The Manhattan Institute‘s Proxy Monitor Project would call it another failure by a gadfly shareholder, since the Hain Celestial Group, Inc. (HAIN) filed for and obtained no-action relief with the SEC, allowing it to leave my proposal for a Majority Vote standard in uncontested elections off their proxy. There is no way it can now receive a majority vote from shareowners. Therefore, the Proxy Monitor Project, SEC Commissioner Daniel Gallagher, Chamber of Commerce and other opponents of shareowner rights will count the proposal as a loss for shareowners and a waste of money for the corporation. Gallagher has stated his desire to have the threshold for proposals move from the current $2,000 to ‘perhaps $200,000 or even better, $2 million.’
However, a second look reveals my filing for a Majority Vote standard to be another win for both shareowners and the company.
Hain’s letter argues no-action relief should be granted under Rule 14a-8(i)(10) since the company “has substantially implemented the proposal.” Hain substituted their own proposal, probably because they thought mine would win. According to Proxy Voting Analytics (2010-2014):
Proposals on board declassification and majority voting have become a sure bet for labor unions and public pension funds, as they are widely recognized as a baseline in corporate governance. Galvanized by the broad support in recent years, a few large institutional investors remain prolific sponsors of proposals seeking majority voting and board declassification and have turned their attention to smaller companies. The United Brotherhood of Carpenters and Joiners of America (the most active labor union in terms of proposals filed this season) submitted nearly half of the majority proposals filed during the first six months of the year, and 13 of the 15 went to a vote. CalSTRS ranked second with five majority voting proposals, all of which went to a vote. Despite the volume decline registered from 2013, board declassification continued to be the third most frequently voted topic of shareholder governance resolutions this year, following majority voting (which tied with allowing for act by written consent) and the separation of the CEO and chairman positions. Pension funds submitted the majority of the declassification proposals (62.5 percent of the total), with seven of the 10 proposals coming from pension funds submitted under the auspices of Harvard Law School’s Shareholder Rights Project.
In some cases, precatory proposals in this area are resubmitted after winning a majority of votes cast in a prior proxy season because of the failure by management to implement them. For example, shareholder proposals on majority voting passed for the second year in a row at Healthcare Services Group, Inc., Netflix, Inc., and Vornado Realty Trust. Similarly, shareholders of QEP Resources had approved a precatory declassification proposal voted at the company’s 2012 AGM but then rejected a management resolution filed the following year on the same topic because it contemplated a phased-in declassification, with directors elected at or prior to the 2013 AGM continuing to serve their original term. In 2014, the board had no choice but to back yet another proposal formulated by the Shareholder Rights Project.
For me, it looks like a win. I don’t have to rebut arguments that Hain could have made about the supposed ‘benefits’ of their current plurality voting requirements where one vote can elect an uncontested director. Additionally, I don’t have to travel to present the proposal at Hain’s annual meeting; Hain will present it for me, as management’s proposal.
A recent study, Does the Director Election System Matter? Evidence from Majority Voting, found:
Using a regression discontinuity design, we document abnormal returns of 1.43-1.60% around annual meeting dates where shareholder proposals to adopt MV are voted upon, suggesting that shareholders perceive the adoption of MV as value-enhancing. We document an increase in boards’ responsiveness to shareholders at MV firms. In particular, relative to a propensity score-matched control sample, firms adopting MV exhibit an increase in the rate of implementation of shareholder proposals supported by a majority vote and in the responsiveness to votes withheld from directors up for election.
Hain’s capitulation to my request may be counted as another losing shareholder proposal by the Proxy Monitoring Project, but for shareowners and company alike it is really a win-win.