Preliminary Proxy: Illinois Tool Works and Huntington Ingalls Industries

Missing 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.

• Email ITW Investor Relations
• Fill out an Investor Relations Information Request Form at HII

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.

	N		Holder Name	Position	Pos Change	Mkt Val	%Port	% O/S	Rpt Date	Prev Rpt Date
	1		The Vanguard Group, Inc.	3,455,575	18,165	481,810,822	0.03	7.15	12-31-14	09-30-14
	2		BlackRock Fund Advisors	2,801,022	2,757	390,546,497	0.03	5.80	12-31-14	09-30-14
	3		Franklin Mutual Advisers	2,567,650	-34,160	358,007,440	0.56	5.32	12-31-14	09-30-14
	4		SSgA Funds Management	2,481,299	-45,971	345,967,520	0.03	5.14	12-31-14	09-30-14
	5		Fidelity	2,434,099	-46,514	339,386,424	0.04	5.04	12-31-14	09-30-14
	6		Robeco	1,948,907	-63,189	271,736,103	0.39	4.04	12-31-14	09-30-14
	7		Renaissance Technologies	1,652,100	-85,700	230,352,303	0.55	3.42	12-31-14	09-30-14
	8		Metropolitan West Capital	1,123,314	-168,585	156,623,671	1.36	2.33	12-31-14	09-30-14
	9		D. E. Shaw & Co. LP	1,031,515	-69,672	143,824,136	0.27	2.14	12-31-14	09-30-14
	10		AJO LP	1,024,440	-418,170	142,837,669	0.59	2.12	12-31-14	09-30-14
	11		BMO	797,646	7,619	111,215,782	0.32	1.65	12-31-14	09-30-14
	12		TIAA-CREF	730,342	79,407	101,831,585	0.05	1.51	12-31-14	09-30-14
	13		Gotham Asset Management	666,614	47,720	92,945,990	0.75	1.38	12-31-14	09-30-14
	14		JPMorgan	634,985	90,793	88,535,959	0.03	1.32	12-31-14	09-30-14
	15		WEDGE Capital	516,972	-2,946	72,081,406	0.71	1.07	12-31-14	09-30-14
	16		Threadneedle	511,091	125,918	71,261,418	0.11	1.06	12-31-14	09-30-14
	17		Scout Investments, Inc.	459,985	395,962	64,135,709	0.62	0.95	12-31-14	09-30-14
	18		Northern Trust	434,280	38,447	60,551,660	0.02	0.90	12-31-14	09-30-14
	19		Norges Bank	421,792	0	58,810,459	0.01	0.87	12-31-13	12-31-12
	20		AQR Capital	418,366	115,778	58,332,771	0.11	0.87	12-31-14	09-30-14