Year after year, the world’s activist investor community meets at the Active-Passive Investor Summit, the premier shareholder activist conference in New York City organized by 13D Monitor. Yet at this year’s gathering on October 22, the mood was perhaps more upbeat than ever. Many activist investors were excited about the prospect of another presidency of Donald Trump.
Numerous activist investors have openly endorsed Trump for president in the 2024 election cycle. While some of them may harbor reservations about Trump’s character, they do like his policies. These activists have donated tens of millions and more to his campaign and related political action committees. This group includes several of Trump’s fellow “corporate raiders” from the 1980s.1 But while not all activist investors support Trump, numerous principals of the next generation of activist funds are rooting for Trump as well.2
Economic Environment
The prevailing perception within the activist community appears to be that the economic environment will be better for activist funds under another Trump administration. Many activist investors had highly profitable years during the last Trump presidency. They credit Trump for the 2017 tax reform bill, which slashed corporate and capital gains taxes.3 By contrast, rightfully or not, many activists are concerned about the proposed tax policies of Vice President and Democratic presidential nominee Kamala Harris.4
Activist funds also benefited, like many other investors, from the low-interest-rate environment from 2016 to 2020. Those rates are set by the Federal Reserve, which is supposed to be independent. However, many activist investors believe that Trump’s policies would be less likely to result in another interest-rate hike (even though not all economists agree).5
Then there is deregulation. Trump said he plans to free Wall Street from “burdensome regulations.”6 He has already announced a plan for a ‘government efficiency commission.’7 This is a prospect that excites many shareholder activists. Republican donor and former activist investor John Paulson, floated by Trump as a potential Treasury secretary, has publicly said he supports deregulation.8
At the same time, another Trump administration could involve the implementation of policies resulting in economic dislocation. Trump has promised to put through changes, including a universal 20% tariff, which many economists fear could negatively impact the global and domestic economy. These policies tend to make Wall Street nervous.9 However, it seems that many activist investors are either dismissing — or accepting — the risk of a Trump administration’s triggering widespread disruption. As every shareholder activist knows, companies struggling amidst volatility are prime targets for activism because their share prices are artificially low and present a clear case for change.
Antitrust Enforcement
Another key issue for the activist community is the current administration’s antitrust policies. Shareholder activist funds require a liquid merger-and-acquisition (M&A) market for their business model. After all, the easiest and fastest way to monetize an activist investment is to push a target company into a sale or breakup. However, over the last three and a half years, the federal antitrust law enforcement by the Federal Trade Commission (FTC) under its chair, Lina Khan, and the Antitrust Division of the U.S. Department of Justice under Jonathan Kanter has blocked numerous mergers, which has generally chilled M&A activity.10 For this reason, many activist investors are hoping for Trump to be elected. It is widely considered a near certainty that Khan and Kanter will be replaced if Trump wins the presidency because many Republicans favor more latitude for mergers and see the antitrust agencies as too tough on business.11 To be clear, shareholder activists are not alone in their desire for more lenient antitrust enforcement; many companies would agree with that stance.12
SEC Regulation
From the activist community’s perspective, one of the most important agencies is the Securities and Exchange Commission (SEC). The reason the SEC’s leadership matters to activist funds should be obvious: Activist investors are pushing companies to cave to their demands (sell or break up the company, fire the CEO, lever up the balance sheet, etc.) by using the prospect of a director election contest, or proxy contest, as threat — and the SEC regulates proxy contests. Trump has already pledged to remove current SEC Chairman Gary Gensler.13 However, interestingly, the SEC’s track record under the first Trump administration was not necessarily pro–activist investor.
For years, shareholder activists had been lobbying for a universal proxy card, that is, that the SEC would require companies to include activist nominees on their proxy card. The Obama administration’s SEC proposed such an activist-friendly regime in October 2016. After Trump’s surprise victory, some expected the SEC to adopt these rules because Trump appointed celebrity activist Carl Icahn as a special adviser on issues relating to regulatory reform in 2017. However, Icahn’s focus turned out to be environmental regulations, not the universal proxy, and Icahn resigned after a few months.14 The Trump presidency ended without the SEC’s ever taking up the issue. Instead, it was the Biden administration’s SEC under Gensler that decided in 2021 to revisit the universal proxy. Corporate America, including our practice,15 lobbied either against these rules or to moderate them. Still, in November 2021, the SEC adopted the new activist-friendly regime with the votes of the three Democratic Commissioners over the objections of their two Republican colleagues on the five-member commission.16 It remains to be seen whether the SEC under Trump would revisit the universal proxy; it is clear that Trump’s activist donors would lobby him to keep the rules largely unchanged.17
Another example is the regulations of the proxy advisory firms (e.g., ISS and Glass Lewis). Companies have repeatedly raised concerns about proxy advisory firms’ significant influence over corporate elections, leading to questions about whether proxy advisory firms should be subject to more regulation. In July 2020, Trump’s SEC chair, Jay Clayton, adopted rules for proxy advisory firms that were welcomed by many companies and business lobbyists (e.g., the Chamber of Commerce) — but not necessarily by activist funds. However, soon after assuming his position as SEC Chair in 2021, Gensler directed the staff to take another look at the rules.18 In 2022, the SEC adopted amendments to the proxy adviser rules, reversing some of the key company-favorable provisions.19 The rules remain tied up in litigation in the federal courts to this day.20 While it is unclear what the Trump administration would do about these rules, many activist investors would prefer to see them scrapped for good.
A last topic of interest to activists is the SEC’s stance on shareholder proposals. For decades, SEC rule 14a-8 has allowed shareholders to submit nonbinding proposals for inclusion in a company’s proxy statement. In recent years, special interest groups have been bombarding companies with proposals on environmental, social, and governance (ESG) issues. Companies have long lobbied the SEC and Congress to limit these kinds of proposals. However, it was under the Trump administration that the SEC imposed stricter minimum stock ownership requirements.21 And Republican Commissioner Hester Peirce, a possible chair candidate in a Trump administration, appears poised to further restrict shareholder proposals.22 Activist funds, which push companies to effect economic changes and are less interested in ESG, were mostly indifferent about the rules for nonbinding shareholder proposals. That said, a more recent development is the backlash to ESG by such activists as Robby Starbuck, who brought the culture wars to Corporate America by targeting companies with diversity, equity, and inclusion (DEI) initiatives.23 These kinds of attacks might become the new normal during another Trump presidency.
Conclusion
While America and the world are nervously awaiting the outcome of the presidential election in the United States, many activist investors are hoping that Trump prevails. They believe that his policies will benefit the economy and activist funds. Yet, a closer look at his track record suggests that another Trump presidency might be a mixed bag, for activist investors and companies alike.
1 Donald Trump pursued several activist campaigns against numerous companies himself. See “The Gordon Gekko era: Donald Trump’s lucrative and controversial time as an activist investor,” CNN, August 23, 2016, https://www.cnn.com/2016/08/22/politics/donald-trump-activist-investor. His supporters include, for example, Trian Partner’s 82-year-old founder, Nelson Peltz (who might have doomed his Disney proxy contest this year by endorsing Trump). “Nelson Peltz to vote for Donald Trump over fears of Joe Biden’s ‘mental condition’”, Financial Times, March 19, 2024, https://www.ft.com/content/5c460531-f261-4828-a7ae-6180bb275147.
2 See “Billionaire Bill Ackman endorses Trump in US presidential race,” Reuters, July 14, 2024, https://www.reuters.com/world/us/billionaire-bill-ackman-endorses-trump-us-presidential-race-2024-07-14/.
3 While less relevant for activists, the 2017 tax reform did not eliminate the carried-interest tax loophole for hedge funds. See “Gary Cohn: We ‘tried 25 times’ to cut hedge fund loophole in tax reform bill, but failed,” CNBC, December 20, 2017, https://www.cnbc.com/2017/12/20/cohn-tried-25-times-to-cut-hedge-fund-loophole-but-failed.html.
4 “Hedge fund billionaire and Trump donor John Paulson says market would ‘crash’ under Harris tax plans,” CNBC, September 13, 2024, https://www.cnbc.com/2024/09/13/hedge-fund-billionaire-and-trump-donor-john-paulson-says-market-would-crash-under-harris-tax-plans.html.
5 See also “What Trump Has Said About Rates, and Why It Matters,” New York Times, September 18, 2024, https://www.nytimes.com/2024/09/18/business/economy/trump-interest-rates.html.
6 “If Trump wins, he plans to free Wall Street from 'burdensome regulations,’” Reuters, April 12, 2024, https://www.reuters.com/markets/us/if-trump-wins-he-plans-free-wall-street-burdensome-regulations-2024-04-12.
7 “Trump announces plan for ‘government efficiency commission,’” Guardian, September 5, 2024, https://www.theguardian.com/us-news/article/2024/sep/05/trump-musk-efficiency-commission.
8 “Trump Treasury Contender Pledges to Work With Musk to Slash Spending,” Wall Street Journal, October 29, 2024, https://www.wsj.com/politics/elections/john-paulson-trump-treasury-secretary-elon-musk-c619ef9f.
9 “‘The Rest of the Country Just Might Crumble Around Us’: Wall Street on Trump v. Harris,” Politico, October 30, 2024, https://www.politico.com/news/magazine/2024/10/30/wall-street-trump-harris-views-00186042.
10 “FTC’s Khan Defends Record of Cracking Down on Unlawful Mergers,” Bloomberg, November 3, 2023, https://www.bloomberg.com/news/articles/2023-11-03/ftc-s-khan-defends-record-of-cracking-down-on-unlawful-mergers?sref=SUs0PgvR.
11 “Fate of Lina Khan’s Bid to Reshape Antitrust Comes Down to Election,” Wall Street Journal, October 13, 2024, https://www.wsj.com/us-news/law/fate-of-lina-khans-bid-to-reshape-antitrust-comes-down-to-election.
12 “Saying the Quiet Part Out Loud,” New York Times, August 3, 2024, https://www.nytimes.com/2024/08/03/business/dealbook/saying-the-quiet-part-out-loud.html.
13 “Trump says he would fire SEC Chair Gary Gensler on Day One. It’s not that easy,” Fortune, August 6, 2024, https://finance.yahoo.com/news/trump-says-fire-sec-chair-145122475.html.
14 “Carl Icahn Quits as a Special Adviser to President Trump,” New York Times, August 18, 2017, https://www.nytimes.com/2017/08/18/business/dealbook/carl-icahn-trump-adviser.html.
15 “’Proxy Access on Steroids’ — Sidley Sends Formal Comment Letter on the SEC’s Universal Proxy,” Sidley, June 8, 2021, https://www.sidley.com/en/insights/newsupdates/2021/06/proxy-access-on-steroids-sidley-sends-formal-comment-letter.
16 “SEC Dramatically Changes the Rules for Proxy Contests, Adopts Universal Proxy,” Sidley, November 17, 2021, https://www.sidley.com/en/insights/newsupdates/2021/11/sec-dramatically-changes-the-rules-for-proxy-contests.
17 They would probably also urge him not to address the increasingly concerning issue of lying in proxy contests. See “Lying in Corporate Elections,” Sidley, September 12, 2024, https://www.sidley.com/en/insights/newsupdates/2024/09/lying-in-corporate-elections.
18 “Gensler Blesses the Proxy Duopoly,” Wall Street Journal, June 23, 2021, https://www.wsj.com/articles/gensler-blesses-the-proxy-duopoly-11624486538.
19 “SEC Adopts Amendments to Rescind 2020 Rules Regulating Proxy Advisers,” Sidley, July 20, 2022,https://www.sidley.com/en/insights/newsupdates/2022/07/sec-adopts-amendments-to-rescind-2020-rules-regulating-proxy-advisers.
20 In June 2024, the 5th Circuit found that the SEC’s explanation for its 2022 rollback of the rules violated federal law and remanded the matter to the SEC. However, in September 2024, in clear opposition to the decision of the 5th Circuit, the 6th Circuit ruled in favor of the SEC on the 2022 amendments in a 2–1 decision. See “SEC Proxy Firm Rule Repeal Survives Sixth Circuit Challenge,” Bloomberg News, September 10, 2024, https://news.bloomberglaw.com/esg/sec-proxy-firm-rule-reversal-survives-sixth-circuit-challenge.
21 “SEC Rule Amendments Impose Heightened Standards for Submitting and Resubmitting Shareholder Proposals,” Sidley, September 24. 2020,https://www.sidley.com/en/insights/newsupdates/2020/09/sec-rule-amendments-impose-heightened-standards.
22 See “Advocates to SEC: Shareholder Proposals Face ‘Misguided’ Threats,” The Deal, October 31, 2024, https://pipeline.thedeal.com/article/00000192-e324-d86f-ad9a-f7f4b4040000/deal-news/activism/advocates-to-sec-shareholder-proposals-face-misguided-threats.
23 "A New Business on Wall Street: Defending Against D.E.I. Backlash," New York Times, October 26, 2024, https://www.nytimes.com/2024/10/26/business/dealbook/dei-backlash-advisers.html.
Attorney Advertising—Sidley Austin LLP is a global law firm. Our addresses and contact information can be found at www.sidley.com/en/locations/offices.
Sidley provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers. Sidley and Sidley Austin refer to Sidley Austin LLP and affiliated partnerships as explained at www.sidley.com/disclaimer.
© Sidley Austin LLP
