The Manhattan Institute‘s Proxy Monitor Project would call it another failure by gadfly shareholders, since United Natural Foods Inc. (UNFI) filed and was granted a no-action request by the SEC to exclude our proposal to allow shareowners with 15% of the outstanding UNFI shares to call a special meeting. Since the proposal cannot receive a majority vote from shareowners, the Proxy Monitor Project and SEC Commissioner Daniel Gallagher will count the proposal as a loss for shareowners and a waste of money for the corporation.
The loss provides more fodder for the US Chamber of Commerce, Gallagher and others who point to the low percentage of shareholder proposals that win approval as rationale for dramatically reducing the rights of shareowners to be able to file any such proposals. 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 15% vote standard to be another win for both shareowners and the company.
UNFI’s no-action letter, argues no-action relief should be granted under Rule 14a-8(i)(9) because the Proposal directly conflicts with a proposal to be submitted by the Company in the 2014 Proxy Materials requesting a 25% threshold. Right now even shareowners holding 100% of outstanding shares cannot call a special meeting, so a 25% threshold is a substantial win.
It is well established, shareowner resolutions to allow special meetings have long obtained substantial support and can add substantial value. Just ask shareowners of Allergan Inc. (AGN). As explained by The Activist Investor (TAI):
John Chevedden, gadfly individual investor, submits a somewhat routine proposal for the 2012 annual meeting. His non-binding resolution asks the company to allow shareholders to call special meetings, which at the time the company does not allow. The proposal wins 55% of the votes at the meeting.
The next year, Allergan relents, proposes to implement the will of the shareholders, and allow shareholders to call special meetings. At the 2013 annual meeting shareholders approve an amendment to the Certificate of Incorporation (CoI) by which shareholders can call special meetings. Allergan implements the structure in a separate bylaw amendment on which shareholders don’t actually vote, but which Allergan discloses at the time of the CoI vote.
How to call a special meeting at Allergan
You really need a law degree to understand the new bylaw. It’s totally confusing, so our summary here relies mostly on PS’ interpretation. Relevant details:
It needs support from 25% of the outstanding shares; the resolution that investors approved indicated 10%.
All supporters must have at least one share in record name, really, so you need an actual share certificate.
Your request must come from Cede & Co. (the transfer agent for Depository Trust Company, the custodian for shares in the US), not the shareholder.
All supporters (not just the meeting proponent, like PS) must disclose unbelievably detailed information to Allergan, including two years’ of share trades and all relationships among the supporter, “affiliates” of the supporter, AGN, AGN employees, and AGN competitors – all supporters also must report any changes to what they first disclose.
Supporters affirm that they will hold their shares through the date of the annual meeting, and any decrease in a supporter’s shares, say due to normal trading, decreases what counts toward the 25%, even if the supporter buys more shares later.
The BoD can limit the timing of a special meeting to a narrow window, a three-month period about three months before the anticipated date of next year’s annual meeting.
The BoD can also limit the agenda, and exclude items considered at the previous annual meeting; this may serve to exclude a proposal to change directors.
It appears UNFI’s 25% proposal will have more barriers than my 15% proposal, but nothing like Allergan’s from what I can tell from their no-action request. Of course, I would rather the SEC allow both proposals on the proxy. Let shareowners decide which they prefer, especially if the one proposed by UNFI ends up bogged down in barriers. The proposal with the highest number of votes should win. However, that isn’t going to happen because the scales are tipped in favor of management and entrenched boards.
At least my wife and I don’t have to rebut arguments that UNFI could have made about the supposed ‘benefits’ of their current policy of not allowing special meetings. Additionally, we don’t have to travel to present the proposal at UNFI’s annual meeting; UNFI will present it for us, as management’s proposal.
UNFI’s capitulation to our request may be counted as another losing shareholder proposal by the Proxy Monitoring Project and Commissioner Gallagher, but for shareowners and company alike it is really a win-win.