Despite the first half of the year bringing “not quite a blockbuster proxy season,” corporate annual meetings and shareholder engagements delivered new tactics for shareholder activists, according to a recent proxy season review from Diligent Market Intelligence, a platform that provides clients with ESG data and analytics.

While shareholder activists are increasingly organizing around mergers and acquisitions — and reaching settlements for board seats — artificial intelligence continues to be a growing topic of concern for investors, Diligent Market Intelligence Editor-in-Chief Joshua Black told ESG Dive.

A recent report from Avalara, which provides AI-powered tax compliance software, found that the majority of chief financial officers and top finance executives — 92% — feel pressure to show that investment in AI yields a decent return, but only 7% said their organization focuses more on AI governance than speed of adoption.

“Governance around AI is probably going to be the most important thing in investor relations over the next two years,” Black told ESG Dive in an interview Monday.

Editor’s note: This interview has been edited for length and clarity. 

ESG DIVE: How has shareholder engagement, proxy proposals and shareholder activism changed over the past two years?

JOSH BLACK: Proxy season never ends, or this one shows no sign of ending. It seems like, particularly from an activist perspective, the stake building and new stake disclosures have picked up through the proxy season. 

It's partly to do with one of the themes of the year, which is [mergers and acquisitions] activism. Lots of activists pushing companies to sell, or in some cases opposing M&A, or pushing for breakups and those kinds of things. Those are pressure campaigns that can work year-round. So, that's probably why we're seeing a kind of never-ending proxy season on the activist side. 

How are activists using M&A to push for sales and what are some of the commonalities between some of these campaigns?

These [campaigns] are happening in all different sectors. There has been a general sense of operational activism, portfolio refinement. Now, the window is slightly more open to M&A. 

There's more certainty in the [Trump] administration and its approach to antitrust, and so we're seeing kind of more activism in different sectors, ones that were already consolidating. We see it a little bit in banking, a little bit in energy. We're not seeing so much of it in software. The travel sector broadly is something where there's a lot of economic growth, and there's a lot of private equity interest, so activists are looking at those sectors at the moment.

What role has AI played this year, and what are shareholder activists doing on AI?

Activists are already starting to look at the operational benefits of AI, so companies that haven't announced how they're using AI to improve their business performance are getting pressure from activists to lay out plans to drive operational improvements. 

There have been a couple of companies that are sitting on a lot of intellectual property, and activists have said, “Hey, these are great examples of companies that stand to benefit from the AI wave.” So it's less of a kind of hostile activist campaign, and more of an encouragement to keep going. 

We've also found activists scouring the globe for companies that are part of the AI infrastructure race. So, particularly in Asia, where you have a lot of conglomerates, activists have been investing in companies that have a division that produces something which is essential to AI like chips, or partly technological infrastructure.

That's a big theme, and we're starting to see it kind of creep into board-level conversations as well around AI oversight. We're starting to see AI pop up in the first few compensation plans, very much focused on the operational gains that companies hope to see from AI rather than AI adoption itself.

What has incorporating AI into those board conversations —  including proposals and compensation plans — looked like in practice

In terms of the sort of general activism, AI in the boardroom is both a technological development, but also a governance one. Because fundamentally AI is different from other technologies. It's not just a case of how you spend it, how quickly you implement it, where you can source the raw materials or the compute. It's very much a case of what guardrails do you put around this? How can we ensure that it's working with appropriate boundaries, so that is something that's very important to boardrooms. 

At the same time, there's a financial consideration, both from a growth perspective and from a budgeting perspective. So having to discuss like can we afford to fall behind in the AI race? But also, can we afford odd spending commitments? And a few years ago, we had a big sea change in technology where,there was a lot of heavy capital spending. The economy shifted, and there was a lot of activism at the tech giants asking about [what they were spending money on.] So companies want to be mindful that on the other side of this hill is the potential for activism around cutting costs. 

Then on the compensation side of it, you want to incentivize CEOs appropriately. You want to incentivize CEOs to pursue AI, but in a way that impacts both the growth of [revenue] and profitability. There's a lot of milestone-based compensation packages at the moment. They've obviously been made very popular by some of the larger ones that have been in the news recently, and so particularly in tech companies, we're seeing 5- or 10-year milestone pay plans, and some of those around AI developments.

As far as shareholder proposals go, why does governance continue to be a popular topic? And how are corporate boards and investors looking at governance more broadly?

Governance proposals have continued to be the most successful form of shareholder proposal; around three-quarters of the proposals that passed this year were governance-related. Within that, shareholder rights are always very popular, things around special meeting thresholds are very popular, and declassifying boards. Generally the kinds of things that have been around for a long time. Shareholders have, in some cases, been working to lower thresholds over multiple years, so there's a kind of drip process at some of these companies. 

There were less shareholder proposals in total this year. Partly that's to do with declining support for environmental and social proposals. There's also been some kind of litigation from companies against shareholders, so that has deterred some of this activity. 

But the majority of proponents have said that they continue to engage with companies and actually, with the SEC stepping back from providing no-action judgments, a lot of proponents say companies have been more open to a private dialogue and potentially settling rather than letting proposals go through. Obviously there were some cases where proposals ended up in litigation, and in some of those cases, the proposals went onto the ballot in the end anyway.

You'll still see a good number of shareholder proposals over the next few years; I don't think there'll be a wholesale switch to other forms of shareholder activism or advocacy.