Blog Posts Tagged With Shareholder Proposals

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SEC Staff Decides Special Meeting Shareholder Proposal to Lower Ownership Threshold to 10% of Shares Conflicts with Management Proposal to Ratify Bylaw Set at 25% Ownership Threshold

The SEC has agreed with a company that it can exclude a shareholder proposal that asks the board to amend its existing bylaw to lower the ownership threshold from 25% to 10% of the company’s outstanding shares for calling a special meeting because it conflicts with a management proposal.

The company argued that under Rule 14a-8(i)(9), the shareholder proposal would conflict with a management proposal that it intends to include at its next annual meeting that seeks shareholder ratification of the current 25% ownership threshold included in the company’s bylaws. The staff concurred that the shareholder proposal conflicts because “a reasonable shareholder could not logically vote in favor of both proposals.”

In 2015, after some controversy with proxy access shareholder proposals, the SEC staff issued Staff Legal Bulletin No. Continue Reading

Recent Developments on No-Action Letters Using the SLB 14I

The SEC Staff decided that a no-action letter by Apple citing the recently issued SLB 14I was not excludable based on the information presented. The Staff noted that “We are unable to conclude, based on the information presented in your correspondence, including the discussion of the board’s analysis on this matter, that this particular proposal is not sufficiently significant to the Company’s business operations such that exclusion would be appropriate. As your letter states, ‘the Board and management firmly believe that human rights are an integral component of the Company’s business operations.’ Further, the board’s analysis does not explain why this particular proposal would not raise a significant issue for the Company.”

In another letter from Apple related to a proposal seeking a report on net-zero emission of greenhouse gases where the company had also supplemented their existing ordinary business arguments with a discussion of the board process, the Staff found that the proposal can be excluded based on traditional 14a-8(i)(7) arguments, determining that the proposal seeks to micromanage the company. Continue Reading

First No-Action Letter to Use New Staff Legal Bulletin 14I

Apple has submitted a letter to the SEC Staff arguing that the company should be able to exclude a shareholder proposal because its board has made a determination that the proposal is part of the company’s ordinary business.

The proposal asks the company to establish a Human Rights Committee to enhance its policies and practices on human rights, noting concerns about the company’s operations in China and that government’s views on censorship. The company spends nearly two pages of its letter explaining the importance of human rights to its business, including the “substantial time and resources” devoted by the company to “safeguarding and upholding” human rights. Continue Reading

What We Know So Far about the New SLB on Shareholder Proposals

At a PLI conference, the Division of Corporation Finance Director Bill Hinman spoke about the new Staff Legal Bulletin (SLB) on shareholder proposals, which we previously discussed here.  Next Tuesday, I will talk to Corp Fin’s Matt McNair about how the new SLB should be applied in practice on a webcast on

Here’s what we know beyond the text of the SLB, including our analysis of the implications of Hinman’s remarks:

  • The board analysis set forth in the SLB is not required for a company to make an argument on the basis of ordinary business or economic relevance.   
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Chairman Clayton Stresses Shareholder Engagement and Proxy Process as Part of Commission’s Long-Term Agenda; May Reopen Proxy Plumbing Concept Release

In a speech yesterday, Chairman Clayton expressed interest in examining the proxy process, including investor participation, as one of the Commission’s key long-term agenda items.  He stated that the Commission should take a “hard look” at whether companies’ and shareholders’ needs are being met.  This includes how shareholders are receiving information, the type of information they are getting, and whether they are effectively participating in voting.  At the same time, Clayton is concerned about the costs and burdens on companies in the proxy system.  The upshot is that the Commission may reopen for comment the 2010 proxy plumbing concept release, an ambitious undertaking to review the proxy voting system that got sidetracked once the Dodd-Frank Act was implemented. Continue Reading

New SEC Staff Legal Bulletin Shifts Burden to Boards on Ordinary Business and Economic Relevance Exclusions, Clarifies Proposal by Proxy and Retains Status Quo on Use of Images

Yesterday, the SEC Staff issued a new Staff Legal Bulletin (SLB) on shareholder proposals.  The most striking impact it will likely have initially is on the ordinary business exclusion, Rule 14a-8(i)(7), as the SLB requires boards to undertake the responsibility to analyze proposals.  It appears that the SLB is effective immediately.

Ordinary Business.  A long line of no-action letter precedents provides guidance on which proposal topics constitute ordinary business, and therefore need not be included in the proxy statement, as opposed to those that must be voted on because they focus on significant policy issues that transcend ordinary business.  For example, proposals related to environmental matters or executive compensation are generally considered weighty policy matters and not ordinary business.  Continue Reading

Largest Companies Continue to Provide Political Spending Disclosure According to Latest CPA-Zicklin Index

Politics and governance intersect in the 2017 version of the CPA-Zicklin Index, which examines the disclosure practices of the S&P 500 companies on political spending, scores those companies and divides them into five tiers.  The score distribution shows a strong positive correlation with the average market capitalization of the companies.

Irrespective of the political environment, companies are continuing to provide more information about their corporate political spending, with an increasing number prohibiting certain types of payments. Fifty companies have been designated “trendsetters” for scoring 90% or above, an increase from 28 companies in 2015 and 41 in 2016.

Political spending disclosure Continue Reading

The Proxy Access Battlefront for Next Season? SEC Staff Rejects Attempt to Exclude Proxy Access Shareholder Proposal

The 2017 season that just passed witnessed two kinds of proposals asking companies to amend existing proxy access bylaws. The first type sent to companies earlier in the season sought to amend several provisions, including requesting that the number of board seats available for nomination increase to 25% of the board instead of 20%, and also that an unlimited number of shareholders be allowed to aggregate their holdings to form a nominating group. Companies that had adopted the standard proxy access formulation of permitting a shareholder or a group of no more than 20 shareholders owning 3% or more for three years to nominate up to 20% of the board (known by the shorthand “3/3/20/20”) were denied no-action relief on the basis of substantial implementation. Continue Reading

Independent Chair Proposals and the Relevance of Supporting Statements

So far this season 44 shareholder proposals asking companies to appoint independent chairs of boards are on annual meeting ballots. None of the ones voted on have passed, although eight have received support over 40%, an increase from 2016. This includes several companies with robust lead directors. In the meantime, the number of large-cap companies that combine the chairman and CEO roles have grown, to about 50% of the S&P 500 compared to 43% last year.

In recent years, few companies have submitted no-action requests to exclude these shareholder proposals, since the text of those resolutions and the arguments against them have largely been settled. Continue Reading

The Financial CHOICE Act and the Debate Over Shareholder Proposals

A lively debate is erupting over a provision in the House-approved Financial CHOICE Act that would increase the stock ownership threshold for submitting shareholder proposals in the company’s proxy statement from the current level of $2,000 to 1% of common stock outstanding, and would extend the stockholding duration requirement from one year to three years.

The New York State Comptroller, who manages $186 billion in retirement funds but whose ownership of any particular company is often less than 1%, called it “outrageous and inequitable that we would not be able to make requests of corporate boards through shareholder resolutions.” Other critics of the proposed change have pointed out that even investors with small holdings can have good ideas, and the Wall Street Journal quoted an asset manager’s view that “Shareholder proposals provide an early warning of risks a company may not be aware of, as well as an opportunity to gauge investor sentiment on a wide range of issues.”

These may be valid observations, but they overlook the fact that the owner of a single share is usually able to present a proposal for a vote by the shareholders, and for this reason the by-laws of most companies typically impose no minimum ownership or duration requirements whatsoever. Continue Reading

Shareholder Proposal Update

A recent Bloomberg report found that 226 no-action letters requesting to exclude shareholder proposals were submitted to the SEC in the first quarter of 2017, a 10% increase over the prior year.

After the SEC staff decided that proxy access proposals seeking to change the group aggregation limit from 20 shareholders to 40 or 50 shareholders could be excluded, which we previously discussed here, more companies then sought no-action letter relief for those proposals. It is no surprise then that the report noted that the top shareholder proposal topic for no-action letters in the first quarter was proxy access, followed by social and environmental issues. Continue Reading

Financial CHOICE Act Imposes Sweeping Shareholder Proposal Reforms

The modified version of the legislation, CHOICE Act 2.0, released by House Financial Services Committee Chairman Jeb Hensarling (R-TX), is mostly known for proposing major financial regulatory reforms. Tucked into the lengthy bill, however, are several significant changes that would completely overhaul the shareholder proposal process. Some are similar to proposals by the Business Roundtable, which we previously discussed here.

Ownership Threshold.  Currently, Rule 14a-8 allows any shareholder who owns at least $2,000, or 1%, of a company’s stock to offer a proposal for inclusion in the company’s proxy statement for the annual meeting. The CHOICE Act changes that ownership and holding requirement to permit submission of proposals by only a shareholder owning 1% of the company’s securities entitled to vote on the proposal, or such greater percentage as determined by the SEC, so long as the shareholder has held the stock for a minimum of three years. Continue Reading

Virtual-Only Annual Meetings Come Under Criticism

The growth of holding annual meetings online (virtual-only meetings) by more than 150 companies last year, up from 21 five years ago, has agitated some investors. The New York City Comptroller has announced that this month its pension funds will decide on proposed changes to its guidelines to vote against directors on governance committees where companies host virtual-only meetings. If approved, the policy would apply to S&P 500 companies in 2017, unless companies agree to change their practices at the next meeting, and all portfolio companies in 2018. The Comptroller wants to encourage in-person or hybrid (both in-person and webcast) meetings instead. Continue Reading

After Slight Text Changes, the SEC Staff Decides Proposal Governing Company Access to Vote Tallies Cannot Be Excluded

Several companies excluded proposals this season related to their receipt of periodic vote tallies from Broadridge after receiving no-action letter decisions similar to the SEC staff’s views from two years ago. The proposals asked boards to adopt bylaws so that the running tally of votes cast for matters on the proxy card would not be made available to management or the board, and cannot be used to solicit votes.

The proponent of the proposal proclaims that the objective is “confidential voting,” although the real purpose seems to be curtailing corporate solicitation. The version of the proposal that the SEC staff decided could be excluded asked for the bylaws to govern the tallies related to the “outcome of votes cast by proxy on uncontested matters,” and included all management proposals seeking approval of executive pay, proposals required by law to be subject to shareholder vote and shareholder proposals. Continue Reading

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.
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