November 20, 2014

Proxy Access: Will the Whole Foods No-Action Request Maim Private Ordering?

Proxy access is back to being red hot. So hot that I just calendared this webcast in a few weeks: “Proxy Access: A New World of Private Ordering.” Why is it hot? Some pension funds are frustrated because it’s been three years since the court struck down part of Rule 14a-11 and the SEC hasn’t acted further. In addition, they are angry that many boards are ignoring majority votes “against” individual directors – these boards are keeping directors on by declining to accept their resignations.

As a result, as I blogged a few weeks ago, the New York Comptroller has launched a “Boardroom Accountability Project” – through which 75 companies have received a 3%/3-year proxy access proposal (this is the formula that has received majority support so far). And other pension funds are weighing whether to submit similar proposals to other companies.

Meanwhile, as I blogged a few weeks ago on our “Proxy Season Blog,” Whole Foods has submitted a no-action request to Corp Fin arguing that a 3%/3-year proxy access proposal (submitted by retail holder Jim McRitchie) should be excluded because the company intends to have its own proxy access proposal on the ballot – with a 9%/5-year formula! So Whole Foods is seeking exclusion under Rule 14a-8(i)(9), arguing that the 3%/3-year shareholder proposal is an excludable counterproposal.

As the Whole Foods request argues, the Corp Fin Staff frequently permits companies to exclude shareholder proposals asking companies to provide shareholders with the right to call special meetings on the basis of Rule 14a-8(i)(9), when companies agree to ask shareholders to vote on management proposals at a different ownership threshold level than those sought in the shareholder proposals. But as noted in the proponent’s rebuttal (also noted in this blog), the company’s proposal includes a proxy access threshold that likely would never be triggered – Whole Foods’ largest shareholder owns just 5.4%.

Given that the date of the Whole Foods no-action request is October 23rd, Corp Fin should be making a decision in early-to-mid December. The ramifications of that could be quite important, as it could well end the private ordering movement just as it was really getting started…

Here’s a blog from “The Activist Investor” entitled “The Proxy Access Project We Need” – and here’s one entitled “How Activists Collaborate“…

How Proxy Access Fared During 2014

Here’s a recap from Subodh Mishra of ISS’ Governance Exchange: This year, shareholders have given majority backing to six of 14 resolutions that have thus far gone to a vote, with all but one–at Nabors Industries–passing under company vote requirements. Each of the six followed the 3-percent-over-three-years model, with those resolutions collectively netting roughly 55 percent support of votes cast “for” and “against.”

Shareholders at a number of companies this year, including Apple and Bank of America, voted on a variation of the proposal that called for the right at either a lower ownership threshold and/or over a shorter holding period. Those resolutions fared poorly, averaging just 4.5 percent support of votes cast, with the most recent–voted in September at FedEx–netting just 3.2 percent support.

ISS is currently tracking two more proposals–at Cisco and Microsoft–that will go to a vote in late November and early December, respectively. Meanwhile, at the Nov. 5 annual meeting of shareholders, Oracle voters gave roughly 45 percent backing to an access measure, according to a post-meeting statement from the California State Teachers’ Retirement System (CalSTRS).

“Independent shareholders overwhelmingly supported CalSTRS’ proposal opening the corporate proxy to shareholder candidate nominations for the Oracle Corporation Board of Directors,” said CalSTRS Director of Corporate Governance, Anne Sheehan. “While it received approximately 45 percent of the overall vote, it did not pass due to Larry Ellison’s large inside ownership. However, CalSTRS believes shareholders today sent a strong signal to the board of directors, and we expect more accountability from them, as a result.” CalSTRS said a history of governance shortcomings, along with the third successive year of failure to receive majority backing for its compensation plan, “should be a wake-up call to the board that greater responsiveness is required to address the concerns of long-term shareholders.”

Among S&P 500 companies targeted in the 2015 New York City Funds campaign over multiple “priority issues” are Mylan (pay and governance), Nabors Industries (diversity, pay, and governance), Urban Outfitters (diversity and governance), Cimarex Energy (diversity and fossil fuel), Cabot Oil & Gas(diversity and fossil fuel), and Regeneron Pharmaceuticals (diversity and pay).

XBRL: Anti-Fraud Exemption Has Expired for Most

Here’s a note that I recently got from a member:

One deadline that quietly passed that some may not be aware is the expiration of Rule 406T of Regulation S-T. While Interactive Data Files are subject to the anti-fraud provisions of the Securities Act and the Exchange Act, Rule 406T provided an exemption from the anti-fraud provision for issuers during the first 24 months that they became subject to the XBRL rules. The exemption was available if the issuer made a good faith attempt to comply with rule – and if the issuer promptly corrected, by filing an amended exhibit to fix any mistakes in the Interactive Data File promptly after they became aware of the error. Rule 406T expired on October 31st, so companies who are within the first two years of submitting XBRL exhibits will not be able to rely on this exemption anymore…

– Broc Romanek