Elliott Management, the activist hedge fund, has scored a number of wins in recent proxy fights. Most recently, Elliott successfully launched a proxy fight at Southwest Airlines and plans to nominate 10 directors to the company’s board. The move would result in the replacement of the majority of the airline carrier’s board. The activist investor has also recently acquired a sizable stake in the stock of Starbucks and Match Group.

Founded by Paul Singer in 1977, Elliott has gained a reputation for its aggressive tactics to encourage management and strategy changes at companies it views as struggling or undervalued. It is one of the largest activist funds in the world, with over $70 billion in assets under management.

A proxy fight, proxy contest or proxy battle are all terms used to refer to the same thing. A proxy fight occurs when an activist shareholder or group of activist shareholders attempts to solicit shareholder votes in opposition to the company’s existing management. The activist shareholder(s) may be dissatisfied with the company’s direction and want to appoint new directors to the board to act in their favor.

Southwest Airlines has faced a number of recent struggles, making it a prime target for Elliott. Its profit margins have fallen behind rival airlines and its share price has dropped more significantly than the share prices of its competitors. Despite its efforts to improve revenues by switching to an assigned seating system and enabling customers to pay for extra legroom upgrades, Southwest Airline’s financial malaise has continued.

“The urgency of change is underscored by the substantial continued deterioration in Southwest’s performance,” said Elliott in a statement released by the firm around the time that they launched the proxy fight. According to recent SEC filings, Elliott owns approximately 8% of Southwest Airline’s outstanding shares.

Elliott also recently accumulated a large stake in Starbucks and used its influence to hold discussions with management. Starbucks has reported disappointing financial results in recent quarters and continues to see a decline in same-store sales. In August 2024, it was announced that Starbucks CEO Laxman Narasimhan would be replaced with Chipotle’s CEO Brian Niccol. The hope is that Niccol will be able to turnaround the once mighty coffee chain similar to how he improved Chipotle’s performance.

Elliott has also taken aim at the telecommunications company Crown Castle. After amassing a significant stake in Crown Castle, Elliott released a letter in November 2023 outlining its arguments for why Crown Castle was underperforming and steps it could take to get on the right track. Crown Castle’s co-founder reached out to Elliott in an attempt to join forces, only to be rejected by Elliott. This was followed by the co-founder of Crown Castle launching a proxy fight in February 2024. The co-founder nominated four directors, including himself and his son-in-law. The co-founder’s director nominees were strongly defeated at the company’s shareholder meeting, only receiving around 10% of the vote.

Lawrence Elbaum, the co-head of the activism defense practice at the law firm Vinson & Elkins stated, “This campaign was over before it began. Trying to change up a board and business very recently repositioned and then blessed by Elliott will always be a losing proposition.”

In 2022, the universal proxy rules took effect. The rules enable the use of a universal proxy card in a contested director election, meaning that shareholders can cast votes for a combination of director nominees appointed by the company and director nominees appointed by dissident shareholders. Prior to the implementation of the universal proxy rules, it was difficult to mix and match director nominees appointed by the company and those appointed by activist shareholders.

While many predicted that the universal proxy rules would lead to an increase in proxy contests, there has been little change. Comparing data in 2023, the first full year in which the universal proxy rules have been in place, to 2022 data demonstrates little difference in the amount of shareholder activist activity or the number of dissident director nominees winning board seats.