Corporate Governance

Shearman & Sterling SHAREHOLDER ACTIVISM: THE NEW NORMAL By Clare O'Brien Shareholder activism is alive and well in the United States and, increasingly, outside the United States. While global campaign volume decreased by 6% in the 2017 proxy season, 1 the level of activist activity was still robust, with a total of 606 public campaigns globally; 327 in the United States, 119 in Europe, 86 in Asia and 74 in Australia. Activist assets under management remained flat at around $121 billion as of March 31, 2017. 2 During the 2017 proxy season, the 50 most significant activist investors accounted for 35% of total U.S. campaigns (114), while nearly 20% of U.S. campaigns were initiated by first-time activists. 3 Nearly two-thirds of all 2017 U.S. campaigns targeted companies with a market cap below $500 million, and, as in 2016, the top demand sought by activists in 2017 was board representation. 4 The average length of activist campaigns decreased to 44 days in the first half of 2017, compared to 109 days for all of 2016. 5 ACTIVIST CAMPAIGNS BY THE NUMBERS The percentage of all campaigns in which activists obtained at least one board seat increased to 46%, up from 41% in 2016 and 29% in 2012. The median cost of a proxy fight for a target this year was approximately $1 million, with the largest disclosed cost at $5.9 million (excluding the costs reported to have been incurred by The Procter & Gamble Company in connection with Trian Fund Management LP's 2017 campaign for a board seat). 6 The specter of activism is significantly affecting U.S. directors and officers. Recent surveys of executives reflect that 87% of the executives and directors surveyed feel pressured to demonstrate strong financial performance within two years or less, and 65% say short-term performance pressure has increased over the past five years. 7 Additionally, during the first half of 2017, 65 public companies cited "shareholder activism" as a risk factor, which was more than five times as many as during the same period in 2014. 8 1 FactSet SharkRepellent and Activist Insight, as of June 30, 2017. The "proxy season" is typically defined as the 12-month period ending June 30. 2 HFR Q1 Global Hedge Fund Industry Report 3 As defined by FactSet's SharkWatch 50 list, see FactSet SharkRepellent and Activist Insight, as of June 30, 2017 4 FactSet SharkRepellent, as of June 30, 2017 5 ProxyPulse, a Broadridge and PwC initiative, 2017 Proxy Season Review, September 2017. 6 Numbers in this paragraph from FactSet's 2016 Shareholder Activism Review 7 FCLTGlobal (Focusing Capital on the Long Term), "Rising to the Challenge of Short- Termism", September 2016 8 Shira Stein, "More Companies Cite Activism as a Risk in Financial Disclosures," Bloomberg BNA, July 6, 2017 FAST FACTS In the 2017 proxy season: 68 54 proxy contests were initiated, of which were completed by June 30, 2017. 19 19 16 proxy contest went to a shareholder vote proxy contest was settled proxy contest was withdrawn INSIGHTS THE ROLE OF INSTITUTIONAL INVESTORS As a counterweight to the pressure placed on companies by activists to produce short-term results, several significant U.S. institutional investors have become more proactive in their engagement with companies and are more assertive in advising companies to prioritize long-term shareholder interests. (Continued on next page) Shareholder Activism | 31

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