Companies Use Range of Arguments to Exclude Proxy Access Proposals

Of the 16 proxy access proposals filed by proponents in 2012 and listed on the ISS Checklist, eight are being challenged at the SEC. Ferro, Hewlett-Packard, Nabors Industries, CME Group, Pioneer Natural Resources, Staples and Charles Schwab have not sought no-action relief from proposals at the commission, according to data from ISS. Conversely, Bank of America, Chiquita Brands International, MEMC Electronic Materials, Sprint Nextel, Textron, Goldman Sachs, Western Union and Wells Fargo have asked the SEC for permission to omit the proposals.

While no-action correspondence for all of the companies is not publicly available yet, the filings that are accessible reveal companies are making a variety of different arguments to exclude proxy access resolutions.

In December, individual proponent Daniel Rudewicz filed a binding proxy access proposal at KSW that would allow investors holding at least a 2 percent stake for one year to be eligible to nominate director candidates for inclusion on the company’s proxy ballot. The company filed a no-action request explaining that the proposal already had been substantially implemented. In an 8-K filing, the company explained that on January 5 its board had adopted an amendment to its bylaws allowing shareowners who have owned a 5 percent stake for at least one year to nominate director candidates for inclusion on the company’s proxy ballot. Rudewicz has sent letters to the SEC arguing that his proposal has not been substantially implemented because the company’s proposal is significantly different.

Western Union took an approach similar to KSW’s. The company appealed to the SEC January 13 for no-action relief from a binding proxy access proposal submitted by Norges Bank. The proposal would provide access for shareowners holding 1 percent of the company’s stock for one year. The company argued that the proposal can be omitted because it conflicted with a management proposal being presented for a shareowner vote at the annual meeting. Western Union explained that it planned to submit for shareowner approval a proposal granting shareowners who hold 5 percent of the company’s stock for three years access to the proxy to nominate board candidates. Then, Western Union on February 13 unveiled a proposal to declassify its board structure and announced it was not submitting a proxy access management proposal for consideration at its 2012 annual meeting. “Norges Bank recognizes the proposal by Western Union to declassify its board. We consider that to be a governance improvement. Proxy access, if approved by shareholders, will be a further improvement of governance. Given that Western Union has been in favor of the principle of proxy access, we encourage the company to support our proposal at the forthcoming annual meeting,” the bank said in a statement.

Goldman Sachs asked for SEC permission to omit a proposal submitted by James McRitchie that requested the company allow shareowners to have board nominees included on corporate proxy statements if the shareowners submitting the nominations have held 1 percent of the company’s shares continuously for two years. In addition, groups of 100 shareowners, who each have held continuously at least $2,000 in market value, or 1 percent of the company’s shares, for at least one year, would be eligible to nominate board candidates. The company argued that the proposal could be excluded because it constitutes multiple proposals, is impermissibly vague and indefinite, is beyond the company’s power to implement and deals with matters relating to the company’s ordinary business. Textron filed a no-action request with the SEC to keep a similar proposal submitted by Ken Steiner off its proxy statement. The company argued that the proposal should be omitted for all of the same reasons that Goldman Sachs cited. The proponent sent the SEC a letter arguing for inclusion and saying the company violated Rule 14a-8 by failing to send him a copy of its no-action request.

Sprint Nextel asked the commission for permission to omit another similar proposal submitted by Ken Steiner. The company argued that the proponent failed to demonstrate eligibility to submit a proposal; the proposal, if implemented, would cause the company to violate state law; the proposal is not a proper subject for action by the company’s shareowners under state law; the proposal is impermissibly vague and misleading; the company lacks the authority to implement the proposal; and the proposal deals with matters related to the company’s ordinary business.

Hewlett-Packard will allow its shareowners to vote on a binding management proxy access proposal at the company’s 2013 annual meeting. If the measure passes, investors who own at least 3 percent of the company’s shares for at least three years will be allowed to nominate up to 20 percent of the company’s directors. Amalgamated Bank’s LongView Fund had submitted a proxy access proposal to the company for inclusion on its 2012 proxy statement. That proposal asked Hewlett Packard to permit shareowners owning 3 percent of the company’s stock for three years to nominate up to 25 percent of the board. After the company announced it would submit a management proposal for a vote, Amalgamated withdrew its resolution.

Note: The above is republished with permission from Rosemary Lally, Editor of the Council of Institutional Investors‘ Governance Alert. Her article appeared in Vol.17, No.8, dated February 23, 2012. The ads above and notes below are mine.

In-coming no action requests. No-action letters issued by the SEC. Glyn Holton has written a series of articles on the attempts to exclude USPX proxy access proposals beginning with Companies Lawyer Up Over Proxy Access – Part 1: Multiple Proposals for his blog, The New Capitalist.

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