When Should Boards Fight
Summary
Boards increasingly settle with activists to avoid costly, distracting proxy fights, but settlements often underdeliver and can create long-term risks. Analysis of 634 settlements from 2010–2024 shows companies typically lagged the S&P 500 by nearly 10% in TSR over three years after settling, except when a sale occurred within three years (which delivered outperformance). Settlements speed resolution and cut costs, but they can introduce activist directors who change board dynamics, leak negotiation details or resume campaigns later.
The authors explain when a board should consider resisting a settlement and fighting a proxy contest — for instance, where activist demands would force a damaging sale process, remove a supported CEO without a ready successor, or reshape the board in ways that harm independence or capability. Boards should define non-negotiables in advance, probe activists’ true agendas and assess their own financial and governance position before deciding. Fiduciary duties and a rigorous, advisor-led process should guide the settle-or-fight decision.
Key Points
- Settlements are common and fast: roughly half of 2025 proxy contests resolved by settlement and time-to-resolution has shortened markedly.
- Empirical results show settlements often coincide with underperformance versus the S&P 500 over three years, unless the company is sold soon after settlement.
- Proxy fights are costly: estimated average spend of about $4.6m in 2025 proxy season, with higher totals if contests drag on.
- Boards should fight when activist demands risk long-term value — e.g. forcing a sale, removing a CEO without succession, or skewing board composition.
- Define non-negotiables and tolerance levels before negotiating; rushing to settle can create lasting risks and bad governance outcomes.
- Dig into the activist’s motives and time horizon — marketing, short-term price boosts, access to information, or liquidity needs can drive demands.
- Assess board strength objectively: benchmark financial performance, investor sentiment and governance profile against peers and index fund expectations.
- Decisions must adhere to fiduciary duties: use independent advisors, avoid entrenchment and prioritise long-term shareholder value.
Why should I read this?
If you’re on a board, advising one or watching activist battles, this piece is a quick, hard-hitting guide. It tells you when settling is a pragmatic truce and when it’s a trap. Saves you time — and possibly millions — by laying out concrete red lines, signs of activist motive, and what to check before you agree to anything. Read it so you don’t sign away future value because the short route looked easy.
Context and Relevance
This article matters because the activist landscape has shifted: settlements are faster and more frequent, but they can come at a hidden cost. With growing passive ownership and heightened scrutiny from large index funds, boards must balance operational focus with robust governance decisions. The guidance helps directors align process, evidence and fiduciary duty when choosing to settle or to fight — a decision that can determine long-term shareholder value and board credibility.
Source
Source: https://corpgov.law.harvard.edu/2025/10/23/when-should-boards-fight/
