Introduction to the SDX™ Protocol

The Shareholder-Director Exchange (SDX) is a working group of leading independent directors and representatives from some of the largest and most influential long-term institutional investors. SDX participants came together to discuss shareholder-director engagement and to use their collective experience to develop the SDX Protocol, a set of guidelines to provide a framework for shareholder-director engagements. While the decision to engage directly with investors should be made in consultation with or at the request of management, the 10-point SDX Protocol offers guidance to US public company boards and shareholders on when such engagement is appropriate and how to make these engagements valuable and effective.

Why Now?
  • 1

    Shareholders are increasing their involvement with public companies and are often focused on corporate governance matters


    Activist shareholder interventions (e.g., seeking board representation, share buybacks, CEO removal) increased more than 100% between January 1, 2010 and November 16, 2015.


    The average market value of companies targeted by activists increased to $10 billion in 2014, up from $8.2 billion in 2013.


    Forty-five hedge funds initiated their first activist intervention this year, up from 15 in 2013.


    Activist funds are estimated to have over $196 billion in assets under management – six times the amount invested in 2008.

  • 2

    Directors are responding by engaging more frequently with the company’s owners

    Forward-thinking directors have moved to mitigate the impact of the shifting balance of power toward shareholders by engaging with longer-term shareholders. SDX participants reported that this type of engagement has become increasingly common.

  • 3

    Both investors and directors are realizing significant value from direct engagement; including, but not limited to:


  • 4

    Perceived barriers to engagement can be avoided or addressed

    • Some key objectives of the SDX Protocol are to address legacy practices and concerns that have historically kept directors from engaging with their shareholders and to provide solutions to issues that could be problematic.
    • Through their work together, SDX participants outlined perceived barriers and identified proposed responses for each.
  • Companies and investors often miss valuable opportunities to engage.
  • While the SDX Protocol does not offer a one-size-fits-all approach to engagement, it does provide meaningful guidance and concrete suggestions from seasoned engagement practitioners.
  • The SDX Protocol is offered in service to public company directors and investors to enable them to more effectively make and respond to engagement requests.