Procter & Gamble Fair Elections is an updated version of the Fair Elections proposals James McRitchie filed at dozens of companies for the 2023 season to improve corporate governance. This Procter & Gamble Fair Elections proposal is the result of negotiating with many companies. We believe it is a proposal that no company can reasonably find objectionable.
As I noted previously, I had a small role in winning proxy access. Unfortunately, companies limited proxy access nominating groups of shareholders to 20 members, which made the process impractical as a fair elections tool.
Procter & Gamble Fair Elections: UPC
Enter universal proxy card (UPC) regulations, which also seemed to take forever to enact. UPC allows shareholders to split their votes between candidates solicited by either side. Fair elections could also be thwarted by advance notice bylaws. As one post noted:
The clearest set of cases providing support for enjoining an advance notice bylaw involves a scenario where a board, aware of an imminent proxy contest, imposes or applies an advance notice bylaw so as to make compliance impossible or extremely difficult, thereby thwarting the challenger entirely.
Law firms are stumbling over one another, advising clients and potential clients on what advance notice they should enact. That is tempting for incumbent directors, who, at most companies, including Procter & Gamble, can amend the corporate bylaws in their favor without ratification required by shareholders.
In reproducing the proxy language below, I converted the footnotes to hyperlinks.
Procter & Gamble Fair Elections: The Proposal
Proposal [4*] – Fair Elections
Resolved: Shareholders request that (The) Procter & Gamble Company (“Company”) initiate actions to ensure the Company will not, without shareholder consent, amend Company bylaws to expressly:
(1) require nominating stockholders that are investment funds or other investment vehicles to disclose the identities of less than five percent stockholders, members, limited partners, or holders of similar economic interests solely on account of such holders’ economic interests,
(2) require nominating stockholders to disclose plans to nominate candidates to the board of directors of other public companies, or
(3) require nominating stockholders to disclose prior stockholder proposals or director nominations that such a stockholder privately submitted to other companies.
If the Board, in exercising its fiduciary responsibilities, finds it in the best interest of Company stockholders to urgently adopt any such provisions without a stockholder vote, the Board will either submit the proposed bylaws to stockholders for ratification or cause the adopted bylaw to expire within one year.
Supporting Statement: Under SEC Rule 14a-19, the universal proxy card must include all director nominees presented by management and shareholders for election. Although the Rule implies each side’s nominees must be grouped together and clearly identified as such, in a fair and impartial manner, most rules for director elections are set in company bylaws.
For Rule 14a-19 to be implemented equitably, boards must not undertake bylaw amendments that deter legitimate efforts by shareholders to submit nominees. The proposed resolution aims to safeguard use of Rule 14a-19 by shareholders to seek board representation through a proxy contest.
Although directors have the power to adopt bylaw amendments, shareholders have the power to check that authority by repealing board-adopted bylaws. Directors should not amend bylaws to inequitably restrict shareholders’ right to nominate directors. This resolution simply asks the board to commit to not deterring legitimate efforts to seek board representation, without submitting such amendments to shareholders.
Bloomberg’s Matt Levine speculates bylaws might require disclosure submissions “on paper woven from unicorns’ manes,” with requirements waived for the board’s nominees. While Levine depicts humorous and exaggerated possibilities, some companies are adopting amendments clearly designed to discourage fair elections, not to provide information shareholders need.
Directors of at least one company (Masimo Corp.) adopted, and later repealed, bylaw amendments that could deter legitimate efforts by shareholders to seek board representation through a proxy contest. Masimo’s advance notice bylaws “resemble the ‘nuclear option’ and offers a case study in how rational governance devices can become unduly weaponized, wrote Lawrence Cunningham. Directors of other companies are considering similar deterrents.
To ensure shareholders can vote on proposals that would impose inequitable specified restrictions, we urge a vote FOR Fair Elections.
To Enhance Shareholder Value, Vote FOR
Fair Elections – Proposal [4*]
[*Number to be assigned by Company.]
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