Whole Foods Market’s Sham Proxy Access Proposal

Arron Bernstein

The following is a guest post from Aaron Bernstein. editor of Global Proxy Watch and a Senior Research Fellow at the Labor and Worklife Program at Harvard Law School.

This piece originally appeared in the November 7, 2014 edition of GPW. I reformatted, added the title, graphics and ads. Let’s hope the SEC recognizes Whole Foods Market’s (WFM) sham proxy access proposal for what it is and denies their no-action request. New York City Comptroller Scott M. Stringer and New York City’s pension funds have initiated a groundbreaking campaign to give shareowners the right of proxy access at 75 U.S. companies.  If the SEC grants WFM’s no action request, further progress on proxy access by New York and others could grind to a halt.

A flurry of AGM fights in the US is likely to follow from a campaign announced yesterday by New York City Comptroller Scott Stringer. His office plans to file proposals at 75 issuers asking for the right to nominate directors on the corporate proxy for shareowners that hold a collective 3% stake for three years.

The initiative by Stringer, who oversees the city’s US$160 billion pension funds, come as the UN Principles for Responsible Investment is planning a similar effort in the US and France (GPW XVIII-35).

One immediate hurdle both face is an effort by Whole Foods to neutralize a similar resolution with a version of its own so steep no one is ever likely to use it. On October 23 the grocery chain asked the US Securities and Exchange Commission to exclude a resolution from governance activist Jim McRitchie by arguing that it “directly conflicts” with a bylaw amendment the firm plans. But McRitchie’s proposal, like Stringer’s, would grant proxy access to investors with a combined 3% stake for three years. The Whole Foods amendment would require one investor to hold a whopping 9% for five years. In a November 2 response, McRitchie argued that the company plan was a ‘sham’ since its largest shareholder owns just 5.4%.

Verizon, Western Union and Hewlett-Packard also fought off access plans with their own versions, but they used the 3% threshold to undercut resolutions with 1% triggers (GPW XVIII-19). The SEC did not have to decide whether to exclude those resolutions because investors withdrew when the firms proposed theirs. If the agency now excludes McRitchie’s plan, issuers facing resolutions from Stringer and PRI investors are likely to jump at the opportunity to set an impossibly high hurdle.

Expect debate on the tactic at a November 17 event in Washington, DC to discuss a recent CFA Institute paper on access (GPW XVIII-34). Meanwhile a 3% proposal at Oracle’s AGM Wednesday won 45% of the vote, well over a majority after founder Larry Ellison’s 26% stake is subtracted (GPW XVIII-35).