John Chevedden recently had one of his more common shareowner proposals at Devon Energy (update at bottom):
Resolved, Shareholders request that our board take the steps necessary so that each shareholder voting requirement in our charter and bylaws, that calls for a greater than simple majority vote, be changed to a majority of the votes cast for and against the proposal to the fullest extent permitted by law. This includes each 67% supermajority provision in our charter and/or bylaws.
Chevedden has assisted me on such proposals. They have typically been winning strong support, often in the 70% and 80% range. His proposal included a supporting statement that noted several other issues with the company. For example, The Corporate Library rated the company “D” with “High Governance Risk,” “Very High Concern” for our takeover defenses and “Very High Concern” for executive pay. See proxy item 3.
Julie Skye presented Chevedden’s proposal at Devon’s Jun 9th AGM. Imagine her shock when the meeting Chair asked if there was a second (there was none) and the Inspector of Elections failed to report out voting results? Fortunately, with assistance from the United States Proxy Exchange, Chevedden was able to cite the fact that in response to Motorola (1987), SEC staff affirmed there is no need for a second on shareowner proposals.
Timothy Smith, of Walden Asset Management, also wrote protesting Devon’s “parliamentary maneuvers to prevent hearing the views of stockholders on a legitimate corporate governance matter” and urging them to “put the vote on the record and properly identify the tally in the 8K form required by the SEC.”
According to Chevedden, the Devon Chair called him and said the proposal passed overwhelmingly and it will thus be reported in the 8-K. Devon had earlier requested a no-action letter from the SEC, relying on Apache and was denied. Interesting coincidence that Apache recently completed its acquisition of Devon Energy’s oil and gas assets in the shallow waters of the Gulf of Mexico Shelf for $1.05 billion.
It is hard for me to believe Devon’s counsel didn’t know that no second is required to present a shareowner resolution at an AGM. Why would a company bother with such fruitless maneuvers? Is anyone grading companies on their performance at AGMs like Lewis Gilbert used to do? If so, they should certainly get a failing grade. Unfortunately, obstruction of shareowner rights, especially at the procedural level, doesn’t get much press. I doubt you’ll be reading of this incident in the mainstream press.
The SEC just posted Devon’s 8-K as this post was scheduled to go live. Here is Devon’s explanation:
A shareholder proposal for a Simple Majority Vote was presented. The Company, in accordance with normal Annual Meeting procedures, asked for a second to the motion for the proposal. There being no second, the vote on the proposal was not called. Subsequent to the meeting, the Company determined upon further investigation that the staff of the Securities and Exchange Commission had actually provided informal guidance on this issue in the form of correspondence issued twenty-three years ago, in which the staff indicated that the voting of proxies received with respect to a shareholder proposal included in a company’s proxy material pursuant to Rule 14a-8 should not be conditioned upon the proposal being seconded at the meeting, absent a second being required by state law or by a company’s governing instruments. Based on this earlier guidance, a second to the motion in support of the shareholder proposal was not required and, accordingly, the vote on the proposal has been certified. A total of 72% of all voted shares were cast in favor of the shareholder proposal. The results of the vote are as follows:
Ted Allen, writing for the RiskMetrics Group, Devon Energy Drops Objection to Shareholder Proposal, infers that presenting a proposal at a meeting or getting a second, if required by state law or corporate bylaws, seems like a needless formality, given that the vast majority of votes are cast before a shareholder meeting. Perhaps the SEC should address this relic in its proxy plumbing concept release.
The Devon case is another example of the various SEC, state, and corporate procedural rules that can thwart shareholders in their efforts to bring resolutions to a vote. While most investors vote in advance through electronic means and seldom attend meetings in person anymore, some of the SEC’s requirements for proponents still reflect the ways that shareholder meetings used to be conducted. For instance, under SEC Rule 14a-8(h)(3), a company may exclude a proponent’s resolution for two years if the proponent (or a qualified representative) fails to appear in person to present the proposal and cannot demonstrate “good cause” for failing to attend.