This proxy season, a number of companies were successful in excluding proxy access shareholder proposals under Rule 14a-8(i)(10) – the “substantially implemented” exclusion – by adopting proxy access bylaws of their own. Proxy access proposals are typically considered substantially implemented if the ownership threshold and holding period match what is requested by the proposal, even though other aspects may differ (i.e. number of nominees, limits on number of shareholders in a group, etc.).
As noted in a blog by Steve Quinlivan, frequent proponent Jim McRitchie has suggested that companies that went this route should be prepared to receive binding proxy access proposals next year. In a lengthy post on his own blog, Jim said:
Entrenched boards and managers who think they have won by gaming the system with unworkable proxy access bylaws will find only temporary ‘relief’ from shareholder action by filing for an exemption under Staff’s newly defined definition of ‘substantial implementation.’ We will be back next year and every year after that if necessary. Binding bylaw resolutions are much more prescriptive than precatory proposals. Gaming the system is likely to come back to haunt you because your hands will be tied when those resolutions pass… and they will.
Whether these proposals will actually be successful is yet to be seen. Companies will fight much harder to keep out a binding bylaw proposal – and given the stakes, the Staff tends to be pickier when it comes to the language of binding proposals. If they do make it past the no-action process, it will be interesting to see whether these proposals can muster enough shareholder enthusiasm at companies that have already implemented proxy access on their own. Also see this blog by Davis Polk’s Ning Chiu…
Inline XBRL: First Filing Made with SEC
Director Conflicts: How Might Personal Charitable Efforts Impinge on Board Duties?
This Fortune article entitled “Why Facebook Should Ask Peter Thiel to Resign from the Board” raises some interesting issues. Here’s an excerpt that gets to the heart of the matter:
Thiel has said that he considers the lawsuits he funded against Gawker to be an act of philanthropy. But any board member engaging in activities, including charitable efforts, that conflicts with the company’s business needs to exit. So, did Thiel inform Facebook’s board that he was secretly funding lawsuits against one of the social media firm’s clients and suppliers? Or did the board find out from a Facebook newsfeed? Peter Thiel and Facebook did not respond to requests seeking comment.
Then again, Facebook may not care very much about corporate governance. After all, it has one controlling shareholder in Mark Zuckerberg. It has granted fewer voting rights to one class of shares and plans to issue a new class of shares that have no voting power. (A shareholder suit has been filed related to the new class.) It has directors with past relationships, like those between Thiel and Marc Andreessen (PayPal). And the disclosures of directors’ backgrounds on its website are grossly out of date. (Just one example: Marc Andreessen left the eBay board in 2014.)
But when board members agree to serve on a corporate board, they are supposed to act as fiduciaries, putting the company first. That includes not engaging in activities that could harm the company’s business.
– Susan Reilly & Broc Romanek