: FactSet, press reports and public filings as of 9/30/2019. 6 Note: All data is for campaigns conducted globally at companies with market capitalizations greater than $500 million at time of campaign announcement. 1 Ranked secondarily on capital deployed in the event of a tie on campaigns launched. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
2 2019 YTD International Shareholder Activism ($ in billions) European and APAC campaign activity is in line with recent years (~33% of global activity), following a record quarter for European activity
Activism Against European Companies Activism Against APAC Companies
Capital Capital $10.4 $7.9 $22.1 $16.3 $8.3 $2.3 $3.8 $7.7 $5.2 $4.0 Deployed1 Deployed1 57
Campaigns Launched Through Q3 52 Campaigns Launched Through Q3
42 Following a slow H1, 40 European campaign activity 39 42 now back at the high end of 40 the historical range
36 34 30
23
22 15 18 14 12
12
8
2015 2016 2017 2018 2019 YTD 2015 2016 2017 2018 2019 YTD % of Global % of Global Campaigns 20% 21% 25% 23% 25% Campaigns 6% 9% 12% 12% 9% Launched Launched
Source: FactSet, press reports and public filings as of 9/30/2019. Note: All data is for campaigns conducted globally at companies with market capitalizations greater than $500 million at time of campaign announcement. APAC includes all of Asia and 7 Australia and New Zealand. 1 Calculated as of campaign announcement date for all publicly disclosed common stock stakes. Does not include derivatives. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
2 Q3 Witnessed the Most Campaigns in Europe on Record
A slow first half gave way to a record Q3, reversing the trend of prior years Number of European Campaigns Per Quarter 2019 YTD Campaigns by Market Cap and Target Performance vs. Index1
Market Cap ($bn) Q3 2019 has seen an acceleration of campaign activity, hitting a record number of new campaigns 6 20
17 $20.0bn 16 16 15 15 14 14 13 12 13 11 Q3 avg. 10 10 12 9 9 9 $1.5bn 8 8
4 11
(40%) (35%) (30%) (25%) (20%) (15%) (10%) (5%) 0% 5% 10% 15% 2015 2016 2017 2018 2019 LTM TSR 2 Q1 Q2 Q3 Q4 # Number of campaigns Small Cap Mid / Cross Cap Large / Mega Cap Activist target selection in Europe is evolving, with a clear divergence in European campaigns in Q3 2019 hit record level strategy depending on the size Record period comes on the heels of slow first half, as activists used the Focus on high performing larger targets which could be encouraged to first half to refocus on existing positions accelerate existing plan and smaller companies with weaker performance Acceleration of Q3 puts 2019 back on pace; only 18 campaigns away where options to “fix” or redefine strategy are more plentiful from 2018’s record-setting 57 campaigns Targeting of the mid-cap “sweet spot” has returned, representing ~71% of Will momentum continue into Q4? Q3 2019 campaigns (excluding M&A campaigns to scuttle/sweeten announced transactions)
Source: FactSet, press reports and public filings as of 9/30/2019. Note: All data is for campaigns conducted at companies with market capitalizations greater than $500 million at time of campaign announcement. 1 Excludes campaigns with scuttle/sweeten deal focus. 8 2 TSR adjusted for the performance of the local index during the LTM before the announcement of the campaign. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
2 A Rebalancing of Geography and Agitators in Europe
Geographic Split of European Activist Campaigns in 2018 9M and 2019 YTD Diversity of Agitators in Europe
…with activists rebalancing towards 2017 2018 2019 YTD Decline in UK predominance… large markets
Institutional & Others Institutional & Others Institutional & Others Elliott 14% Elliott 7% 8% United Kingdom France Elliott 18% 53% 15% 11% 35% Occasional 24% 42% 21% 37% decrease Rest of Europe Germany 11% from 2018 9M to 47% 2018 9M 2018 2019 YTD Switzerland Occasional 11% Occasional Others 21% Full Time Activists1 Full Time Activists1 1 67% 34% Full Time Activists 50% 48% 40%
Average campaigns 1.7 1.5 1.3 France by activist United Kingdom 19% 33% Most Prolific Activists2
9M Germany Activists # Campaigns Activists # Campaigns Activists # Campaigns Rest of Europe 23% 67% 8
2019 2019 14 7
6 3 3 Switzerland Others 5 3 23% 35% 3
Prevalence of UK campaigns has decreased materially over the past 2019 has witnessed a shift from a few well-known activists, to a more year, from 53% of European campaigns in 2018 9M to 33% in 2019 YTD diversified group of occasional agitators and institutional shareholders Activism is also shifting to the large equity markets of Germany, Traditional institutions and occasional activists now account for almost Switzerland and France where significant capital can be deployed half of all activism campaigns (up from around one-third in 2017) ~65% of Q3 campaigns in Europe targeted companies in these three Elliott and CIAM are the only activists to launch 3+ European campaigns this countries year
Source: FactSet, press reports and public filings as of 9/30/2019. Notes: All data is for campaigns conducted globally at companies with market capitalizations greater than $500 million at time of campaign announcement since 2014. 1 Full time activists group includes Active Ownership Capital, Amber Capital, Blue Harbour Group, Cevian Capital, Charity Investment Asset Management, Coast Capital, Crystal Amber, Eminence Capital, GAMCO, Greenlight, Hudson Executive Capital, Knight Vinke Asset Mgmt., Lucerne Capital, Petrus Advisers, Polygon Global Partners, Q Investments, Sachem Head Capital, Sandell Asset Mgmt., Shareholder Value, Sherborne Investors, Starboard Value., TCI, Teleios, Third Point, Trian Partners, ValueAct and 40 North Mgmt. 9 2 Only includes activists with three or more European campaigns launched in the given year. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
2 Shareholder Activism in Japan In spite of a relatively quiet quarter, Japan remains the second busiest non-U.S. jurisdiction based on campaign activity and capital deployed
Non-U.S. Activism, 2019 YTD Campaigns Against Japanese Targets By Number of Campaigns By Capital Deployed Total Campaigns 16 YTD Campaigns
United Kingdom Rest of World United Kingdom 11 22% 22% 21% Rest of World 11 33% France 9 Japan 6% 15% Canada Japan 4 4 9% 21% 5 Germany Germany Canada Switzerland 10% 21% 2 10% 10% 2015 2016 2017 2018 2019 YTD
Notable 2019 YTD Developments
• In August, Elliott and Ichigo • In September, Nissan’s Board Asset Management built large • Dalton Investments failed in its • After Nomura’s CEO and voted to replace the Company’s • In August, the Company stakes in Unizo following a proxy campaign to add one Chairman received ~60% support CEO following concerns about announced that it would sell its hostile takeover bid from H.I.S. Director to Shinsei’s Board for reappointment, both remained executive compensation; later that 5% stake in Olympus, though it • Unizo urged shareholders to In May, the Company in their roles as of the end of Q3 month, Nissan settled with the said it was unrelated to Third reject H.I.S.’s bid announced a $220mm share 2019 SEC over undisclosed Point’s call for divestitures • H.I.S. dropped its takeover buyback following the • In July, the Company reported compensation • In September, Sony announced it attempt following a bid from announcement of Dalton’s first quarter net profit increased Shareholders voted to create would not divest its image sensors Fortress, with Blackstone also proxy fight over 10-times year-over-year, new, independent nomination business as Third Point had called reported to be bidding which it attributed to restructuring Dalton had originally called for a and compensation committees for • Unizo withdrew its support for $1.8bn buyback efforts Fortress’ bid in late September
Source: FactSet, press reports and public filings as of 9/30/2019. 10 REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
3 The Activist Role in M&A in Q3 2019 Scuttle or Sweeten Sell the Company Break-Up / Divestiture Existing Deals Agitate for sale of target or encourage Agitation for a divestiture of a non-core Entry into a live M&A situation to improve deal terms industry consolidation business line or company breakup or block an ill-perceived deal from proceeding 31% 31% 38% Target / Activist M&A Thesis Target / Activist M&A Thesis Target / Activist M&A Thesis
Eminence disclosed that it Elliott published a letter to would vote against the merger AT&T’s Board, urging it to A year after first pushing for of equals of Just Eat and conduct a comprehensive changes at the Company, Takeaway.com, saying that strategic review of its assets JANA disclosed a new stake the deal undervalued Just Eat that could result in multiple in Bloomin’ and urged the and was “highly opportunistic” divestitures, including of the Company to sell itself due to the recent share Company’s DirecTV business performance of the Company
Red Robin added new independent Directors and Paulson said that it would rejected a takeover bid from Elliott launched a campaign vote against Callon’s Vintage, following the website wherein it pushed acquisition of Carrizo Oil & activist’s call for the Company Scout24 to separate its Gas, instead suggesting that to initiate a strategic review; AutoScout24 business Vintage said it would explore the Company sell itself nominating Directors in response
In July, Elliott reportedly In a letter to shareholders, reduced its take-private bid for Elliott built a 6% stake in Sony said its Board had QEP; the next month, the two Altran and indicated that it did rejected Third Point’s call to parties settled, with QEP not support the offer from divest its imaging sensors adding two Directors and Capgemini forming a new operations business committee
Source: FactSet, press reports and public filings as of 9/30/2019. 11 Note: All data is for campaigns conducted globally at companies with market capitalizations greater than $500 million at time of campaign announcement. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
3 Sustained Prominence of M&A-Related Campaigns 45% of campaigns launched through Q3 2019 were M&A-driven, demonstrating the persistence of M&A as a campaign theme
M&A Campaigns, 2014-2019 YTD M&A Campaign Objective Prevalence, 2014-2019 YTD
M&A Campaigns (% of All Campaigns) On pace to surpass 2018’s record Scuttle or Sweeten Exisiting Deal Break-Up / Divestiture Sell the Company number of M&A campaigns Number of M&A Campaigns 79 59 76 82 71
45% 39% 36% 32% 33% 30% 31% Mean: 33% 33% 40% 41%
22% 2015 2016 2017 2018 2019 YTD 31% 38% 23% Capital Deployed in M&A Campaigns by Sector, 2019 YTD 28% $7.7 $7.5 Capital Deployed in M&A Campaigns $6.5 With the exception of Industrials, capital $4.9 deployed in M&A campaigns drove total $4.2 deployed across the top five targeted sectors 45% 37% 38% $5.4 32% $1.6 31% $3.7 $3.7 $1.1 $0.9 $0.6 $2.4 $2.6 $0.7
$0.2 $0.8 <$0.1 $0.1 $0.2
Retail Media
Infra. 2015 2016 2017 2018 2019 YTD
Power,
Telecom
Energy & Energy
Financial
Industrials
Consumer
Institutions
Healthcare
Technology Real Estate 12 Source: FactSet, press reports and public filings as of 9/30/2019. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
4 Board Seats Won
Board Seats Won1 Non-Activist Employees vs. Activist Employees Appointed as Directors
1 Non-Activist Fund Employees Appointed # of Companies Targeted for Board Seats 813 seats have Board Seats Won Board Seats Won Through Q3 changed hands Activist Fund Employees Appointed 79 since 2013 161 68 68 145 53 53 133 161 145 103 98 133 125 94 106 103 129 75 75 107 92 93 39 39 98 28 36 23 2015 2016 2017 2018 2019 YTD Activist 2015 2016 2017 2018 2019 YTD Employees 29% 27% 27% 22% 23% as % of Total
Settlements vs. Proxy Contests Proxy Stage of Board Seat Wins, 2019 YTD
Board Seats Won1 Board Seats Won through Settlements Board Seats Won1 Board Seats Won through Proxy Fights 161 Majority of Board seats secured 145 without a formal nomination 15 133 15 103 98 126 18 112 127 98 89 83 50 35 21 18 14 15 2015 2016 2017 2018 2019 YTD Won through Outside Proxy Proxy Process After Proxy Final Vote Total Seats Proxy Contest 16% 12% 14% 22% 15% Process Initiated Filing Won as % of Total
13 Source: FactSet, press reports and public filings as of 9/30/2019. Note: All data is for campaigns conducted globally by activists at companies with market capitalizations greater than $500 million at time of campaign announcement. 1 Represents Board seats won by activists in respective year, regardless of the year in which the campaign was initiated. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
4 Long Slate Nominations and Proxy Fights
Contested Proxy Votes, 2014-2019 YTD Long Slate Nominations, 2017-2019 YTD
In Q3 2019, both activist campaigns that went to a proxy vote (EQT/Rice Group 108 and Scout24/Pelham Capital) were successful, netting eight Board seats in total Board Seats Initially Demanded 102 1 In 2019 YTD, proxy votes have netted activists 15 Board seats in total, compared Ongoing to 19 Board seats in 2018 YTD Board Seats Won In the U.S., two successful proxy votes (EQT and Mack-Cali) have netted activists 11 Board seats, while three successful proxy votes in Europe (Superdry, COMET Holding and Scout24) have netted activists four seats 35 14 Board Seats Won Via Proxy 21 18 14 35 15 12 Vote 30 29 21 11 U.S. Proxy Votes Non-U.S. Proxy Votes 2017 YTD 2018 YTD 2019 YTD Total Long 5 2 13 16 Slates 16 14 14 Long Slate Results, 2019 YTD
10 7 3 12 Result: Settled2 13 16 Proxy Win 7 The seven settlements 7 1 accounted for 18 Board Proxy Loss seats, while the two proxy Withdrawn wins accounted for 11 7 Other3 2 4 3 Ongoing 1 2015 2016 2017 2018 2019 YTD 2
Source: FactSet, press reports and public filings as of 9/30/2019. Note: Long slates defined as instances where an activist nominated Directors to replace 50%-plus of the incumbent Board. 14 1 Reflects Board seats “in play” at the end of Q3 of the respective year. 2 Includes the appointment of David Martin, an original nominee on Coast Capital’s long slate, as Chairman of FirstGroup in August 2019 following the defeat of Coast’s slate. 3 Velan Capital’s successful withhold campaign against two Progenics Pharmaceutical Directors following the declaration of its long slate nomination as invalid. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
5 2019 Proxy Season Recap Directors faced increased scrutiny in part due to stricter investor “overboarding” policies, as E&S shareholder proposals garnered higher levels of support and “Say on Pay” failures remained consistent
Director Elections E&S Shareholder Proposals Board Diversity
Number of Russell 3000 Directors Failing to Receive Percent of Russell 3000 E&S Proposals Receiving Percent of S&P 500 Board Seats Majority Support 30% or More Support Occupied by Women
48% 27% 62 39% 28% 18% 29
2018 YTD 2019 YTD 2017 2018 2019 YTD 2013 2019 YTD
All S&P 500 Boards now have at least one female Newly enacted investor “overboarding” policies Support for E&S proposals continues to increase Director; 95% of S&P 1500 Boards have at least one contributed to ~15% of failing Director votes1 meaningfully year-over-year female Director
Executive Compensation Withdrawal Rates for E&S Proposals, Russell 3000 New Guidance for Proxy Advisors
“Say on Pay” Failures in the Russell 3000 Remain New SEC guidance clarifies that proxy advisers are Steady Year-Over-Year 2.6% subject to anti-fraud rules concerning materially false or misleading statements 2018 97.4% 90.2% 48% 48% Proxy advisors will have to disclose where they 2.4% 37% source information from and identify material 2019 YTD 97.6% 90.8% differences between this data and a company’s disclosures 2017 2018 2019 YTD Proposals Passed Proposals Failed Average Support The SEC described the guidance as a “first step” toward European asset managers such as UBS, APG and Withdrawal rates remain at elevated levels, proxy advisor regulation, with potential action on the Axa voted in favor of only ~65% of “Say-On-Pay” suggesting successful company/shareholder proxy advisor role in the voting process under resolutions dialogues on these issues consideration
Source: ISS, EY Center for Board Matters, Proxy Insight, BoardEx, Glass Lewis, Sullivan & Cromwell and Semler Brossy. 15 1 Other reasons for failed Director votes include: failure to implement majority-supported shareholder proposals, IPO-related governance concerns, lack of Board diversity and other oversight-related issues (e.g., poor attendance, lack of independence on the Board). REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
5 Notable Shareholder Votes Investor “overboarding” policies drove numerous contentious Director votes, while executive compensation and ESG proposals continued to be investor flashpoints
Support for ESG Proposals Executive Compensation Votes Against Directors
~37% of McDonald’s shareholders ~33% of Amazon shareholders voted voted against the re-election of in favor of a shareholder proposal ~66% of Ameriprise shareholders Director Miles White, Chairman and calling for a report on the Company’s voted against the Company’s “Say on CEO of Abbot Laboratories, citing his sexual harassment policies Pay” proposal given concerns public Company CEO role and Board regarding large equity grants awarded position at Caterpillar The proponent cited the resignation despite share price underperformance, of an Amazon executive in 2017 even as the Company lowered White received 95% support at following an allegation of sexual maximum payout targets Abbot, but ~39% of Caterpillar harassment shareholders voted against his reappointment
~38% of Newell shareholders voted ~39% of Kroger shareholders voted in against the re-election of Director favor of a proposal to have the ~60% of Xerox shareholders voted Courtney Mather, due to his Company produce a report on the against the Company’s “Say on Pay” Directorships at five other public environmental impact of using proposal, due to concerns surrounding companies unrecyclable packaging the use of discretion used in awarding short- and long-term compensation, as Mather received an average vote The proponent cited promises made well as a sign-on award that vested in against of ~17% at his other by Kroger’s peers to reduce their less than a year directorships and stepped down usage of unrecyclable packaging from the Board of Herc Holdings
~99% of shareholders voted in favor of ~43% of Live Nation shareholders a proposal requiring BP to produce a voted against re-electing Chairman report discussing how its strategy ~59% of CenturyLink shareholders Gregory Maffei, given his role as aligns with the Paris climate voted against the Company’s “Say on Liberty Media CEO and multiple agreement, as well as additional Pay” proposal on account of ongoing Director roles resulting from his climate change-related reporting concerns regarding multiple large pay executive position BP released a statement saying it opportunities in a relatively short period In his other elections in 2019, Maffei supported the resolution and of time received an average “against” vote encouraged its shareholders to vote of ~15% in favor
Source: FactSet, ISS, public filings and press reports as of 9/30/2019. 16 REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
6 2019 Stewardship Updates at Top Governance-Focused Investors
1 2 1
Meetings voted: 17,309 Meetings voted: 12,652 Meetings voted: 18,691
Number of engagements: 2,050 Number of engagements: 1,434 Number of engagements: 868
% of proposals voted against % of proposals voted against % of proposals voted against 8.0% 13.7% 7.0% management recommendation: management recommendation: management recommendation:
Notable Excerpts From the “Big 3” Stewardship Reports
“We believe that good governance practices— thoughtful board composition, effective oversight “One of the key global themes over the year was “Our focus has been on incorporating financially board accountability. In particular, ensuring of company strategy and risks, aligned pay for material ESG data into the investment process. performance, and strong provisions to empower that boards demonstrate diverse professional Therefore, in 2018, we invested resources into and personal characteristics, and that shareholders—are the foundation on which a building an ESG scoring system called “R- company’s board of directors can build enduring directors have the time to commit to their Factor” or Responsibility-Factor that board work in order to be effective in a fast- shareholder value. Although our engagements measures the performance of a company’s with companies cover a wide range of topics, changing business world. The board’s role in business operations and governance as it overseeing management’s implementation of we anchor those discussions in a broader relates to financially material ESG issues conversation about good governance and long-term strategy and reinvestment in the facing the company’s industry.” business for future growth continued to be an how it benefits investors like you. Ultimately, area of focus.” we believe that a rising tide of good governance lifts all boats.”
Source: FactSet, ISS, investment stewardship reports, public sources. Note: Selected green text bolded for emphasis 17 1 12 months through 6/30/2019. 2 Six months through 6/30/2019. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
6 Passive Manager Influence and Growing Importance of ETF Ownership The clear majority of passive inflows have been into ETFs as the popularity and number of such strategies has grown Cumulative Flows and Net Share Issuance1 Number of Listed ETFs
1,600 Fund Flows $1,464 1,400 Style Since 2009 Q2 2019 2,076 2,131 1,200 ETF +$914 +$21 1,908 Index +$550 +$16 1,771 1,632 1,000 Active ($1,478) ($68) 800
600
400
200
0
5 (200) 2015 2016 2017 2018 2019
(400) Q2 2019 ETF Ownership by Sector6
(600) 12.5% Average: 7.0% (800) 9.7% 9.0% (1,000) 7.6% 7.5% 7.2% 7.1% 6.9% 6.6% (1,200) 6.3% 4.2% (1,400)
(1,600) ($1,478) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2
Index Domestic Equity ETFs IT 3
Index Domestic Equity Mutual Funds
Energy
Utilities Staples
4 Materials
Financials
Industrials Consumer
Actively Managed Domestic Equity Mutual Funds Healthcare
Real Real Estate
Consumer Services Source: ETFLogic and Simfund. Discretionary 1 Equity mutual fund flows include net new cash flow and reinvested dividends. Data excludes mutual funds that invest primarily in other mutual funds. Communication 2 ETF distribution channel. 3 All mutual index funds (excludes ETFs). 4 All mutual funds that are not index funds. 18 5 Ownership data for all U.S. companies owned by at least one ETF. Excludes Vanguard mutual funds with an ETF-traded share class. 6 As of the end of Q3 2019. REVIEW OF SHAREHOLDER ACTIVISM - Q 3 2 0 1 9
Shareholder Advisory Group—Key Contacts
Managing Director and Jim Rossman (212) 632-6088 [email protected] Head of Shareholder Advisory
Mary Ann Deignan Managing Director (212) 632-6938 [email protected]
Andrew T. Whittaker Managing Director (212) 632-6869 [email protected]
Managing Director and Rich Thomas +33 1 44 13 03 83 [email protected] Head of European Shareholder Advisory
Dennis K. Berman Managing Director (212) 632-6624 [email protected]
Christopher Couvelier Director (212) 632-6177 [email protected]
Kathryn Night Director (212) 632-1385 [email protected]
Todd Meadow Director (212) 632-2644 [email protected]
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