It is wonderful to have supportive friends, especially when they represent socially responsible investors and advisors. John Chevedden, Myra K. Young and James McRitchie extend sincere thanks to the following for sending letters of concern regarding their recent lawsuits against us to: EMC Corp, Omnicom, Express Scripts, Chipotle Mexican Grill, Inc.:
- Julie Goodridge, President and CEO, NorthStar Asset Management, Inc.
- Lauren Compere, Managing Director, Boston Common Asset Management
- Shelley Alpern, Director of Social Research & Advocacy, Clean Yield Asset Management
- Tim Smith, Director, ESG Engagement, Walden Asset Management
- Sr. Kathleen Coll, Administrator, Shareholder Advocacy, CHE/Trinity Health
- Mark A. Regier, Director of Stewardship Investing, Everence/The Praxis Mutual Funds
- Steven J. Schueth, President, First Affirmative Financial Network
- John Harrington, President and CEO, Harrington Investments, Inc.
- Michèle Solá, Director, Manhattan Country School
- Julie Fox Gorte, Senior Vice President for Sustainable Investing, Pax World Management LLC
- Laura Campos, Director of Shareholder Activities, The Nathan Cummings Foundation
- Judith Hill, Chief Financial Officer, Tides Foundation
- Benjamin Lovell, CFA President, Zevin Asset Management, LLC
- Leslie Samuelrich, President, Green Century Capital Management
- Laura Berry, Executive Director, Interfaith Center on Corporate Responsibility
- Cathy Rowan, Corporate Responsibility Coordinator, Maryknoll Sisters
- Nora M. Nash, OSF, Sisters of St. Francis of Philadelphia
- Frank Sanchez, Executive Director, The Needmor Fund
- Jonas Kron, Director of Shareholder Advocacy, Trillium Asset Management, LLC
What follows is the letter sent to EMC. Very similar letters were also sent to the other three companies.
March 17, 2014
Joseph M. Tucci
Chairman of the Board of Directors and Chief Executive Officer EMC Corporation
176 South Street
Hopkinton, MA 01748
Dear Mr. Tucci,
As investors, we are writing to express our concerns about the fact that EMC filed a lawsuit in a U.S. District Court against investor John Chevedden. The suit was dismissed by Judge Mark Wolf. We are concerned that you have chosen to pursue an expensive litigious process rather than the time honored SEC route to stop an investor from submitting a resolution for a vote at the 2014 stockholder meeting. We are aware that EMC sought a no-action letter first from the SEC, and that after the SEC did not rule in the company’s favor it expanded the grounds for omission and went to court.
At this time at least four companies, EMC included, have filed lawsuits against Mr. Chevedden. Express Scripts, Chipotle, Omnicom, and EMC Corporation filed lawsuits against an investor solely for the purpose of omitting a proposal from the proxy. Arguments that normally fall under the purview of the Securities and Exchange Commission (SEC), such as questions of ownership, “false and misleading” claims, and “vague” language, among others are being cited in each case. We believe that bypassing well-established, functional, and mutually-agreed upon processes and sidestepping the role of the SEC as the “moderator “of engagement between corporations and shareholders diminishes the authority of the SEC and are unnecessary. In EMC’s case, while you certainly had the legal right to go to court to overturn the SEC’s no action decision, we question the necessity, wisdom and use of shareowner resources to do so. All cases have recently been settled in court, three of which have been determined in the defendants’ favor, but our concerns about the motivations and implications of these suits remain.
The mission of the U.S. Securities and Exchange Commission is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation” [emphasis added]. Shareholders who file proposals in an attempt to engage with the corporation have traditionally relied upon the SEC to perform an arbiter role as necessary, acting as an unbiased and neutral third party to protect the interests of both sides. Litigation, by comparison, is costly to all parties involved – the shareholder being sued, the corporation bringing the suit, and the court system, which must spend taxpayer money and judicial time in mediating a process that has been otherwise properly adjudicated by the no-action process at the SEC for a much lower cost to both the proponent and the corporation.
In its judgment against EMC in early March, the U.S. District Court in Massachusetts brought up issues that align with our concerns. The Court commented that dealing with the matter on declaratory judgment, in which the company has not presented all of its arguments to the SEC first, would be “reversing the statutory scheme,” and would also deny the SEC of its role, as the procedures of the SEC provide shareholders with a “relatively inexpensive opportunity to get claims disputes resolved.”
We understand that EMC believes it has strong arguments against specific statements made by the proponents. Assuming for the sake of argument that these objections are valid, the SEC, as we noted above, is well experienced in adjudicating such disputes. Should the company disagree with the SEC’s decision in a no-action challenge, it has two options that can be pursued short of the “nuclear option” of
litigation. It can appeal the decision to the Commissioners, or it can use its statement of opposition to dispute the contested facts and statements. The company can also make its case to influential proxy voting service providers to attempt to sway the vote.
We are also concerned that the companies suing Mr. Chevedden are taking this shareholder to court while his resolutions often receive majority votes from shareholders. Many of Mr. Chevedden’s proposals have historically garnered favorable votes ranging from 40-90 percent. We strongly urge the company to deal with the proposal’s resolved clause based on its merits.
With these issues in mind, we have a number of questions which we would like to continue in a formal conversation:
- Why did EMC deem it necessary to involve judicial bodies instead of relying on a No Action process that has been long led by the Securities and Exchange Commission?
- If these proposals often pass muster at the SEC and then go on and get high shareholder votes, why would management seek a legal remedy to block these communications between the shareholders and the company?
- What specific benefits will come to EMC’s shareholders from this litigious route? What is the expense associated with this litigious action?
- Is EMC concerned about the potentially negative public reaction that EMC is using the court system and taxpayer dollars for a procedure that could be otherwise be refereed by the SEC?
- Has the Board approved management’s high-risk plan to engage in unnecessary litigation rather than constructive engagement?
We welcome an opportunity to discuss this matter with EMC management. Please address any response to the below individual, and we will share it with all the signers of this letter:
Coordinator of Shareholder Activism, NorthStar Asset Management, Inc. PO Box 301840
Boston, MA 02130 [email protected]
Additional coverage at Groups Rap Omnicom for Suing Chevedden by Jack O’Dwyer and Investors Protest Corporate Lawsuits Against Shareowners by Robert Kropp.