Blog Posts Tagged With Shareholder Proposals

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CII and Others Defend Shareholder Proposal Process to the White House

A group of investor organizations sent a letter to Gary Cohn, the Director of the National Economic Council, disputing the Business Roundtable’s assertion that the shareholder proposal process under Rule 14a-8 is among the list of unduly burdensome regulations. A prior discussion of the October 2016 Business Roundtable report on possible Rule 14a-8 reforms is here.

CII, the Principles for Responsible Investment, the Interfaith Center on Corporate Responsibility, the Investor Network on Climate Risk and the Forum for Sustainable and Responsible Investment support the current SEC rule. The group argues that the shareholder proposal process is “well functioning” and does not need to be amended or repealed. Continue Reading

Interview with the New York City Comptroller’s Office on Their Advocacy for Proxy Access

New York City Comptroller Scott Stringer and the New York City Pension Funds launched the Boardroom Accountability Project in the fall of 2014, by submitting shareholders proposals to 75 companies at once, and asking them to give their shareholders the right to nominate directors using the corporate ballot, known as “proxy access.” 

By all accounts, this project has led to the tremendous uptick in providing for proxy access rights through private ordering.  Almost 400 companies have enacted proxy access bylaws, including more than half of the S&P 500.  Below are some thoughts on the topic from Rhonda Brauer, Director of Corporate Engagement in the New York City Comptroller’s Office. Continue Reading

Status of SEC Staff Decisions on Proxy Access Shareholder Proposals and Aggregation Limits on Nominating Shareholder Groups

SEC staff decisions for no-action letters seeking relief from proxy access shareholder proposals have divided between companies being asked to adopt proxy access for the first time and companies being asked to amend existing bylaws.  Now they have taken a further twist based on the requests in those proposals to amend proxy access bylaws.

Adopt Proxy Access Proposals.  Consistent with last year, this season the SEC staff has continued to affirm that shareholder proposals asking companies to adopt proxy access bylaws are considered to be substantially implemented if companies provide terms permitting shareholders that own 3% or more for at least three years to nominate the greater of two directors, or 20%, of the board.  Continue Reading

SEC Staff Permits Exclusion of GHG Emissions Proposal

The SEC Staff determined that a shareholder proposal on greenhouses gases (GHGs) could be excluded from Apple and Deere’s proxy statements as relating to ordinary business operations because the proposal seeks to micromanage the companies by probing too deeply into matters of a complex nature. Although routinely argued, the ability to exclude proposals based on micromanagement are uncommon.  The SEC’s 1998 release indicated that this consideration may be implicated where the proposal “involves intricate detail, or seeks to impose specific time-frames or methods for implementing complex policies.”

The proposal asked the companies’ boards to generate a plan to reach a net-zero GHG emission status by the year 2030 for all aspects of each business that are directly owned, including but not limited to manufacturing and distribution, research facilities, corporate offices and employee travel. Continue Reading

Status of SEC Staff Decisions on Proposals to Amend Proxy Access Bylaws

Since the SEC staff first decided that a shareholder proposal asking to amend several terms of an existing proxy access bylaw could not be excluded from a proxy statement, which we previously discussed here, not much has changed.

The SEC staff has since made similar rulings in several other no-action letters whenever a company had already adopted a market standard 3/3/20/20 proxy access bylaw, and a shareholder proposal asked that company to amend parts of the bylaw. In the situations addressed by the staff so far, the proposals have sought to eliminate the provision that limits to 20 the number of shareholders who can form a nominating group. Continue Reading

Business Roundtable Urges Improvements to Rule 14a-8 and Related Processes

The Business Roundtable recently issued a paper on Modernizing the Shareholder Proposal Process, focused on improving how shareholder proposals are submitted under Rule 14a-8.

The organization argues that the rules that were originally intended to replicate attendance and participation by shareholders at annual meetings are now outdated, as the current process is dominated by a few individuals who file common proposals across a range of companies pursuing “special interests.”  The Roundtable claims that the shareholder proposal process costs companies tens of millions of dollars and countless hours of management time, including negotiating with proponents, seeking SEC no-action relief and preparing opposition statements. Continue Reading

First Proxy Access Nomination Surprises

The question of whether investors would use proxy access bylaws to make director nominations has been answered.

First came the Schedule 13D  with the announcement that GAMCO Asset Management and its affiliates have notified National Fuel Gas Company (NFG) that it is nominating one director pursuant to the company’s proxy access bylaws. The investor owns 7.81% of the company’s outstanding shares. This was the ninth amendment to the Schedule 13D since 2010. GAMCO indicated that it believes its nominee’s skill sets and relevant experience “will be extremely valuable to the [i]ssuer and GAMCO is confident that its [n]ominee will have an immediate positive impact on the Board.” Later in the day, GAMCO filed with the SEC the Schedule 14N required to make proxy access nominations. Continue Reading

SEC Staff Continues to Reject Attempts to Exclude Proposals to Amend Existing Proxy Access Bylaws

The SEC staff has denied another no-action letter seeking to exclude a shareholder proposal to amend an existing proxy access bylaw on the grounds of substantial implementation, similar to its decision on the H&R Block proposal, which we previously discussed here. H&R Block’s proposal has been voted on and received about 30% support, with ISS recommending in favor and Glass Lewis opposing.

In this case, Microsoft adopted a proxy access bylaw in August 2015. The proposal that Microsoft received this summer requested an “enhancement package” to the existing bylaw that included: (a) the number of candidates not to exceed the greater of one quarter of the directors then serving or two; (b) no limit on the number of shareholders that can aggregate their shares to achieve the ownership threshold; (c) no limit on shareholder re-nomination based on the support received in a prior election; and (d) the board should defer decision about the suitability of nominees to the vote of shareholders. Continue Reading

Why Individual Investors File Shareholder Resolutions

A new report from the Rock Center for Corporate Governance with the provocative title “Gadflies at the Gate” tries to answer the question so many companies have asked themselves:  Why do individual investors submit shareholder proposals?

Individual investors can represent up to 25% of the total number of shareholder proposals annually, with over 1,100 submissions in a ten-year time span.  Although those proposals received only 29% support on average, and only a handful of subject matters brought forth by individual investors had any kind of meaningful, favorable vote tallies, the report notes that individual investors can have influence.  The first individual shareholder activism, which dates back to the 1930s, focused on topics that were then viewed as highly controversial, including elimination of classified boards and allowing shareholders to ratify the selection of auditors. Continue Reading

SEC Staff Rejects No-Action Letter Request on Proposal to Revise Existing Proxy Access Bylaw

In what appears to be the first of its kind, the SEC staff has determined that a company cannot exclude a proposal that a board amend its existing proxy access bylaw on the basis of substantial implementation.

The company adopted a proxy access bylaw in July 2015 with fairly common terms permitting shareholders owning 3% or more of shares for at least three years to make nominations, and received a proposal to revise that bylaw in March 2016. The key points in the proposal and the company’s rebuttal were:

  • One shareholder or an unrestricted number of shareholders should be able to form a group.
Continue Reading

Gender Pay Gap Becomes a Proxy Season Issue

The White House recently announced an initiative by 28 companies that have pledged to conduct annual gender pay analysis, similar to a shareholder proposal this proxy season that received a fair amount of press attention.

Arjuna Capital sent proposals to nine major technology companies, including Apple, Alphabet, Facebook, Intel and Microsoft, asking them to prepare reports on their policies and goals to reduce the gender pay gap. This was defined as the difference between male and female earnings expressed as a percentage of male earnings. According to the proposal, the median income for working women is 78% that of their male counterparts. Continue Reading

IPO Governance Practices: A Davis Polk Survey

As public company governance remains in the spotlight, we examined the governance structures of the 50 largest U.S. newly public companies at the time of their initial offerings.  Our survey of both controlled and non-controlled companies found that those companies continue to adopt various takeover defenses at the time they enter the public market, a stark contrast to the current practices of the S&P 500. Continue Reading

Status of Proxy Access Shareholder Proposals, Including Binding Bylaw Proposals

At annual meetings so far this year, investors have already voted on more than 30 shareholder proposals asking companies to make proxy access rights available to shareholders who have owned 3% of common stock for at least three years, with more than 50 proposals remaining to be decided through August.  Some of these proposals have been featured at companies that already adopted bylaws providing shareholders with the right to nominate candidates at those 3%/ three-year ownership thresholds, while other proposals are being presented at companies that are adamantly opposed to proxy access in any form.

Early voting results tend to split largely along the lines of whether companies have an existing proxy access bylaw.  Continue Reading

Board Diversity and Sustainability Proposals Achieve Majority Support

While still early in the season, two ESG proposals have passed, in an unusual level of support for those types of resolutions.

A proposal from Amalgamated Bank to enhance board diversity at a company that the proponent claims has not had any women on its board in over a decade received 52% votes cast in favor.  The resolution asks for a policy to ensure that a wider range of female and minority candidates are included in the pool of potential board nominees.

The company’s statement notes that its corporate governance principles already contain a policy that the nominating committee should include diverse candidates, including women and minorities, in its review of potential nominees.  Continue Reading

SEC Staff Agrees Company Proposal to Retain Supermajority Provisions Directly Conflicts with Simple Majority Vote Shareholder Proposal

Since the SEC staff substantially narrowed the use of Rule 14a-8(i)(9) as a basis to exclude shareholder proposals in Staff Legal Bulletin 14H back in October 2015, which we previously discussed here, that argument has not been used this season, until now.

A company has successfully demonstrated how its own proposal can conform to the legal bulletin that requires it to “directly conflict” with a shareholder proposal.

In response to a fairly common shareholder proposal asking the board to take the necessary steps to change voting requirements from supermajority, in this case 66 2/3%, to a majority of votes cast to effect amendments to its charter and bylaws, the board decided to submit its own proposal asking shareholders instead to ratify those supermajority provisions. Continue Reading

Vanguard Updates Proxy Voting Guidelines on Proxy Access Proposals

Vanguard has shifted its voting policy on proxy access proposals. The major institutional investor indicates that it will continue to evaluate proposals on a case by case basis but has lowered the ownership threshold likely for support from 5% to 3%.

Vanguard believes that proxy access improves shareholders’ ability to participate in director elections while possibly increasing board accountability, but at the same time proxy access should be limited to those with a meaningful long-term interest in the company in order to avoid abuse. As a result, Vanguard indicates that a shareholder or group of shareholders representing 3% of a company’s outstanding shares held for at least three years should be able to nominate directors for up to 20% of the seats on the board. Continue Reading

Shareholder Proposal Pressure Shifts to the Investors Who Vote on Them

The battle over shareholder proposals is turning to the investors who make voting decisions about them.

Several investors lost the ability to exclude shareholder proposals that requested their boards to issue climate change reports assessing any incongruities between the companies’ proxy voting practices and their policy positions. In the supporting statements, the proponent noted that the investors’ parent companies may tout the importance of sustainable investing or ESG factors in deciding where to invest, and yet the investment arms that make voting decisions will abstain from supporting or actually vote against climate change shareholder proposals on the proxies of the investee companies. Continue Reading

SEC Denies No-Action Requests on Proposals Preferring Buybacks over Dividends

Shareholders at several companies will vote on proposals asking boards to adopt a payout policy that gives preference to share repurchases instead of cash dividends. The proponents’ supporting statement extolled the advantages of repurchases as more flexible than dividends and indicated some concern that dividends automatically caused a tax liability for some shareholders.

Companies did not convince the SEC staff in their arguments that the proposals should be excluded. The most common assertion was that the proposal focused on an ordinary business topic. Companies cited numerous prior no-action letters that permitted proposals asking boards to implement share repurchase programs with specific terms to be excluded. Continue Reading

New York City Comptroller Announces Companies Targeted with Proxy Access Shareholder Proposals for 2016 Meetings

The New York City Comptroller issued a press release today announcing that the New York City pension funds (the Funds) have filed 72 new proxy access shareholder proposals, though many were sent to companies that also received the proposals in 2015.

This builds on the Boardroom Accountability Project that the Funds initiated in 2015 with 75 proposals.  According to the release, two-thirds of the proposals that went to vote received majority support and 37 of the companies agreed to enact bylaws to date.

The focus list provides the names of the companies and why they were targeted by the Funds.  It includes 36 companies that received the proposal in 2015 which have not yet enacted, or agreed to enact, proxy access bylaws.  Continue Reading

Companies Argue Substantial Implementation for Proxy Access Shareholder Proposals

A number of companies have submitted no-action letters to the SEC arguing that they have already substantially implemented the proxy access shareholder proposals that they received for their 2016 meetings.

These companies had already adopted proxy access bylaws, but then received shareholder proposals from John Chevedden to be voted on at the 2016 meetings. The proposals contain additional requirements not seen in the most common proposals voted on during the last proxy season, most notably requests to not limit the number of shareholders that can form a group or impose restrictions on proxy access candidates that do not otherwise apply to all the directors. Continue Reading

Proxy Access Shareholder Proposal Exclusion Request Based on State Law Requirements for Record Holders to Present Proposals

An interesting no-action letter request has been submitted to the SEC to exclude a proxy access proposal submitted by Ken Steiner.

Sunoco Products Company argues that neither the proponent nor his qualified representative appeared at last year’s meeting to present a proposal he submitted. For that meeting, Steiner submitted a declassification proposal to the company. As is his common practice, he appointed John Chevedden as his designee. The company asserts that under South Carolina law and the company’s bylaws, resolutions proposed by shareholders must be submitted 75 days in advance of the meeting, and must be proposed by a shareholder of record as of the date of the submission and the record date. Continue Reading

Post-Season Review from Vanguard

In preparing for the upcoming proxy season, it is helpful to examine the information that investors provide about their most recent voting and engagement efforts.  We start with Vanguard.

In the 12 months ended June 30 of this year, Vanguard funds voted at more than 13,000 meetings covering 120,000 items.  The funds supported 93% of director nominees, voting against candidates for reasons related to attendance, independence or committee actions.  Similarly, Vanguard supported 95% of say-on-pay proposals and 88% of equity compensation plans, but did vote against nearly 350 compensation committee members.

On shareholder proposals, Vanguard tended to vote in favor of certain types of governance proposals, such as declassifying boards, while generally abstaining on environmental or social matters.  Continue Reading

SEC Issues New Guidance on Exclusion of Shareholder Proposals

A company that receives a shareholder proposal asking that proxy access rights be given to shareholders owning 3% of outstanding shares for three years, to nominate up to 25% of the board, would not be able to exclude that proposal under Rule 14a-8(i)(9) by offering its own management proposal that would allow shareholders owning at least 5% of the company’s stock for 5 years to nominate 10% of the directors. That is the punch line of the long-awaited Staff Legal Bulletin 14H (SLB 14H) from the SEC Division of Corporation Finance.

Background of SLB 14H.  As we previously described here, the Staff had suspended making no-action decisions on the basis of Rule 14a-8(i)(9) earlier this season after issuing a controversial letter to Whole Foods allowing the company to exclude a proxy access shareholder proposal. Continue Reading

Corporate Political Spending Disclosure Reviewed in 2015 CPA-Zicklin Index

With the backdrop of the focus on next year’s presidential election and frequent reports regarding political spending, the Center for Political Accountability has published the 2015 CPA-Zicklin Index. In its fifth annual report, for the first time, the Index examines all S&P 500 companies, rather than only the top 300. Many companies that were not previously evaluated will find themselves with low scores. Shareholder proposals seeking information on political contributions and lobbying expenses are perennial favorites of social activists.

Among the top 300 companies that have been reviewed in past reports, an increasing number are providing more disclosure. Becton Dickinson, Noble Energy and CSX Corporation received the highest overall scores. Continue Reading

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