Activist investors were awarded a record 112 board seats at U.S. companies during the first half of 2025, even though there was a 23 percent decline in board representation demands, according to a new report from Diligent. Will more board seats changing hands despite fewer shareholder demands be a trend that continues into the future? How should corporate board members react to what looks like a troubling development?
According to the Diligent Market Intelligence: Proxy Season Review 2025 report, the fact that activist investors secured 112 board seats from companies is not the only concern for boards. The report also says:
- In the first half of 2025, the proportion of board seats secured by activists at U.S. targets through settlement reached 92%, a five-year high and up from 86% in 2024 and 2023, 81% in 2022 and 89% in 2021.
- Amid market uncertainty, the average time to settle board seat campaigns at U.S.-based companies decreased from 19 days in the first quarter of 2025 to 16.5 days in the second quarter.
- An evolving regulatory landscape and changes in sentiment around ESG, both pro- and anti-, saw the volume of shareholder proposals advanced at U.S.-listed companies decline to 530 in the first half of 2025 from 735 in the same period of 2024.
Data from the report suggests that the high proportion of settlements activists negotiated (92%) combined with the average settlement time dropping to 16.5 days in the second quarter shows that the strategies being used are more effective than before. So, what should corporate board members do about this?
• Understand why companies are conceding board seats. It’s important for directors to examine why more companies have been agreeing to settlements that give board seats to activists. According to the report, “Outside of settlements, only nine seats were won through contested votes, compared to 14 secured through such votes in the same period in both 2024 and 2023.” The report asserts, “The activists are getting better… The quality of who they’re nominating and the strategy with which they nominate has become better and more sophisticated.”
Companies should learn from the companies that lost board seats in the first half of the year and ensure they are not doing things that make themselves similar targets. Were there specific issues that triggered activists’ efforts to fight for board seats? Which activist arguments seemed to resonate more with shareholders? Which concessions (other than board seats) did activists ask for most? How would your board mitigate these challenges?
• Strengthen your board before weaknesses are alleged. Boards must make sure they engage in robust refreshment so that the skill and experience level of their directors cannot be challenged. Vigorous board evaluations and strategic forward thinking will also help corporate boards stay a step ahead of activists seeking to replace directors. Higher levels of scrutiny are forcing boards to recognize where they could strengthen directors’ experience and credibility before others claim they need to. Move before you are targeted.
• Improve communication and trust with top shareholders. As always, when dealing with activist investors, building trust is critical. These days, boards must make an extra effort to communicate with their largest shareholders so that if disputes with activists emerge, other shareholders will trust their version of events and vote to keep the board intact. Engagement must be carefully coordinated so that a strategic alignment with shareholders is forged, and the board is viewed as competent and trustworthy. If that is achieved, the likelihood of board seats being lost to activists should diminish.
