December 4, 2014

Proxy Access: Corp Fin Grants Whole Foods No-Action Request – Now What?

A few weeks ago, I blogged about “Proxy Access: Will the Whole Foods No-Action Request Maim Private Ordering?” As most people expected, Corp Fin did indeed grant Whole Foods no-action request yesterday – meaning that the company can exclude a 3%/3-year shareholder proposal – and instead place the company’s own 9%/5-year proposal on the ballot. In allowing exclusion, Corp Fin relied on the Rule 14a-8(i)(9) counter-proposal basis.

As I noted in my prior blog, it’s highly unlikely that the company’s 9%/5-year would ever be triggered given that the company’s largest shareholder owns 5.4% and a 5-year holding period is quite long. This leads to a few musings including:

– How will shareholders react to this type of move by a company? The investors I have heard speak on this topic aren’t happy that companies might respond with their own counterproposals.
– Will shareholders even vote in favor of management’s threshold if they feel the bar is too high? My guess is that management’s proposal won’t even muster majority support as shareholders place pressure on Whole Foods to adopt what they think is a more reasonable threshold in ’16.
– Would Corp Fin let any counterproposal knock out a shareholder proposal? What about a counterproposal with a 20%/10-year threshold?

Bear in mind that nearly half of the several dozen companies that rushed to adopt fee-shifting bylaws over the past few months have already pulled them in the face of shareholder anger. I understand the legitimate fears about short-term activists – but companies should engage with their long-term shareholders (and holding for three years is “long-term” in my book). Anyways, add these questions to the many others that will be analyzed on Monday’s webcast: “Proxy Access: A New World of Private Ordering.” Also don’t forget my podcast with Mike Garland of the Office of New York City Comptroller about the 75 access proposals that his office has sent to companies…

Not that it matters, but note that Corp Fin’s response to Whole Foods – dated December 1st – is not yet posted on the SEC’s site. We have the response only because the proponent, Jim McRitchie, has posted it on his…

SCOTUS: Justice Scalia Questions Deference Given SEC

As noted by Akin Gump’s Joseph Boryshansky in this blog: A recent statement by Justice Antonin Scalia accompanying the Supreme Court’s denial of certiorari in a criminal insider trading case – Douglas F. Whitman v. United States – raises fundamental questions about how the courts interpret the federal securities laws and the degree of deference they give to the SEC in the context of criminal enforcement. The unusual “Statement” follows the denial. In it, Justice Scalia (with Justice Thomas concurring), questions whether an executive agency – such as the SEC – is entitled to deference when it interprets a law that “contemplates both criminal and administrative enforcement.” Harkening back to 1611, Justice Scalia says:

I doubt the Government’s pretensions to deference. They collide with the norm that legislatures, not executive officers, define crimes. When King James I tried to create new crimes by royal command, the judges responded that “the King cannot create any offence by his prohibition or proclamation, which was not an offence before.” Case of Proclamations, 12 Co. Rep. 74, 75, 77 Eng. Rep. 1352, 1353 (K. B. 1611). James I, however, did not have the benefit of Chevron deference. See Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984). With deference to agency interpretations of statutory provisions to which criminal prohibitions are attached, federal administrators can in effect create (and uncreate) new crimes at will, so long as they do not roam beyond ambiguities that the laws contain. Undoubtedly Congress may make it a crime to violate a regulation, . . . but it is quite a different matter for Congress to give agencies- let alone for us to presume that Congress gave agencies-power to resolve ambiguities in criminal legislation. . . .(some citations omitted).

The Justices agree to deny the petition, but note that “when a petition properly presenting the question [of deference] comes before us, [we] will be receptive to granting it.”

The Politics of the SEC

This article entitled “The SEC is Broken” notes how the SEC has become much more politicized over the past decade (and why). Here’s an excerpt quoting former SEC Chair Arthur Levitt:

“It’s much more difficult running the agency today than when I was there,” Levitt told IA. “By and large during my years at the commission, the environment was collegial. We were a fairly close-knit group; it was almost a family environment. We tended to know what each other thought about a particular issue and our counsels worked together to iron out differences.”

However, since he left the SEC, Levitt said the commission has become more politicized and “commissioners tend to represent an ideology, rather than what may benefit investors or what may be good for the markets.” The commissioners “look upon every decision in terms of whether it coincides or clashes with their political ideology, whatever that might be.”

The growing trend over the years of appointing former Capitol Hill staff members to SEC commissioner posts has contributed to a politically charged agency. “The commission is made of up largely of former [Hill] staffers, rather than as in the past [when it consisted of] distinguished lawyers and accountants,” Levitt said. These commissioners “tend to carry with them the biases of the people they’ve worked for” on the Hill.

Meanwhile, here’s an article entitled “GAO Report: SEC Is Bungling Collection and Accounting of Billions in Fines”…

– Broc Romanek