ABT Fair Treatment of Shareholder Nominees is an update of my (James McRitchie) effort in the recent proxy season to address the growth of abusive advance notice bylaws aimed at disadvantaging shareholder nominees under universal proxy rules. (see Procter & Gamble Fair Elections and Procter & Gamble 2023: Our Proxy Votes, which won 43% of the vote) 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. The recent adoption of universal proxy rules by the SEC is being used as cover by many companies adopting advance notice bylaws giving board nominees additional advantages over shareholder nominees. This proposal was filed at Abbott Laboratories (ABT).
ABT Fair Treatment of Shareholder Nominees: Resolved
Shareholders request the Board of Directors adopt and disclose a policy stating how it will exercise its discretion to treat shareholders’ nominees for board membership equitably and avoid encumbering such nominations with unnecessary administrative or evidentiary requirements.
ABT Fair Treatment of Shareholder Nominees: Supporting Statement
In the view of the proponent, the Board should consider exercising its discretion under the proposed policy toward ensuring that paperwork requirements governing the nomination and election of directors should generally treat shareholder and Board nominees equitably; requirements regarding endorsements and solicitations should not unnecessarily encumber the nomination process.
Consideration should also be given under the policy to repealing any advance notice bylaw provisions imposing additional requirements inconsistent with this proposal, unless legally required, such as those requiring:
- Nominating shareholders be shareholders of record, rather than beneficial owners;
- Nominees submit questionnaires regarding background and qualifications (other than as required in the Company’s certificate of incorporation or bylaws);
- Nominees submit to interviews with the Board or any committee thereof;
- Shareholders or nominees provide information that is already required to be publicly disclosed under applicable law or regulation; and
- Excessive or inappropriate levels of disclosure regarding nominees’ eligibility to serve on the Board, the nominees’ background, or experience.
The legitimacy of Board power to oversee the executives of Abbott Laboratories (Company) rests on the power of shareholders to elect directors:[1] [T]he unadorned right to cast a ballot in a contest for [corporate] office . . . is meaningless without the right to participate in selecting the contestants… To allow for voting while maintaining a closed candidate selection process thus renders the former an empty exercise.”[2]
Burdening shareholder nominees can entrench incumbent directors and management. Laws and regulations overseen and enforced by the U.S. Securities and Exchange Commission, a neutral third party, ensure shareholders have pertinent information on nominating shareholders and nominees before executing proxies,[3]
Advance notice bylaws can create hurdles for shareholders exercising their rights and can be used to conduct “fishing expeditions” to which board nominees are not subject.
These practices delegitimize corporate activity because directors work on behalf of shareholders, who should be able to replace their own fiduciaries. Company interference in this process is especially dangerous because financial theory recommends that most shareholders diversify their portfolios.
Such diversified investors have an interest in ensuring our Company does not profit from practices that threaten social and environmental systems upon which diversified portfolios depend.[4] Company directors influenced by executives, in contrast, may prioritize Company profitability over systems that are of critical importance to shareholders.[5]
Accordingly, giving Company directors a gatekeeper role through a burdensome unequal nomination process threatens the interests of shareholders to nominate candidates free of management influence.
Fair Treatment of Shareholder Nominees – Vote FOR Proposal [4* number assigned by ABT]
[1] https://ssrn.com/abstract=4565395
[2] https://casetext.com/case/durkin-v-national-bank-of-olyphant
[3] https://www.ecfr.gov/current/title-17/chapter-II/part-240/subpart-A/subject-group-ECFR8c9733e13b955d6/section-240.14a-101
[4] https://theshareholdercommons.com/wp-content/uploads/2022/09/Climate-Change-Case-Study-FINAL.pdf
[5] https://ssrn.com/abstract=4056602
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