Corporate Governance Activism in Closed-End Funds: Marlton Partners' Proxy Battle at 180 Degree Capital and the Path to Shareholder Value

The proxy battle unfolding at 180 Degree Capital Corp. (NASDAQ: TURN) is a microcosm of a broader trend in corporate governance activism within closed-end funds (CEFs). Marlton Partners, a 5.8% shareholder, has launched a campaign to replace four board members with independent directors and force a shareholder vote on the proposed sale to Mount Logan Capital Inc. (Cboe Canada: MLC). This move is not merely a power struggle but a strategic attempt to align governance with long-term capital preservation—a critical need in an industry where activist campaigns often prioritize short-term gains over sustainable value creation.

The Case for Board Restructuring at TURN

Marlton's proposal highlights systemic governance failures at 180 Degree Capital. The current board has delayed a shareholder vote on the Mount Logan acquisition for over five months, incurring $6–7 million in deal-related costs—equivalent to 15.8% of Q1 2025 net asset value (NAV). Worse, the board has failed to provide monthly NAV estimates or hold earnings calls, eroding transparency. These actions suggest a lack of accountability, a red flag for investors seeking capital preservation.

By nominating independent directors like James C. Elbaor and Gabriel Gliksberg, Marlton aims to inject fresh oversight and challenge entrenched interests. Independent boards are proven to reduce agency costs and improve decision-making, as evidenced by studies on CEF governance. For example, the Allspring Multi-Sector Income Fund (ERC) maintained distribution stability during a leadership transition because its board prioritized continuity over disruptive changes. In contrast, activist-driven restructurings—such as the 2020 takeover of Voya Prime Rate Trust—often lead to abrupt strategic shifts that alienate long-term shareholders.

The Broader Context: Activism in CEFs and Its Double-Edged Sword

The 2023–2025 surge in CEF activism has been marked by a troubling pattern: activists exploit discounted share prices to push for tender offers, liquidations, or structural changes that benefit themselves at the expense of retail investors. Between 2018 and 2022, 95% of activist filings were concentrated among five groups, a stark rise from 53% in the late 1990s. These campaigns often culminate in "NAV-realizing" transactions, where activists profit from the spread between NAV and market price, leaving ordinary shareholders with altered fund structures or higher fees.

However, not all activism is created equal. Marlton's approach diverges from the typical activist playbook. Instead of demanding immediate liquidity events, it seeks to strengthen governance through board refreshment and transparency. This aligns with academic findings that independent boards and robust oversight mechanisms correlate with improved fund performance. For instance, the Massachusetts Superior Court's 2024 ruling upholding the majority vote standard for contested elections reinforced the importance of board stability in resisting activist overreach.

Strategic Opportunities for Shareholders

For investors, the TURN proxy battle underscores the importance of scrutinizing governance structures in CEFs. Key considerations include:
1. Board Independence: Funds with independent directors are better positioned to resist self-serving decisions and prioritize long-term value.
2. Transparency: Regular NAV updates and timely earnings calls are critical for assessing a fund's health.
3. Shareholder Rights Plans: Tools like poison pills can deter hostile takeovers while encouraging negotiated resolutions.

The proposed Source Capital merger (valuing TURN at 101% of NAV) further illustrates the potential for governance-driven value creation. By supporting this offer, Marlton is advocating for a transaction that eliminates the fund's trading discount—a win for all shareholders. This contrasts sharply with activist campaigns that force liquidations or conversions, which often benefit the activist at the expense of the broader investor base.

Investment Advice: Navigating the Governance Landscape

Investors in CEFs should adopt a proactive stance:
- Diversify Holdings: Avoid overexposure to funds with weak governance or high discount volatility.
- Monitor Proxy Contests: Track board nominations and shareholder proposals to gauge governance risks.
- Prioritize Funds with Strong Corporate Hygiene: Look for CEFs with clear director election processes, independent oversight, and transparent communication.

The TURN case also highlights the need for regulatory vigilance. The SEC's 2025 Risk Alert on liquidity risk management and affiliated transactions serves as a reminder that board accountability is non-negotiable. Funds failing to meet these standards risk reputational damage and capital erosion.

Conclusion: Governance as a Catalyst for Value

Marlton Partners' proxy battle is more than a corporate drama—it is a test of whether governance reforms can catalyze long-term value in a sector prone to short-termism. By pushing for independent directors and shareholder votes, Marlton is challenging the status quo and setting a precedent for proactive governance. For investors, the lesson is clear: capital preservation and value creation are inseparable from strong, transparent leadership. In an era of rising activism, the funds that thrive will be those that prioritize governance as rigorously as they do returns.

As the September 15, 2025, special meeting approaches, the outcome at TURN will serve as a bellwether for the future of CEF governance. Will the board heed the call for reform, or will entrenched interests prevail? The answer will shape not only the fate of 180 Degree Capital but also the broader landscape of corporate governance in closed-end funds.