Using Shareholder Proposals to Fill Regulatory Gaps

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  • 1 of 5 filed this year
  • 1 of 5 filed this year
  • 1 of 5 filed this year
  • 1,348,450Comments Received
  • 1 of 5 filed this year
  • Using Shareholder Proposals to Fill Regulatory Gaps

    1. 1. 3rd Annual Business Law Symposium “Shareholder Rights: An Idea Whose Time Has Come” Using Shareholder Proposals to Fill Regulatory Gaps Wendy Gerwick Couture Associate Professor University of Idaho College of Law wgcouture@uidaho.edu
    2. 2. CONGRESS CORPORATIONS CITIZENS
    3. 3. CONGRESS CORPORATIONS CITIZENS
    4. 4. CONGRESS CORPORATIONS SHAREHOLDER PROPOSALS SHAREHOLDER-CITIZENS
    5. 5. SHAREHOLDER PROPOSALS  Inclusion of shareholder proposal in company’s proxy statement  Approval by a majority of shareholders  Implementation by corporation
    6. 6. SHAREHOLDER PROPOSALS  Inclusion of shareholder proposal in company’s proxy statement  Approval by a majority of shareholders  Implementation by corporation Compromise re: implementation is possible, even if proposal isn’t if proposal not included or isn’t included or not approved
    7. 7. SHAREHOLDER PROPOSALS  Inclusion of shareholder proposal in company’s proxy statement Eligibility to Submit a Shareholder Proposal “In order to be eligible to submit a proposal, you must have continuously held at least $2,000 in market value, or 1%, of the company’s securities entitled to be voted on the proposal at the meeting for at least one year by the date you submit the proposal. You must continue to hold those securities through the date of the meeting.” 17 C.F.R. § 240.14a-8(b)(1).
    8. 8. SHAREHOLDER PROPOSALS  Inclusion of shareholder proposal in company’s proxy statement Improper Under State Law “If the proposal is not a proper subject for action by shareholders under the laws of the jurisdiction of the company’s organization.” 17 C.F.R. § 240.14a-8(i)(1).
    9. 9. SHAREHOLDER PROPOSALS  Inclusion of shareholder proposal in company’s proxy statement Improper Under State Law “If the proposal is not a proper subject for action by shareholders under the laws of the jurisdiction of the company’s organization.” 17 C.F.R. § 240.14a-8(i)(1). Generally, should draft as a non-binding recommendation or request.
    10. 10. SHAREHOLDER PROPOSALS  Inclusion of shareholder proposal in company’s proxy statement Violation of Proxy Rules “If the proposal or supporting statement is contrary to any of the Commission’s proxy rules, including § 240.14a-9, which prohibits materially false or misleading statements in proxy soliciting materials.” 17 C.F.R. § 240.14a-8(i)(3).
    11. 11. SHAREHOLDER PROPOSALS  Inclusion of shareholder proposal in company’s proxy statement Violation of Proxy Rules “If the proposal or supporting statement is contrary to any of the Commission’s proxy rules, including § 240.14a-9, which prohibits materially false or misleading statements in proxy soliciting materials.” 17 C.F.R. § 240.14a-8(i)(3). includes proposals that are “so inherently vague or indefinite that neither the stockholders voting on the proposal, nor the company in implementing the proposal (if adopted), would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires”
    12. 12. SHAREHOLDER PROPOSALS  Inclusion of shareholder proposal in company’s proxy statement Relevance “If the proposal relates to operations which account for less than 5 percent of the company’s total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company’s business.” 17 C.F.R. § 240.14a-8(i)(5).
    13. 13. SHAREHOLDER PROPOSALS  Inclusion of shareholder proposal in company’s proxy statement Relevance “If the proposal relates to operations which account for less than 5 percent of the company’s total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company’s business.” 17 C.F.R. § 240.14a-8(i)(5). Even if a proposal does not meet the economic threshold, it can nonetheless be “otherwise significantly related to the company’s business” if it raises policy issues of significance to the issuer’s business.
    14. 14. SHAREHOLDER PROPOSALS  Inclusion of shareholder proposal in company’s proxy statement Management Functions “If the proposal deals with a matter relating to the company’s ordinary business operations.” 17 C.F.R. § 240.14a-8(i)(7).
    15. 15. SHAREHOLDER PROPOSALS  Inclusion of shareholder proposal in company’s proxy statement Management Functions “If the proposal deals with a matter relating to the company’s ordinary business operations.” 17 C.F.R. § 240.14a-8(i)(7). EXAMPLES:  management of workforce  decisions on production quality & quantity  retention of suppliers
    16. 16. SHAREHOLDER PROPOSALS  Inclusion of shareholder proposal in company’s proxy statement Management Functions “If the proposal deals with a matter relating to the company’s ordinary business operations.” 17 C.F.R. § 240.14a-8(i)(7). EXAMPLES:  management of workforce  decisions on production quality & quantity  retention of suppliers BUT, if the proposal focuses on sufficiently significant social policy issues, it will “transcend day-to-day business matters” ***One factor: presence of widespread public debate.
    17. 17. SHAREHOLDER PROPOSALS  Inclusion of shareholder proposal in company’s proxy statement Management Functions “If the proposal deals with a matter relating to the company’s ordinary business operations.” 17 C.F.R. § 240.14a-8(i)(7). EXAMPLES:  management of workforce  decisions on production quality & quantity  retention of suppliers BUT, if the proposal focuses on sufficiently significant social policy issues, it will “transcend day-to-day business matters” ***One factor: presence of widespread public debate. COMMON TYPES OF PROPOSALS: • Preparation of report re: issue • Formation of committee re: issue • Assessment of risk re: issue • Minimization of operations implicating issue
    18. 18. SHAREHOLDER PROPOSALS  Percentage of Shareholder Proposals Excluded Via No-Action Relief (2013) 23% Excluded Via SEC No-Action Relief Source: The Conference Board, Proxy Voting Analytics (2009-2013), Executive Summary, at 6 (based on shareholder proposals at Russell 3000 & S&P 500 companies). Inclusion of shareholder proposal in company’s proxy statement Percentage of Environmental & Social Issue Proposals Excluded Via No-Action Relief (2013) 12 % Excluded Via SEC No-Action Relief Source: ISS, 2013 U.S. Proxy Season Review, Environmental & Social Issues, at 10.
    19. 19. SHAREHOLDER PROPOSALS X  Inclusion of shareholder proposal in company’s proxy statement  Approval by a majority of shareholders  Implementation by corporation Compromise re: implementation is possible, even if proposal isn’t included
    20. 20. SHAREHOLDER  PROPOSALS Approval by a majority of shareholders Proxy statement includes: • Shareholder’s proposal and supporting statement (limited to 500 words) • Company’s recommendation on the proposal, with supporting reasons
    21. 21. SHAREHOLDER  PROPOSALS Approval by a majority of shareholders
    22. 22. SHAREHOLDER  PROPOSALS Russell 3000 Companies (2013) 17% % Receiving Majority Support Source: The Conference Board, Proxy Voting Analytics (2009-2013), Executive Summary, at 6. Approval by a majority of shareholders S&P 500 Companies (2013) 12% % Receiving Majority Support Source: The Conference Board, Proxy Voting Analytics (20092013), Executive Summary, at 6. Environmental & Social Issue Proposals (2013) 2% % Receiving Majority Support Source: ISS, 2013 U.S. Proxy Season Review, Environmental & Social Issues, at 8.
    23. 23. SHAREHOLDER PROPOSALS X Inclusion of shareholder proposal in company’s proxy statement  X Approval by a majority of shareholders  Implementation by corporation  Compromise re: implementation is possible, even if proposal isn’t if proposal not included or isn’t included or not approved
    24. 24. SHAREHOLDER  PROPOSALS Implementation by corporation
    25. 25. SHAREHOLDER  PROPOSALS Implementation by corporation ISS 2013 U.S. Proxy Voting Summary Guidelines 2. Board Responsiveness Vote AGAINST or WITHHOLD from individual directors, committee members, or the entire board of directors if: 2.1 For 2013, the board failed to act on a shareholder proposal that receives the support of a majority of the shares outstanding the previous year . . .
    26. 26. SHAREHOLDER  PROPOSALS Implementation by corporation ISS 2013 U.S. Proxy Voting Summary Guidelines 2. Board Responsiveness Vote AGAINST or WITHHOLD from individual directors, committee members, or the entire board of directors if: 2.1 For 2013, the board failed to act on a shareholder proposal that receives the support of a majority of the shares outstanding the previous year . . . “Responding to the shareholder proposal will generally mean either full implementation of the proposal or, if the matter requires a vote by shareholders, a management proposal on the next annual ballot to implement the proposal. Responses that involve less than full implementation will be considered on a case-by-case basis . . .”
    27. 27. SHAREHOLDER PROPOSALS X Inclusion of shareholder proposal in company’s proxy statement  X Approval by a majority of shareholders  Implementation by corporation  Compromise re: implementation is possible, even if proposal isn’t if proposal not included or isn’t included or not approved
    28. 28. CONGRESS CORPORATIONS SHAREHOLDER PROPOSALS SHAREHOLDER-CITIZENS
    29. 29. EXAMPLE OF GAP-FILLING SHAREHOLDER PROPOSAL: CORPORATE POLITICAL SPENDING
    30. 30. Citizens United v. Fed’l Elec. Comm’n, 558 U.S. 310, 365 (2010): “*T+he Government may not suppress political speech on the basis of the speaker's corporate identity. No sufficient governmental interest justifies limits on the political speech of nonprofit or for-profit corporations.”
    31. 31. S. 3369 DISCLOSE Act “A bill to amend the Federal Election Campaign Act of 1971 to provide for additional disclosure requirements for corporations, labor organizations, Super PACs and other entities, and for other purposes.”
    32. 32. 126 Political Issue Proposals 2013 (as of Sept. 1) 66.5% Voted On 24% Withdrawn 9.5% Omitted Source: ISS, 2013 U.S. Proxy Season Review, Environmental & Social Issues, at 12.
    33. 33. Center for Political Accountability Model Shareholder Resolution Political Disclosure and Oversight Resolution 2013 ________________________________________ Resolved, that the shareholders of COMPANY (“Company”) hereby request that the Company provide a report, updated semi-annually, disclosing the Company’s: 1. Policies and procedures for making, with corporate funds or assets, contributions and expenditures (direct or indirect) to (a) participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, or (b) influence the general public, or any segment thereof, with respect to an election or referendum. 2. Monetary and non-monetary contributions and expenditures (direct and indirect) used in the manner described in section 1 above, including: a. The identity of the recipient as well as the amount paid to each; and b. The title(s) of the person(s) in the Company responsible for decisionmaking. The report shall be presented to the board of directors or relevant board committee and posted on the Company’s website.
    34. 34. ISS 2013 U.S. Proxy Voting Summary Guidelines Generally vote FOR proposals requesting greater disclosure of a company’s political contributions and trade association spending policies and activities. . .
    35. 35. March 15, 2013 Response of the Office of Chief Counsel Division of Corporation Finance Re: Exxon Mobil Corporation Incoming letter dated January 22, 2013 The proposal requests that the board study the feasibility of adopting a policy prohibiting the use of treasury funds for direct and indirect political contributions. We are unable to concur in your view that ExxonMobil may exclude the proposal under rule 14a-8(i)(3). We are unable to conclude that the proposal is so inherently vague or indefinite that neither the shareholders voting on the proposal, nor the company in implementing the proposal, would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires. Accordingly, we do not believe that ExxonMobil may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(3). ... Sincerely, Kate Beukenkamp
    36. 36. ISS 2013 U.S. Proxy Voting Summary Guidelines Generally vote AGAINST proposals barring the company from making political contributions. Businesses are affected by legislation at the federal, state, and local level; barring political contributions can put the company at a competitive disadvantage.
    37. 37. 126 Political Issue Proposals 2013 (as of Sept. 1) On average, received 24.3% votes in favor. 66.5% Voted On 24% Withdrawn 9.5% Omitted Source: ISS, 2013 U.S. Proxy Season Review, Environmental & Social Issues, at 12.
    38. 38. 126 Political Issue Proposals 2013 (as of Sept. 1) On average, received 24.3% votes in favor. One proposal received majority support in 2013. 66.5% Voted On 24% Withdrawn 9.5% Omitted Source: ISS, 2013 U.S. Proxy Season Review, Environmental & Social Issues, at 12.
    39. 39. Proxy Statement of CF Industries Holdings, Inc. PROPOSAL TO ISSUE REPORT ON POLITICAL USE OF CORPORATE ASSETS Resolved, that the shareholders of CF Industries Holdings ("Company") hereby request that the Company provide a report, updated semiannually, disclosing the Company's: 1. Policies and procedures for making, with corporate funds or assets, contributions and expenditures (direct or indirect) to (a) participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, or (b) influence the general public, or any segment thereof, with respect to an election or referendum. 2. Monetary and non-monetary contributions and expenditures (direct and indirect) used in the manner described in section 1 above, including: a. The identity of the recipient as well as the amount paid to each; and b. The title(s) of the person(s) in the Company responsible decision-making. The report shall be presented to the board of directors or relevant board committee and posted on the Company's website. ... The Board unanimously recommends a vote AGAINST this proposal.
    40. 40. Proxy Statement of CF Industries Holdings, Inc. PROPOSAL TO ISSUE REPORT ON POLITICAL USE OF CORPORATE ASSETS Resolved, that the shareholders of CF Industries Holdings ("Company") hereby request that the Company provide a report, updated semiannually, disclosing the Company's: 1. Policies and procedures for making, with corporate funds or assets, contributions and expenditures (direct or indirect) to (a) participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, or (b) influence the general public, or any segment thereof, with respect to an election or referendum. 2. Monetary and non-monetary contributions and expenditures (direct and indirect) used in the manner described in section 1 above, including: a. The identity of the recipient as well as the amount paid to each; and b. The title(s) of the person(s) in the Company responsible decision-making. The report shall be presented to the board of directors or relevant board committee and posted on the Company's website. ... The Board unanimously recommends a vote AGAINST this proposal. Votes For Stockholder proposal Votes Against 25,079,125 12,943,718 Abstentions 5,730,689 Broker Non-Votes 3,402,226 Form 8-K, filed 5-16-13
    41. 41. Center for Political Accountability, The 2013 CPA-Zicklin Index of Corporate Political Accountability and Disclosure • Almost 70 percent of companies in the top echelons of the S&P 500 are now disclosing political spending made directly to candidates, parties and committees. • Almost one out of every two companies in the top echelons of the S&P 500 has opened up about payments made to trade associations.
    42. 42. EXAMPLE OF GAP-FILLING SHAREHOLDER PROPOSAL: HYDRAULIC FRACTURING
    43. 43. DEPARTMENT OF THE INTERIOR Bureau of Land Management Supplemental Notice of Proposed Rulemaking and Request for Comment 43 C.F.R. Part 3160 • Public disclosure of chemicals used in hydraulic fracturing operations on Federal and Indian lands. • Confirmation that wells used in fracturing operations meet appropriate construction standards. • Requirement that operators put appropriate plans in place for managing flowback waters from fracturing operations. Comment Period Closed on August 23, 2013 1,348,450 Comments Received
    44. 44. Pioneer Natural Resources Company PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES STOCKHOLDER PROPOSAL RELATING TO HYDRAULIC FRACTURING RESOLVED: Shareholders request that Pioneer Natural Resources Company issue a report to shareholders, using quantitative and qualitative measures to describe how the Company manages the environmental and social challenges and opportunities associated with well stimulation that employs hydraulic fracturing. The report should be available by December 1, 2013, be prepared at reasonable cost, and omit proprietary information. ... THE BOARD OPPOSES THIS STOCKHOLDER PROPOSAL AND UNANIMOUSLY RECOMMENDS A VOTE AGAINST ITEM FOUR FOR THE FOLLOWING REASONS: ... Recommendation In light of the Company’s well-developed risk management systems and its strong public commitment to stakeholder engagement and public disclosure, the Board opposes this stockholder proposal and unanimously recommends that stockholders vote AGAINST the approval of the stockholder proposal.
    45. 45. ISS 2013 U.S. Proxy Voting Summary Guidelines Generally vote FOR proposals requesting greater disclosure of a company’s (natural gas) hydraulic fracturing operations, including measures the company has taken to manage and mitigate the potential community and environmental impacts of those operations . . .
    46. 46. Pioneer Natural Resources Company PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES STOCKHOLDER PROPOSAL RELATING TO HYDRAULIC FRACTURING RESOLVED: Shareholders request that Pioneer Natural Resources Company issue a report to shareholders, using quantitative and qualitative measures to describe how the Company manages the environmental and social challenges and opportunities associated with well stimulation that employs hydraulic fracturing. The report should be available by December 1, 2013, be prepared at reasonable cost, and omit proprietary information. ... THE BOARD OPPOSES THIS STOCKHOLDER PROPOSAL AND UNANIMOUSLY RECOMMENDS A VOTE AGAINST ITEM FOUR FOR THE FOLLOWING REASONS: ... Recommendation In light of the Company’s well-developed risk management systems and its strong public commitment to stakeholder engagement and public disclosure, the Board opposes this stockholder proposal and unanimously recommends that stockholders vote AGAINST the approval of the stockholder proposal. For 38,715,582 Against 54,045,769 Abstain 21,392,109 Broker non-votes 8,348,884 Form 8-K, filed 5-28-13
    47. 47. EXAMPLE OF GAP-FILLING SHAREHOLDER PROPOSAL: BOARD DIVERSITY
    48. 48. 24 Board Diversity Proposals 2013 (as of Sept. 1) 13% Voted On 83% Withdrawn 4% Omitted Source: ISS, 2013 U.S. Proxy Season Review, Environmental & Social Issues, at 12.
    49. 49. ISS 2013 U.S. Proxy Voting Summary Guidelines Generally vote FOR requests for reports on the company’s efforts to diversify the board . . . Vote CASE-BY-CASE on proposals asking the company to increase the gender and racial minority representation on its board . . .
    50. 50. 24 Board Diversity Proposals 2013 (as of Sept. 1) On average, received 35.8% votes in favor. 13% Voted On 83% Withdrawn 4% Omitted Source: ISS, 2013 U.S. Proxy Season Review, Environmental & Social Issues, at 12.
    51. 51. 24 Board Diversity Proposals 2013 (as of Sept. 1) On average, received 35.8% votes in favor. One proposal received majority support in 2013. 13% Voted On 83% Withdrawn 4% Omitted Source: ISS, 2013 U.S. Proxy Season Review, Environmental & Social Issues, at 12.
    52. 52. URBAN OUTFITTERS, INC. Proxy Statement PROPOSAL 6. SHAREHOLDER PROPOSAL REGARDING BOARD NOMINEE REQUIREMENTS ... BE IT RESOLVED: That the Board of Directors consistent with their fiduciary duties: 1. Take every reasonable step to ensure that women and minority candidates are in the pool from which Board nominees are chosen; 2. Publicly commit itself to a policy of board inclusiveness to ensure that: • Women and minority candidates are routinely sought as part of every Board search the company undertakes; • The Board strives to obtain diverse candidates by expanding director searches to include nominees from both corporate positions beyond the executive suite and non-traditional environments such [as] government, academia, and non-profit organizations; and • Board composition is reviewed periodically to ensure that the Board reflects the knowledge, experience, skills, and diversity required for the Board to fulfill its duties. 3. To report to shareholders, at reasonable expense and omitting proprietary information, its efforts to encourage diversified representation on the Board. ... THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” PROPOSAL 6.
    53. 53. URBAN OUTFITTERS, INC. Proxy Statement PROPOSAL 6. SHAREHOLDER PROPOSAL REGARDING BOARD NOMINEE REQUIREMENTS ... BE IT RESOLVED: That the Board of Directors consistent with their fiduciary duties: 1. Take every reasonable step to ensure that women and minority candidates are in the pool from which Board nominees are chosen; 2. Publicly commit itself to a policy of board inclusiveness to ensure that: • Women and minority candidates are routinely sought as part of every Board search the company undertakes; • The Board strives to obtain diverse candidates by expanding director searches to include nominees from both corporate positions beyond the executive suite and non-traditional environments such [as] government, academia, and non-profit organizations; and • Board composition is reviewed periodically to ensure that the Board reflects the knowledge, experience, skills, and diversity required for the Board to fulfill its duties. 3. To report to shareholders, at reasonable expense and omitting proprietary information, its efforts to encourage diversified representation on the Board. ... THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” PROPOSAL 6. For 35,366,830 Against 91,388,851 Abstain 4,919,858 Broker Non-Vote 2,849,019 Form 8-K, filed 5-31-13
    54. 54. Institutional Investors note Progress as Eight Companies appoint Women to their Boards Investors Working with Thirty Percent Coalition Continue Shareholder Advocacy Initiatives on Board Diversity Boston, MA – September 18, 2013 – While commending the appointment of women to the boards of directors at eight companies, QEP Resources, Inc., Noble Energy, Inc., Quanta Services Inc., Riverbed Technology, Inc., Crane Co., LPL Financial Holdings, Inc. American Financial Group, Inc. and NetApp, Inc., investors working with the Thirty Percent Coalition continue to pursue companies in the S&P 500 and Russell 1000 with no women on their boards of directors.
    55. 55. EXAMPLE OF GAP-FILLING SHAREHOLDER PROPOSAL: DISCRIMINATION BASED ON SEXUAL ORIENTATION OR GENDER IDENTITY
    56. 56. S 815 Employment Non-Discrimination Act of 2013 (ENDA) 113th CONGRESS 1st Session [Report No. 113-105] To prohibit employment discrimination on the basis of sexual orientation or gender identity. IN THE SENATE OF THE UNITED STATES
    57. 57. ISS 2013 U.S. Proxy Voting Summary Guidelines Generally vote FOR proposals seeking to amend a company’s EEO statement or diversity policies to prohibit discrimination based on sexual orientation and/or gender identity, unless the change would result in excessive costs for the company.
    58. 58. Company AGL Resources Sexual Orientation Non-Discrimination Proposal Vote Results in 2013 41% American Financial 36.8% Crosstex Energy 15.6% ExxonMobil 19.8% Leggett & Platt 43.8% Teco Energy 23.7% Universal Forest Products 49.1% Source: ISS, 2013 U.S. Proxy Season Review, Environmental & Social Issues, at 24.
    59. 59. Universal Forest Products, Inc. Proxy Statement PROPOSAL TO AMEND OUR EQUAL EMPLOYMEN OPPORTUNITY POLICY Resolved: The Shareholders request that Universal Forest Products amend its written equal employment opportunity policy to explicitly prohibit discrimination based on sexual orientation and gender identity and to substantially implement the policy. ... The Board of Directors recommends a vote AGAINST this proposal for the following reasons: . . . For that reason, our Board believes that the adoption of the proposal is unnecessary and not in the best interest of our Company’s shareholders.
    60. 60. EXAMPLE OF GAP-FILLING SHAREHOLDER PROPOSAL: NET NEUTRALITY
    61. 61. Feb. 10, 2012
    62. 62. Feb. 10, 2012
    63. 63. CONGRESS CORPORATIONS SHAREHOLDER PROPOSALS SHAREHOLDER-CITIZENS
    64. 64. 3rd Annual Business Law Symposium “Shareholder Rights: An Idea Whose Time Has Come” Using Shareholder Proposals to Fill Regulatory Gaps Wendy Gerwick Couture Associate Professor University of Idaho College of Law wgcouture@uidaho.edu

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