Annual Meetings

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To Seek Withdrawal of the Proxy Access Proposal, Disney Amends Governance Guidelines on Independent Chair

As reported, a proxy access proposal was withdrawn at Disney’s annual meeting today after the company made changes to its governance guidelines related board leadership.

According to a company filing, the revised paragraph reads as follows: “The Chairman of the Board shall in the normal course be an independent director unless the Board concludes that, in light of the circumstances then present when any such decision is made, the best interests of shareholders would be otherwise better served. In any circumstances in which the Board determines that the best interests of shareholders would be better served by a Chairman that is not an independent director, the Board shall (a) provide a written statement in its next proxy materials discussing why the different arrangement is in the best interests of shareholders, (b) in connection with each proxy statement thereafter for an annual meeting after which the Board expects the arrangement to continue, determine whether the arrangement remains in the best interests of shareholders and include a written statement in the proxy materials giving the reasons for this determination, and (c) designate one independent Director to serve as Lead Director, with the duties and responsibilities described below.”
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Proxy Advisory Firms’ Policy Positions on Director Compensation

Glass Lewis recently announced a policy of voting against members of the corporate governance committee at companies that adopt bylaws disqualifying director nominees who receive third-party compensation, if those companies do not seek shareholder approval of the bylaw. ISS adopted a similar policy last month. It has been reported that about 30 companies have adopted bylaws that prohibit director nominees from accepting compensation from third parties. 

Glass Lewis recognizes the concern that these types of supplemental compensation arrangements raise in terms of conflicts of interests and dissension in the boardroom. However, the advisory firm is focused on the possibility that the bylaws could restrict the ability of shareholders to recruit candidates in proxy contests, where dissident director nominees may be expected to commit extensive time and face negative attacks, and ultimately hamper shareholder activism that may prove beneficial.
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Virtual-Only Annual Meetings Remain Controversial

After adopting bylaws to allow for annual meetings to be held solely via online technology (known as virtual-only meetings), both PNC Financial Services and Bank of New York Mellon received shareholder proposals requesting that the companies affirm their continuation of in-person annual meetings in addition to allowing for electronic access. The resolutions seek in-person meetings as a way for shareholders to interact directly with the board and management and state that virtual-only meetings would “insulate” companies from shareholder opposition or difficult questions.

Neither company has announced that it intends to hold virtual-only meetings, so the proposals appear to be preemptive. The bylaws were amended this year to permit that annual and special meetings may be held only by means of remote communications, Internet or other electronic communications technology. 
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Talking to the NYSE about the Proxy Season

Recently, in the second of the NYSE Governance and Proxy interview series, I discussed the events this season surrounding proxy disclosure, say-on-pay, activism and proxy advisory firms with Judy McLevey, Vice President, Corporate Action & Market Watch at the NYSE.

The NYSE publishes an informative proxy analytics alert that it updates weekly, summarizing the 2013 management and shareholder proposals. It reveals very few failed say-on-pay votes this season, especially among the S&P 500 companies, although more than 10% of those companies faced at least 30% opposition. Similar to past seasons, only a handful of directors received less than majority support for their elections.
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Shareholder Suit to Compel Annual Meeting to Elect Directors

Last week, Starboard Value, which with nearly 15% of the shares of Office Depot is the company’s largest shareholder, filed a complaint in the Delaware Court of Chancery to order the company to promptly hold an annual meeting to elect directors. On Monday, the company announced that it will hold an annual meeting on August 21.

Section 211 of the Delaware General Corporation Law allows shareholders to compel a meeting for the purpose of electing directors if such a meeting has not been held for 13 months. The company’s last annual meeting was on April 29, 2012.

Office Depot has called a special meeting of shareholders for July 10 to vote on a proposed merger with OfficeMax.
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Bucking the Trend of S&P 500 Companies

Governance surveys indicate that the S&P 500 companies have largely dismantled their takeover defenses and have established so-called “good” governance practices, but that is not the case for all of the large-cap companies. Netflix recently held its annual meeting where a nearly unprecedented five governance shareholder proposals were on the ballot. While none of the proposals’ sponsors actively campaigned, not even filing any notices of exempt solicitations, almost all of the proposals won by a vast majority that was far above the average vote results. The outcomes were particularly high given that insiders own more than 9% of the company.

A proposal to declassify the board received 89% in support.
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Groupon Shareholders Allege Improper Bundling of Incentive Plan Proposal

Seeking injunctive relief, shareholders of Groupon complained that the company improperly aggregated separate and distinct amendments to Groupon’s 2011 incentive plan to be voted on at its annual meeting on June 13, 2013. In the initial proxy statement, a proposal on the company’s ballot asks shareholders to approve amending the plan to increase the total number of shares currently authorized as well as the amount that could be granted to any individual. 

After plaintiffs filed a demand letter seeking supplemental disclosures, the company amended its proxy statement to inform shareholders that the board has already granted its chief operating officer an amount of shares in excess of the individual limit back in January.
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Occidental’s Interesting Majority Vote Provision and Recent Governance Changes

The resignation of Occidental’s chairman at the company’s annual meeting, which has been widely reported, was subject to an unusual majority vote provision. 76% of the votes cast opposed Mr. Irani’s election to the board. As is fairly common with majority voting, the company’s bylaws require any nominee who receives a greater number of votes against his election than in support of such election to tender his resignation. However, rather than having the board consider whether to accept the director’s resignation and publicly announce its decision within 90 days, Occidental’s bylaws provide that the resignation becomes effective upon the earlier of acceptance by the board or October 31 in the year of election.
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Protests Continue at Bank Annual Meetings

With over 50 S&P 500 meetings scheduled for this week, the proxy season begins in earnest.  Similar to last year, the Wells Fargo meeting on Tuesday appears to be one of the first targets of protestors. Reports indicate that while many proclaimed their grievances outside, the meeting was disrupted by dozens who had to be removed, in particular one individual who tried to make a citizen’s arrest of the CEO. The demonstrators complained about the bank’s consumer lending and mortgage practices. There was also some grumbling about the location of the meeting site being in Salt Lake City, after 15 years in San Francisco. 
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Majority Voting for Director Elections in the News

Recent controversy surrounding Hewlett-Packard’s board elections have put the spotlight on referendums for directors, with the New York Times alone running three stories on the subject over two weeks. The first article complained about the difficulty of removing directors after HP’s board members all received majority support even in the face of several active and well-publicized “vote no” campaigns. The article blamed large shareholders, intimating that they tend to be mutual funds and asset management companies that may have inherent conflicts of interest, and criticized HP’s biggest shareholder for supporting management’s recommendation on directors 100% of the time from January 2009 to June 2012. 
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Annual Meeting Preparation: What Will You Do if a Proponent Does Not Show to Present the Shareholder Proposal

As companies prepare for annual meetings, they should consider in advance their preferred approach if the proponent or a designated representative does not attend the meeting to properly present the shareholder proposal that it submitted. 

Rule 14a-8(h)(3) permits a company to exclude, for two years, any shareholder proposals from a proponent who fails to appear and put forward the proposal at the annual meeting, unless the proponent can demonstrate good cause. As evident in a recent SEC staff decision disagreeing with Sprint’s argument to exclude a proposal on this basis, any ambiguities are likely to be viewed in the proponent’s favor.
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Hewlett-Packard Directors Win Re-Election Despite Challenging Campaigns

Hewlett-Packard’s annual meeting yesterday was preceded by a bustle of activity around the agenda items, with a string of news reports announcing that as many as 5 of its 11 board members were the targets of different “vote no” campaigns, primarily due to questions surrounding the company’s acquisition of Autonomy.

Investor groups differed on who they thought should be held responsible. The New York City Comptroller’s Office and CtW Investment Group filed notices of exempt solicitations to explain why they were voting against two of the company’s longest-serving directors, the chair of the finance committee and the chair of the audit committee.
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Examining Apple’s Disputed Proposal to Amend its Charter

There has been much in the press about David Einhorn’s lawsuit seeking an injunction against Apple over a proposal in its annual meeting proxy statement, with various reports indicating that Einhorn is focused on Apple’s vast cash position and the possibility of the company distributing preferred stock to its shareholders. The suit also alleges that Apple improperly bundled several matters into one proposal in violation of Rule 14a-4(a)(3).

Apple’s proposal as described in its proxy statement seeks shareholder approval to amend the company’s charter to (a) implement majority voting for the election of directors; (b) eliminate “blank check” preferred stock; (c) establish a par value for the company stock and (c) make conforming changes.
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GE Talks to Us About Shareholder Outreach

The importance of shareholder engagement is increasingly clear, as annual meetings become more than simply routine events.  For a discussion on how to execute that mandate, and do it well, we turn to GE’s Christoph Pereira, Chief Corporate, Securities & Finance Counsel, and Lori Zykowski, Executive Counsel, Corporate, Securities & Finance for their insights. 

Davis Polk: What does shareholder engagement mean at GE, and how do you carry it out?

GE:  Over the last few years, we have stepped up our shareholder outreach, and we now have a dedicated team that includes those of us in the corporate and securities legal group as well as our investor relations team.
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Majority Support for a Proposal on Political Contributions

Being an election year, it’s no surprise that the most prolific type of shareholder proposal this season asked for disclosure and oversight of political contributions and lobbying expenses.  ISS reports that over 100 such proposals were filed. The proposal generally averages far less than overwhelming support, not even 30% as of the end of May.  However, WellCare recently became the first company in 2012 to receive 53% in favor of the proposal (without counting abstentions), an increase from 43% in the prior year.  Similar proposals also received more than 40% support at five other companies, including Coventry Health Care Inc. (49%) and Anadarko Petroleum Corp.
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A Review of the Court Ruling Denying Delay of Chesapeake’s Annual Meeting

A lot has already been written about the controversy surrounding Chesapeake’s governance and its annual meeting taking place today, but since it is unusual for shareholders to litigate in order to delay an annual meeting with routine ballot items, the court order on the preliminary injunction request gives some insight on the standard.

Chesapeake originally filed a preliminary proxy on April 20th that included information regarding the CEO’s now well-known interest in certain company transactions and related loans. The SEC conducted a review of the proxy after media inquiry highlighted those transactions. The company issued a final version to shareholders on May 11th. 
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Proxy Access Proposal Passes at Nabors

In the first win of its kind, a majority of shareholders at Nabors Industries voted in favor of a proposal for the right of shareholders owning 3% or more for at least three years to nominate directors on a company’s ballot, for up to 25% of the board. The thresholds are the same as those previously adopted by the SEC, which was later struck down by the courts. The shareholder proposal was submitted by a group of New York City Pension Funds led by the City Comptroller of New York, and co-sponsored by similar funds in five other states. The company confirmed news reports that the proposal has passed, but has made no public announcement about the specific vote results.
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Director Elections in Focus

It is an unusual annual meeting where Justin Timberlake acts as the Master of Ceremonies and Taylor Swift, Celine Dion, Lionel Ritchie and others perform for over 14,000, mostly employees, in attendance. But the focus at Wal-Mart’s meeting was clouded by recent allegations of FCPA violations, as evidenced in the annual meeting results announced today

Since slightly more than half of the shares are held by insiders, the opposition by more than 15% to the re-election of former CEO H. Lee Scott is not insignificant. ISS also recommended against current CEO Michael Duke, chairman Robson Walton and audit committee chair Christopher Williams, with those three directors receiving about 13% negative votes.
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NYSE Committee Recommends Reform in Proxy Fees Paid by Companies

The NYSE announced today that the Proxy Fee Advisory Committee (PFAC), formed in September 2010 and comprised of representative investors, brokers and companies, has published its recommendations to change the proxy fees. Brokers and banks are required under SEC rules to distribute company proxy materials to beneficial owners of securities, or shareholders holding in “street name.” In turn, companies must reimburse them for their expenses. The NYSE regulates the amount of fees, subject to SEC review and approval.

The full Report by PFAC explains in summary form the complexities of the proxy distribution process, by reference to the SEC “proxy plumbing” concept release
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Interested Shareholders File Soliciting Materials on Annual Meeting Ballot Items

An increasing number of shareholders are filing solicitation materials advocating for a particular position on a voting matter at annual meetings, the flip-side to our recent discussion of companies filing additional soliciting materials to support management proposals. Some companies that are not accustomed to the practice may be surprised that the shareholder materials are filed under the company’s EDGAR record, as a Notice of Exempt Solicitation. As permissible under Rule 14a-6(g)(1) and Rule 14a-2(b)(1), the solicitation is exempt from requiring the proponents to file accompanying proxy statements.

Since March 1st, shareholders have made over 30 such filings. More than half were filed by the proponents that submitted shareholder proposals being voted on at the meeting.
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Annual Meetings Face Protests from the “99 Percent”

The Occupy Wall Street Movement has turned its focus on annual meetings, which one media outlet is calling “a rare public forum in U.S. business.” News reports indicate that a coalition of unions and other organizations calling itself the “99% Power” intends to target more than 200 meetings, although only a few dozen companies were listed on its website. Some of these organizations sponsored trainings for those interested shareholder protests. Reportedly, over 1,000 demonstrators descended upon the Wells Fargo meeting site, where activists bought single shares of stock to gain entrance and over a dozen were ejected for disrupting the meeting.
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