With John Chevedden‘s help, I recently submitted shareowner proposals to United Natural Foods Inc. (UNFI) and The Hain Celestial Group, Inc. (HAIN). Both have asked the SEC for no-action letters [UNFI (UNFI no-action 8-15-2014 pdf) and HAIN] because they plan to introduce their own proposals on the same subjects. The SEC is likely to grant both requests. Shouldn’t such actions be counted as ‘gadfly’ wins by pundits like the Deal Professor? More importantly, should the SEC grant such no-action requests?
The request to Hain Celestial was that a majority vote standard be adopted for board elections. Currently, unopposed directors can be elected with the positive vote of a single share. Hain’s management says the item will be taken up during the September Board meeting. “In light of evolving view and practices regarding majority vote in the election of directors,” the Board is expected to act favorably on a “substantially similar” proposal.
I have no problem with my proposal being excluded under these circumstances, although I’d be much happier about it if the Board had already acted. It would also be nice for Hain Celestial to acknowledge the role of shareowners in causing the Board to take up the issue. The fact that few count such actions as wins by ‘gadflies’ or, more preferably, ‘shareowner activists’ is of little consequence. What we are looking for are positive changes in corporate governance. We are not keeping score so that we can be traded to the majors or to win a bonus. In our game, wins are expected to result in slightly higher stock prices over the long-term because shareowners will be able to hold individual directors more accountable for their actions. That is reward enough. I only wish more retail investors would file proposals or at least vote.
United Natural Foods
The situation at United Natural Foods is different. I proposed the Board give shareowners with 15% of outstanding common stock the power to call a special shareowner meeting. Currently, shareowners have no right to hold a special meeting, no matter how many shares we own. United Natural Foods responded by requesting a ‘no-action’ letter from the SEC because they now plan to introduce their own proposal on the same subject but with a 25% threshold. In addition, their proposal will include other hurdles, such as a one-year holding requirement for eligible shares of those calling the meeting.
Again, the SEC is likely to grant the request even though the measures under consideration are substantially different. The relevant SEC rule is §240.14a-8(i)(9):
Conflicts with company’s proposal: If the proposal directly conflicts with one of the company’s own proposals to be submitted to shareholders at the same meeting;
It is difficult to make the argument that a proposal to to raise the threshold to 25% doesn’t ‘conflict’ with a proposal to raise the threshold to 15%. I have tried and failed on similar measures. The real problem is the rule. The SEC should not exclude proposals in conflict, only proposals that are substantially the same.
Attorneys for United Natural Foods argue:
Submitting the Proponent’s Proposal and the Company Proposal at the 2014 Annual Meeting would present alternate and conflicting proposals that would likely result in inconsistent and ambiguous results. (my emphasis)
How so? In this example, if the Board were required to allow a vote, how could the results be inconsistent or ambiguous. Whichever measure receives the highest vote, that is the proposal the Board should implement. What could be simpler?