Looking for coverage of the Southwest Airlines (LUV) annual meeting, I couldn’t find much. Dispatchers picketed outside. (Southwest Airlines Dispatchers Not Feeling LUV, NBC) The rising cost of fuel and integration of AirTran Airways were listed as concerns. (Despite tough economic conditions, Southwest tells shareholders future bookings look good) Try as I could, I couldn’t find anything on the substance of the meeting with regard to possible governance changes. There’s a reason for that. It was minimal.
Listening to the meeting, there was a retirement award, a raffle and voting on the auditors who were called out by name but not much more. Company proposals 1, 2 and 3 were not presented or announced at the annual meeting. That’s election of directors, say-on-pay, and say-when-on-pay. The later two were required by Dodd-Frank.
We all know Southwest’s excellent reputation for entertaining and pleasing their customers but when it comes to shareowners, where is the LUV?
John Chevedden had one of his perennial favorites on the proxy:
Shareholders request that our board take the steps necessary so that each shareholder voting requirement impacting our company, that calls for a greater than simple majority vote (such as 80%), be changed to a majority of the votes cast for and against the proposal in compliance with applicable laws.
Since the meeting was in Texas and Chevedden lives in Southern California, he got someone else to attend the meeting for him to present the proposal. She arrived early and asked several times to see Marilyn Post, a LUV senior attorney, to ensure her presentation would be included. His representative kept getting the brush-off and never did get to meet Ms. Post but they certainly knew she was there and they knew why she was there. After the item was taken up or skipped over (depending on your interpretation), his representative asked for her opportunity to present but was told after a ten minutes delay that it was too late.
In listening to the replay, the chairman skipped over the company proposals, except for approval of the auditor and that item was as much about auditing the vote at the meeting as it was about approving the auditor for the year.
Then the chairman asked if anyone was there to present the “single majority” proposal. Pausing a few brief seconds, he then went on to the next order of business. The company’s 8-K report included the following description of the proposal and explanation of meeting events:
|Proposal 5 – A shareholder proposal requesting that the Board take the steps necessary so that each shareholder voting requirement impacting the Company that calls for a greater than simple majority vote be changed to a majority of the votes cast for and against the proposal.|
This proposal was not submitted to a vote at the Annual Meeting of Shareholders because the proponent failed to properly present the proposal personally or through a qualified representative at the meeting. Had the proposal been properly presented, the proposal would have received the following votes:
According to Rule 14a-8h:
- Either you, or your representative who is qualified under state law to present the proposal on your behalf, must attend the meeting to present the proposal. Whether you attend the meeting yourself or send a qualified representative to the meeting in your place, you should make sure that you, or your representative, follow the proper state law procedures for attending the meeting and/or presenting your proposal.
- If the company holds it shareholder meeting in whole or in part via electronic media, and the company permits you or your representative to present your proposal via such media, then you may appear through electronic media rather than traveling to the meeting to appear in person.
- If you or your qualified representative fail to appear and present the proposal, without good cause, the company will be permitted to exclude all of your proposals from its proxy materials for any meetings held in the following two calendar years.
So, Chevedden’s presenter attended the meeting (1) but failed to present the proposal (3).
The company asserts the proposal was not submitted to a vote because it was not properly presented. By what authority? His representative was clearly there to present the proposal, as required by subdivision (1). However, they were unable to present as required by subdivison (3), which clearly excludes Chevedden proposals for the next two years if the failure to present was for “good cause.”
The rule says if you or your representative fail to appear and present the proposal, the company can exclude all your proposals for the next two years. The chairman asked if there was anyone there to present the “single majority” proposal, not “simple majority” proposal, was that good cause?
Does the company have any obligation to present their own proposals 1, 2, and 3? Does the company have any obligation to allow the shareowner or their representative to actually present the proposal? They have a fiduciary duty to shareowners. Any relevance in this type of situation?
Side note: Back in July of 2007 I had a long chatboard exchange with John Mackey of Whole Foods, although he identified himself as rahodeb. Mackey had prohibited presentation of a shareowner proposal at their annual meeting. He said SEC’s rules may require the proponent to present the proposal but the rules don’t require the company to allow the presentation. (scroll down to Oh, That’s Who Was Such a Jerk) True? Does the company not have such a legal obligation?
Regardless of any legal obligations, what moral obligations does the company have? I would certainly argue that in this case, since they knew the proponent’s representative was there, and especially since they announced the wrong name for the proposal, Southwest should yield to the will their shareowners. The vote had already been taken and 65% of shares were voted in favor of the simple majority proposal.
Bottomline: The Board should adopt the requested policy and should admit there was “good cause” for lack of a presentation. Chevedden should not be barred from presenting proposals during the next two years. Southwest has gained a great deal of good will with customers by not charging for extra bags. At the moment, it feels like management is weighing down the company’s shareowners with extra baggage… legal or otherwise. Shouldn’t a company treat their owners as well as they treat customers?