SEC Protects the 2%: Qualcomm Example

SEC protects the 2%, an absurd meaningless gesture

The SEC protects the 2%. No, I am not writing about the top 2% of America in terms of wealth or income, although there is probably some correlation. I am writing about the 2% of shares that are still registered. While the SEC is protecting shareholders who own that 2% of shares, they are falling down on the job with respect to protecting the rights of shareholders owning the other 98%. Yesterday, I asked the SEC to invalidate the proxy ballot sent out by Qualcomm (QCOM). I’ve raised this issue before, filing a rulemaking petition on the subject in 2009 but can’t let the SEC’s inaction slide. A few examples of previous posts are as follows:

• Reforms at ProxyVote Don’t Go Far Enough
• Steris Corporation’s Proxy Voting Deflate-Gate
• Biased Ballots: Oshkosh Vote Questioned – Take Action
• Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime
• If I Were on the SEC’s Investor Advisory Committee: Recommendations to Help Retail Investors
• Don’t Let Them Get Away With Stealing Elections 

SEC Protects the 2%: My Letter to CorpFin 

Below is a letter I sent yesterday to the Office of Chief Counsel, Division of Corporation Finance.

This is to request that the current QUALCOMM proxy ballot be invalidated. The proxy ballot (see attached pdf SEC-QCOMproxy) describes my proxy access proposal as “A Stockholder Proposal, if Properly presented at the Annual Meeting.”

SEC Rule 14a-4(a)(3) requires the form of proxy “Shall identify clearly and impartially each separate matter intended to be acted upon.” QUALCOMM’s description cannot reasonably be considered as a clear and impartial description of the matter to be acted upon.

The description of my proposal obfuscates the matter to be vote on. It is a veiled attempt to get retail and small institutional shareholders, who don’t want to be bothered reading the text of proposal in the proxy materials, to simply leave their vote item blank. If that happens, their vote will be counted as voted in accordance with the board’s recommended — “against.”

An accurate description of the topic to be voted is critically important. Proposals on proxy access have been winning majority votes at a most companies where they are voted. Trying to hide or disguise proposals runs counter to the intent of Rule 14a-4(a)(3). I hereby request the SEC invalidate QUALCOMM’s proxy.

I am familiar with the argument that Voter Information Forms (VIFs) do not have to meet the requirements of the SEC’s regulations because they are not “legal proxies.” I sincerely hope this is a misinterpretation of law. If it is not, the SEC should immediately initiate a rulemaking to clarify the rule to ensure it protects the bulk of shareholders.

According to Broadridge,

Currently, we estimate that about 98% of all shares of U.S. public companies are held by institutions or retail brokerage accounts in “street name,” leaving just 2% registered through transfer agents. Over approximately the next two decades, we can project that registered shares will ball below 1% as registered shareholders pass away, sell, or move their accounts to brokerage platforms. (Registered Shareholders: How to Manage the Millennial Challenge at http://go.broadridge.com/Registered-Shareholders_How-to-Manage-the-Millennial-Challenge)

If 98% of shares are voted through VIFs and the SEC finds that Rule 14a-4(a)(3) protections do not apply to VIFs, then what is the point of the regulation? If the only shareholders protected are those holding the 2% of shares held through registered transfer agents, there is little reason to have the rule. Shareowners getting VIFs should have the same rights as registered owners. 

SEC Protects the 2%: Take Action

SEC Protects the 2%: Qualcomm Shareholders Should Not Be Fooled

While the SEC protects the 2% through inaction, Qualcomm (QCOM) shareholders should not be fooled into inaction of their own. The item on your proxy/VIF labeled “5. A STOCKHOLDER PROPOSAL, IF PROPERLY PRESENTED AT THE ANNUAL MEETING” is really a proposal to provide proxy access to long-term shareholders holding 3% of Qualcomm’s common stock for 3 years for their nominees of up to 25% of the board. Vote “For” to ensure board accountability. Yes, Qualcomm’s board has a very ‘lite’ form of proxy access but with so many limitations it could never be used. See Qualcomm, Inc (QCOM): Proxy Score 81.

According to ProxyDemocracy.org, the following have voted in favor of the proxy access proposal:

• Calvert
• Trillium
• CBIS
• Florida SBA

ProxyInsight.com reports that in addition to the above, the following have also voted in favor of the proxy access proposal: 

• Canada Pension Plan Investment Board (CPPIB)
• Colorado PERA
• Teacher Retirement System of Texas
• Unitarian Universalist Common Endowment Fund

I see that CalSTRS has also voted in favor, as has Australia’s Local Government Super. No one who has announced their vote in advance has voted against the proposal. Of course, that doesn’t mean it will win. Many of the large commercial funds are not proud enough to tell investors how they are voting in advance of the meeting. Many are likely to vote against more robust proxy access because they want to be able to sell their services to entrenched managers at who do not want proxy access at their own company. See Apple Shareholders Rejected Real Proxy Access. 

Winning will take your support and your vote.