Following the Securities and Exchange Commission's (SEC) new Universal Proxy Card (UPC) rule going into effect last September, there was a surge in proxy fights as empowered activist investors tried to influence the direction of companies.
The UPC rule, meant to simplify shareholder voting by consolidating ballots and ostensibly democratize corporate governance, has just sown more confusion and infighting while raising questions about its impact, especially on companies in sensitive industries like healthcare.
Exceptions to this SEC ruling are necessary to consider industries and companies essential to the health and well-being of Americans.
Take, for example, Masimo, known for its pulse oximetry technology that measures the body's oxygen saturation levels. The company recently became embroiled in a potential proxy fight over the heartbeat of the company with activist investor group Politan Capital Management.
Masimo has already gone through one protracted proxy battle with Politan, when the activist investor group successfully backed two board candidates, Politan owner Quentin Koffey and Michelle Brennan, at the company last year.
Now, Politan wants to expand Masimo's board to seven members by adding two new directors it has nominated, Agilent Technologies Chief Technology Officer Darlene Solomon and former Stryker CFO William Jellison. To avert yet another proxy fight, Masimo offered a concession by agreeing to appoint one of the two directors, Jellison, if Politan were to withdraw its other nominee and drop the proxy contest—an offer which Politan immediately shot down.
It's not the first challenge Masimo has endured, including a high-profile patent battle against Apple in which Masimo emerged victor. However, it now faces an existential crisis from activist investors thanks to the SEC rule change.
Given the critical nature of Masimo's products, the question arises: when do activist investors' interventions become more disruptive than beneficial?
The healthcare sector requires stability and long-term vision. The recent success of activist investors, fueled by the SEC's UPC rule, may threaten this stability. Activist investors have seen a significant rise in their success rates, from 176 board seats won in 2022 to 86 seats already secured this proxy season, thanks to the simplified voting process. While this trend may push companies towards more accountability and responsiveness, it also risks introducing a level of noise that could derail the mission-critical work of companies like Masimo.
The core mission of healthcare companies to innovate and ensure patient safety could be compromised by the constant pressure and potential instability brought about by frequent activist interventions.
It is crucial to balance the empowerment of shareholders with the need for stability in companies whose innovations are vital to public health. Activist investors must consider the broader impact of their campaigns on the essential functions of such companies. For Masimo, whose technology is integral to modern healthcare, maintaining a steady course is not just about shareholder returns but ensuring the continuous development of life-saving technologies.
While the new SEC rules may have democratized shareholder influence, there is a pressing need for restraint and thoughtful consideration of how this power is wielded, particularly in sensitive industries.
This proxy battle marks the first of what could be many in the healthcare space, endangering the health and well-being of Americans. As we celebrate the increased shareholder engagement, we must also be vigilant to ensure that we do not stifle the very innovations that save lives.
