January 13, 2010

Shareholder Proposals: Chevedden Sued Over Eligibility

One of the longer-standing complaints in the corporate community has been the relatively unchecked ability of John Chevedden to submit dozens of shareholder proposals to companies each year – at companies where he doesn’t have an ownership interest. On its face, this violates the shareholder proposal rule’s eligibility requirements under Rule 14a-8(b), but Chevedden typically has been able to successfully argue to the SEC Staff that he is acting as an agent for another shareholder – rather than as a conduit because he can’t satisfy the eligibility requirements.

Many corporate secretaries will be cheering to hear that Chevedden was recently sued over his efforts to submit a proposal (although this situation doesn’t involve alter egos). Rather than solely rely on the Corp Fin Staff to allow exclusion of his proposal, Apache Corporation has also sued Chevedden in a federal district court. Here is the complaint filed in court – and here is Apache’s exclusion notice sent to the SEC on the same date (both are posted in our “Shareholder Proposals” Practice Area).

Note that unlike a typical situation, Apache doesn’t appear to be “requesting” exclusion – this is a notice filing that the company intends to exclude the proposal. Per Rule 14a-8(j): “If the company intends to exclude a proposal from its proxy materials, it must file its reasons with the Commission no later than 80 calendar days before it files its definitive proxy statement and form of proxy with the Commission.” Note that the rule doesn’t say that you need to request exclusion – here it appears that Apache complied with the notice requirement, gave its reasons for exclusion and essentially said it is going to court to get a ruling that it can exclude the proposal.

Apache is no stranger to being in court over a shareholder proposal, having been sued by NYCERS two years ago over the exclusion of a employment-related proposal – after the exclusion was allowed by the Corp Fin Staff – under the “ordinary business” basis (ie. 14a-8(i)(7)).

Here are some thoughts from an anonymous member: “I am glad they are taking Chevedden to court. More companies should make sure his shenanigans have some real consequences. If he started getting his butt hauled into court all across the country, then his proposals would cost more than the price of a stamp.”

SEC Adopts Rules Governing Say-on-Pay Votes for TARP Companies

Yesterday, the SEC adopted rules implementing the requirement under Section 111(e) of EESA that requires companies that have received TARP money to conduct a separate shareholder advisory vote to approve the compensation of executives during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding. Since most companies have repaid their TARP money, not many will be subject to these new rules.

The SEC amended Rule 14a-6(a) to clarify that a TARP recipient is not required to file a preliminary proxy statement (see pages 8-11 of the adopting release) – but the adopting release is silent as to whether non-TARP companies must file preliminary proxy materials as a consequence of voluntarily including a management-sponsored shareholder advisory vote on executive compensation on the ballot. As a result, I believe non-TARP companies continue to need to file preliminary materials because it is not carved out under the existing rules (and I believe that every company that has put up a MSOP proposal – with one exception – has filed preliminary materials).

Webcast: “ESG Disclosures: Environmental, Climate Change, Social Responsibilities”

Tune in tomorrow for our webcast – ““ESG Disclosures: Environmental, Climate Change, Social Responsibilities”” – to hear Gail Flesher and Betty Moy Huber of Davis Polk, Brink Dickerson of Troutman Sanders, Dave Lynn of and Morrison & Foerster and Jane Whitt Sellers of McGuireWoods discuss environmental, climate change and social responsibility disclosures and how companies are rethinking their approach to such disclosures.

Renew Today: Since all memberships are on a calendar-year basis and expired at the end of December, if you don’t renew today, you will be unable to access this webcast. Renew now for ’10! [Here is our “Renewal Center” to better enable you to renew all your expired memberships and subscriptions.]

And then next Thursday, catch another webcast – ““Pat McGurn’s Forecast for 2010 Proxy Season: Wild and Woolly”” – to hear Pat McGurn of RiskMetrics’ ISS Division give a recap of what transpired during the 2009 proxy season and predict what to expect for the upcoming proxy season.

– Broc Romanek