By Jack Yoest, Catholic University of America
It has been said that a shareholder proxy fight is “the atomic bomb of corporate politics,” or the ultimate weapon in shareholder activism, if you will. Historically reserved as a last resort to protect investor interests when existing management and board members have failed to live up to their fiduciary duties, they have unfortunately more recently become a tool to achieve other ends.
Too often today, proxy advisors and other large institutional investors have used these fights as a way not to unlock significant value through improved corporate governance and strategic direction, but as a tool to advance ideological agendas or to achieve other ends. This has come at the expense of the average shareholder and is becoming a growing issue that may need to be addressed.
One need only look at the way some of these entities have used their significant voting power to push for environmental, social, and governance (ESG) initiatives, diversity mandates, and climate-related policies that may not always align with shareholder value maximization. By coordinating their influence, they have pressured companies into adopting policies that cater to political and social goals, often at the expense of traditional business objectives. This shift has sparked criticism from executives and investors who argue that such activism distorts corporate priorities and undermines the fundamental purpose of shareholder representation.
In other instances, some large institutional investors have used proxy fights as a means to manipulate corporate decision-making in ways that benefit their broader market positions. By leveraging their significant voting power, these investors can push for strategic shifts—such as divestitures, mergers, or leadership changes—that may not necessarily maximize shareholder value but instead create volatility or opportunities that align with their broader financial interests. This form of activism raises concerns about conflicts of interest and the broader impact on corporate governance, as it shifts the focus from sustainable value creation to market manipulation for external financial gain.
Take what is currently going on at U.S. Steel, for example.
In late January, activist hedge fund Ancora Holdings released an open letter announcing that it intended to launch a proxy fight against U.S. Steel’s current Board of Directors with regards to the company’s proposed acquisition by Nippon Steel. The letter, which criticized their continued efforts to pursue the deal as “risky” and a “dead end,” proposed a new CEO and board that would not “solicit an acquisition proposal from…any partner (domestic or foreign).”
Admittedly, the deal has faced some regulatory hurdles in Washington. But these issues are currently being adjudicated in the courts and the prospects of this transaction moving forward are far from over. In fact, President Trump recently indicated at a joint press conference with the Japanese Prime Minister that he is looking at the deal and is open to allowing it to move forward. The timing of this effort to stop the deal and the serious unintended consequences that could result, meanwhile, raise questions about the motives behind it.
The leadership of U.S. Steel has made it clear that it needs the additional resources that this deal would provide to support some of its ongoing operations, and Nippon has indicated that it wants to acquire the company to modernize production on American soil. That’s why their proposal to buy U.S. Steel for over $14 billion also included another $2.7 billion worth of guaranteed investments into its facilities.
But couldn’t someone else – an American investor – provide the needed investments for such an iconic American company? Other bidders and “…feared activist hedge funds” with reputations for making deep cuts for immediate profits offered only low-ball offers. This is not what the U.S. Steel shareholders and community stakeholders deserve.
The fact is, there is no better method to maximize shareholder value than with this confidence of investment. That’s why more than 98% of the shares voted by stockholders approved this transaction in April 2024 and why steelworkers in Pennsylvania also have been on the leading edge of supporting the deal.
So then the question becomes, why would Ancora want to jeopardize the value of their U.S. Steel shares by opposing this deal?
With the hedge fund’s holdings in U.S. Steel amounting to a reported 0.18% stake in the company, they simply don’t have as much at risk as many other investors. With relatively little to lose, or gain for that matter, from the outcome of this fight their ties to Cleveland-Cliffs may better explain these otherwise apparently irrational motivations.
Cleveland-Cliffs has been trying to acquire U.S. Steel since as far back as 2023 and after losing out to Nippon has been engaged in an aggressive campaign to try and kill the deal. Given the apparent closeness of Cleveland-Cliffs and Ancora – Cleveland-Cliffs has been publicly backing Ancora’s proxy fight against Norfolk Southern while Ancora’s proposed Board of Directors includes multiple individuals with direct and indirect ties to Cleveland-Cliffs – one can’t help but wonder if this unexpected proxy fight is ultimately being orchestrated by Cleveland-Cliffs for their own ends.
Cases such as this exemplify why reforms are necessary. With overwhelming shareholder and worker support behind the deal between U.S. Steel and Nippon Steel, a proxy fight led by a hedge fund with a minimal stake—and potential undisclosed motives—threatens to derail a deal that offers long-term stability, investment, and job security.
To prevent further misuse of the system, bold reforms must be enacted. Increased transparency requirements for proxy advisors and institutional investors would ensure that conflicts of interest are exposed and understood by all shareholders. Further, regulatory reforms should limit the ability of proxy advisors to push ideological initiatives that do not have a clear financial benefit for shareholders. Boards and executives, meanwhile, must proactively implement governance safeguards to reduce vulnerabilities to opportunistic activism.
If left unchecked, these disruptive battles will continue to erode trust in capital markets, discourage strategic investments, and harm the very shareholders they claim to protect. Now is the time for decisive action to make proxy fights great again by restoring them to their original purpose—enhancing corporate governance and maximizing shareholder value.
Jack Yoest is an Associate Professor of Leadership and Management at The Catholic University of America in the Busch School of Business. He is a former Assistant Secretary for the Commonwealth of Virginia.