Preliminary Proxy: Illinois Tool Works and Huntington Ingalls Industries

Huntington Ingalls Industries (HII)Illinois Tool Works - ITWMissing from the preliminary proxy statements of Illinois Tool Works $ITW and Huntington Ingalls Industries $HII are special meeting proposals from William Steiner, even though the SEC months ago withdrew no-action letters previously issued to the companies. (Illinois Tool Works and Huntington Ingalls Industries)  Shareowners of these companies might want to inquire as to why the proposals were left off preliminary proxy statements. (see ITW and HII statements)

Take Action: I reproduce (with formatting changes and ads) a very polite example of such an inquiry from Timothy Smith, Senior Vice President and Director of ESG Shareowner Engagement at Walden Asset Management regarding the omission from ITW’s preliminary proxy statement. Smith seeks to “inquire about management’s rationale for this unusual step and what the pros and cons were as you deliberated what course to take.” 

Bringing the omissions to the attention of these two companies will certainly help them avoid inadvertent further embarrassment and will also help ensure shareowner rights are protected. I urge other shareowners in these two companies to do the same.

March 10, 2015

Ms. Maria Green, Corporate Secretary and General Counsel
Ms. Janet Love, Deputy General Counsel
Illinois Tool Works Inc.
155 Harlem Avenue
Glenview, IL 60025

Dear Ms. Green and Ms. Love,

Greetings from Boston. I write on behalf of Walden Asset Management, a division of Boston Trust & Investment Management Company. We are long-term investors in Illinois Tool Works presently owning over 880,000 shares. I can find notes in our files of correspondence and discussions going back at least 25 years, so clearly we are pleased to be long-term investors in the company.

I can also attest to the responsiveness of your office and James Wooten who as Senior Vice President and Corporate Secretary helped lead several dialogues with me and my colleagues on a range of governance, social and environmental issues.

The issue of good corporate governance is very important to us as an investor just as it is important to Illinois Tool Works.

I wanted to raise a current issue. Recently we learned that an individual shareholder (Bill Steiner) who had deputized John Chevedden to act as his representative had filed a resolution with Illinois Tool Works. The company sought No Action Relief from the Securities and Exchange Commission, which issued an opinion on December 23, 2014 allowing Illinois Tool Works to exclude this proposal.

However, when asked by Mr. Chevedden to reconsider its position, the Securities and Exchange Commission did on the basis of a review going on within the Commission. In essence, the Securities and Exchange Commission “retreated to a neutral place” while it reviewed this issue and withdrew its No Action decision.

I understand the resolution dealt with the right to call a special meeting of shareholders and the Illinois Tool Works proxy already has a resolution dealing with that topic. Obviously, there was some overlap, though the threshold used by the investors to call a special meeting differed from the company’s threshold of 20%.

Even though the Securities and Exchange Commission did not provide No Action relief, the draft 2015 proxy statement has omitted the shareholder resolution.

Our firm is not championing the particular resolution or issue forwarded by Mr. Chevedden. We are however, very concerned when a company seems to go around the proxy rules and make a unilateral decision to leave a shareholder resolution off the proxy. The proxy process has served investors and companies well for decades and thus circumventing that process is disconcerting to investors.

We are writing therefore to inquire about management’s rationale for this unusual step and what the pros and cons were as you deliberated what course to take. We are also interested in the legal advice outside counsel provided supporting this unusual step.

We look forward to your response.

Sincerely,

Timothy Smith
Senior Vice President
Director of ESG Shareowner Engagement

What follows is a list of the 20 largest shareholders at $HII, as reported by Lionshares.com. Will these institutional investors allow this important measure to be excluded from the actual proxy? Stay tuned.

NHolder NamePositionPos Change Mkt Val%Port% O/SRpt DatePrev Rpt Date
1The Vanguard Group, Inc.3,455,57518,165481,810,8220.037.1512-31-1409-30-14
2BlackRock Fund Advisors2,801,0222,757390,546,4970.035.8012-31-1409-30-14
3Franklin Mutual Advisers 2,567,650-34,160358,007,4400.565.3212-31-1409-30-14
4SSgA Funds Management2,481,299-45,971345,967,5200.035.1412-31-1409-30-14
5Fidelity2,434,099-46,514339,386,4240.045.0412-31-1409-30-14
6Robeco 1,948,907-63,189271,736,1030.394.0412-31-1409-30-14
7Renaissance Technologies1,652,100-85,700230,352,3030.553.4212-31-1409-30-14
8Metropolitan West Capital 1,123,314-168,585156,623,6711.362.3312-31-1409-30-14
9D. E. Shaw & Co. LP1,031,515-69,672143,824,1360.272.1412-31-1409-30-14
10AJO LP1,024,440-418,170142,837,6690.592.1212-31-1409-30-14
11BMO 797,6467,619111,215,7820.321.6512-31-1409-30-14
12TIAA-CREF 730,34279,407101,831,5850.051.5112-31-1409-30-14
13Gotham Asset Management 666,61447,72092,945,9900.751.3812-31-1409-30-14
14JPMorgan 634,98590,79388,535,9590.031.3212-31-1409-30-14
15WEDGE Capital516,972-2,94672,081,4060.711.0712-31-1409-30-14
16Threadneedle 511,091125,91871,261,4180.111.0612-31-1409-30-14
17Scout Investments, Inc.459,985395,96264,135,7090.620.9512-31-1409-30-14
18Northern Trust 434,28038,44760,551,6600.020.9012-31-1409-30-14
19Norges Bank 421,792058,810,4590.010.8712-31-1312-31-12
20AQR Capital 418,366115,77858,332,7710.110.8712-31-1409-30-14

 

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2 Responses to Preliminary Proxy: Illinois Tool Works and Huntington Ingalls Industries

  1. James McRitchie March 17, 2015 at 10:31 am #

    I just heard from a reliable source that Illinois Tool Works will be putting the special meeting shareholder proposal back on the ballot and omitting the management proposal on the same issue. Thank you to Timothy Smith and other shareowners who contacted their investor relations office!

    That still leaves HII. Please fill out the form at http://ir.huntingtoningalls.com/phoenix.zhtml?c=243052&p=irol-infoReq and ask them why the special meeting proposal from William Steiner is missing from their preliminary proxy.

  2. James McRitchie March 21, 2015 at 11:35 am #

    Thanks for the following from Randi Val Morrison, which was very informative to me, especially re HII, which appears to have have implemented the change requested by the proposal. Thank you Randi.

    3/21 (10:15 am): With all due respect (and I do genuinely mean that, as you should know by now), all I’m saying with regard to Illinois Tool Works is that regardless of the potential consequences of omitting the proposal, of which I’m quite confident the company is aware, I’m concerned that your blog may mislead others into thinking that the company’s omission of the proposal in some way violates the law simply because the SEC Staff won’t weigh in (informally of course) on the exclusion of that proposal or any other 14a-8(i)(9) proposal right now. As you know, that’s not the case.

    3/21 (7:06 am): With regard to Illinois Tool Works, I assume you know that companies still have the right to exclude proposals in reliance on Rule 14a-8(i)(9) despite the SEC Staff’s suspension of weighing in via the no-action process pending its review of the rule. While I understand your strong views about what you think companies should do, I mention this because I simply don’t want others who are less familiar with the regulatory scheme to think that the companies are in some way skirting the securities laws by omitting such proposals assuming they believe there is a basis to do so. In other words, companies are only required to notify the SEC of their intent to exclude and the basis therefor; they are not required to obtain a no-action letter to proceed to omit a proposal provided they have otherwise met the requirements to do so. SEC Staff have repeatedly reminded companies and investors of this fact during this interim review period.

    With respect to Huntington, it looks like they actually went ahead and amended their bylaws to give stockholders owning 20% of the voting power the right to call a special meeting – presumably in response to shareholder engagement/communications. Prior to the amendment, the bylaws didn’t permit stockholders to hold a special meeting or require that a special meeting be called. So the matter was actually already addressed; wasn’t it?

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