As regular readers know, I’ve joined with Glyn Holton of the United States Proxy Exchange (USPX) recently in defending a direct assault on shareowner rights that came in the guise of a lawsuit by Apache, a $33 billion company, against John Chevedden. (see Who Should Submit Shareowner Proposals?, HLS Forum on Corporate Governance and Financial Regulation, 3/9/10) In “Apache’s Reply Brief on the Merits,” they characterize our defense of shareowner rights as follows:
It may be fun for USPX (and its co-signer CorpGov.net) to have yet another forum in which to broadcast their hyperbolic message with unconstrained abandon, but it’s nothing short of irresponsible for them to do so here.
They give no clue as to what is being considered “irresponsible.” We know Apache’s CEO G. Steven Farris has publicly declared in a comment letter to the SEC on proxy access that:
Non-binding proposals should not be permitted at all. They have no legal standing under the corporate laws of Delaware and other slates, are an inefficient and ineffective method of communication between shareholders and companies, and distract attention from the genuine business issues presented for shareholder votes at shareholder meetings. The Commission should eliminate the federally created right of share holders to make non-binding proposals.
Is he now trying to obtain through the court what he could not at the SEC? Am I being irresponsible because I oppose that viewpoint?
Since there are no disputes of fact, only of law, John Chevedden filed a Motion for Summary Judgment in Apache Corp. v. Chevedden, which is now on its way to the court. Apache’s response to the MSJ is also in route.
The heart of Apache’s argument is that to be able to submit a shareholder’s proposal, shareowners must have their shares directly registered with the company or, if held in “street name,” they must get a broker letter from the Depository Trust Company’s nominee, Cede & Co.
The reason we are so interested in this case (hyperbolic or not) is that if Apache wins, it could essentially cut shareowner proposals to a trickle. Only directly registered shareowners would be able to file. Those of us holding shares in street name wouldn’t be able to get a broker letter from DTC, or would certainly face additional difficulties, since DTC has no direct knowledge of who the beneficial owners are for the stocks they hold.
As evidence that Chevedden could obtain such a letter, “as many shareholders do” Apache contends, Apache’s attorneys direct the court’s attention to a form on DTC’s website called a “Confirmation of Shares” letter and they attached letters, which they claim support their contention that beneficial owners can easily obtain evidence of ownership from DTC.
However, like the no-action letters in their Brief on the Merits, which they claim supported their case but did not, none of the attached letters involved a shareowner obtaining evidence from DTC that they beneficially owned stock. The purpose of all the letters cited is to nominate directors, give notice of a proposed bylaws amendment or take some other action that DTC can take because they are the legal owner of the shares and they have been requested to do so by direct participants in DTC. For example, here’s how share ownership is “confirmed” in one such letter:
DTC is informed by its Participant, Merrill-Lynch. Pierce Fenner & Smith Incorporated (“Participant”) that on the date hereof 85 of such shares (the “Shares”) credited to Participant’s DTC account are beneficially owned by The Circle K Corporation, a customer of the Participant (the “Customer”). (my emphasis)
If DTC were willing to issue “evidence of ownership” to a beneficial shareowner holding in street name for the purpose of filing a shareowner proposal, it would have to be qualified, such as:
We have received a letter from our participant firm Northern Trust saying they received a letter from non-participant firm RAM Trust saying that a client of theirs, John Chevedden, holds shares of Apache Corp …
It reminds us of the parlor game played by whispering something in a circle, asking your neighbor to pass it on, and finding out how distorted it becomes by the time it goes fully around.
A ruling in favor of Apache would come close to accomplishing a previously stated goal of Apache’s CEO G. Steven Farris to “eliminate the federally created right of share holders to make non-binding proposals.”
I don’t think the law requires that shareowners holding in street name have to get evidence of ownership from DTC, rather than from their bank or broker, as we all have been doing for many years. I have never seen such a letter and Apache, which has accepted letters evidencing ownership from banks and brokers for previous shareowner proposals, has been unable to come up with one tangible instance where that has occurred.
Will the judge push shareowner rights off a cliff? We may know by the end of the week.