Robert A.G. Monks submitted a couple of shareowner proposals asking for chair and CEO positions to be split. The companies appealed to the SEC and were granted no-action letters… the SEC would take no action if the companies left the proposals off their proxies. Now Monks says the SEC should get out of the business of reviewing proposal since “its bureaucracy has often been an obstacle, rather than a help, to those seeking better corporate practices.”
The SEC should use its scarce resources for other purposes. According to Monks,
Corporations have lawyers who are quite capable of evaluating whether proposals are required to be included in their proxy materials under SEC rules. If the corporation’s lawyers find a proposal not legitimate, the corporation need not include it. And if the corporation’s lawyers are not certain, then there is little harm in having the proposal included. (On shareholder proposals, SEC should exit the no-action letter biz, P&I, 5/11/10)
That may be true, but many managers of corporations want to deny shareowners a voice at any turn. Apache has been among the most vocal in this category. Recently, we reported that they ended their annual meeting abruptly, without taking any questions from shareholders. (Apache to Shareowners: Give Us Your Money and Shut Up) 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.
I very rarely disagree with Bob Monks but I must in this one instance. While I totally understand why he sees the no-action letter process as problematic, given the startling result his resolutions obtained, doing away with the process would hurt shareowners in the long run. Many companies, such as Apache, would routinely refuse to include resolutions in the company proxy. They view the proxy as management’s proxy, not as the company’s or shareowner’s proxy. Shareowners would have to go to court to protect their rights. While shareowners must front court expenses from their own pockets, corporate management simply taps the corporate treasury. Essentially, shareowners end up paying twice.
In fact, Apache took John Chevedden to court, claiming he had no right to submit a resolution, since his name didn’t appear on the company’s list of registered owners. (Most retail shareowners hold their shares through street name registration. Their shares are held in trust by the Depository Trust Company’s nominee, Cede & Co.) In Apache v Chevedden, Apache won the right to keep Chevedden’s very simple resolution off the proxy because the judge didn’t fully understand the stock ownership structure and how it meshes with SEC rules. The SEC has since received at least two, maybe three, no action requests based on similar arguments used in that case and has flatly rejected them. (Apache v. Chevedden: a Non-Starter)
Sure, SEC staff sometimes get it wrong, as they obviously did in the case of the resolutions cited by Monks. However, doing away with the process would send many cases through an expensive process in the courts, which know little of arcane SEC rules and are already clogged with more than they can handle. Monks should appeal his cases directly to the Commission.