Right to Cure proposals feature prominently in my filings for the 2024 hump season and 2025. As seen in 2024 CorpGov.net Proxy Season Results, I have already filed five proposals on this topic, a refinement of sixteen “Fair Elections” proposals earlier this season.
Most of my Fair Elections proposals resulted in agreements by companies not to exclude shareholder nominees for lack of “suitability.” While it is appropriate for current boards to judge the board’s potential nominees for suitability, they should refrain from excluding shareholder nominees from the proxy on that basis. Exclusions should be limited to those candidates who fail to meet legal requirements.
Right to Cure proposals focus on the need of shareholders to be timely noticed of defects contained in a notice of nomination, allowing them to cure such defects before proxies are distributed. The language covers both proxy access and universal proxy candidates and mostly comes to me through Abbott Cooper. While Cooper is known for his aggressive tactics, he also engages in private “constructivism,” where he works behind the scenes to encourage boards to take actions that unlock shareholder value without public confrontation. Working with him has been a real joy and very helpful in negotiating with corporate secretaries and outside counsels.
Abbott Cooper
Right to Cure Purported Defects in Notice of Nomination – Proposal [4*]
RESOLVED: Costco Wholesale Corporation (“Costco” or “Company”) shareholders ask that our Company take all steps necessary to amend Costco’s bylaws to require the Board notify any shareholder who submits a notice of nomination pursuant to the Company’s bylaws[1] of any specific defects or deficiencies contained therein within fourteen (14) days of receipt by the Company and to allow the nominating shareholder a fourteen (14) day period to cure any such defects or deficiencies, starting on the date the nominating shareholder receives notice from the Board.
SUPPORTING STATEMENT:
The legitimacy of the Board’s power to oversee the executives of the Company rests on the power of shareholders to elect directors:[2] [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.”[3]
Company bylaws are intended to give corporations and their boards advance notice of any shareholder nominations and generally require shareholders to make extensive disclosures. A corporation’s legitimate need for notice and disclosure must be balanced against the shareholders’ fundamental right to nominate candidates.[4]
When reviewing one corporation’s advance notice bylaw, a Delaware judge noted that disclosures required of a nominating stockholder “would choke a horse.”[5]
The Company’s bylaws do not contain express provisions requiring it to notify a nominating shareholder of any defects in a notice of nomination nor allow a nominating shareholder to cure any such defects. In the absence of such provisions, courts have ruled corporations are neither obligated to inform a nominating shareholder of any defects in a notice of nomination nor allow the nominating shareholder to cure such defects.[6]
This proposal addresses the Company’s need for order and disclosure while recognizing shareholders’ right to nominate candidates without unnecessary impediments. The proposal’s fairness is self-evident: it merely requires the Company to tell a shareholder what defects are contained in a notice of nomination and allow the shareholder to cure those defects well before any director election.
By requiring the Board to notify nominating shareholders promptly if their notice of nomination complies with the Company’s bylaws (specifically listing any defects or deficiencies) and allowing the nominating stockholder sufficient time to cure any identified defects or deficiencies, the rights of both the Company and stockholders will be respected and protected.
Enhance Shareholder Value, Vote FOR Right to Cure Purported Defects in Notice of Nomination – Proposal [4*]
[This line and any below it, other than footnotes, is not for publication]
Number 4* to be assigned by the Company.
[1] https://www.sec.gov/ix?doc=/Archives/edgar/data/909832/000090983223000034/cost-20230809.htm
[2] https://ssrn.com/abstract=4565395
[3] https://casetext.com/case/durkin-v-national-bank-of-olyphant
[4] See Kellner v. AIM ImmunotTech Inc., 307 A.2d 998, 1023 (Del. Ch. 2023).
[5] Kellner, 307 A.2d at 1034.
[6] Driver Opportunity Partners I, LP v. Adams, No. CV 3:23-56, 2023 WL 3580039, at *9 (W.D. Pa. May 22, 2023); Rosenbaum v. CytoDyn Inc., No. CV 2021-0728-JRS, 2021 WL 4775140, at *17 (Del. Ch. Oct. 13, 2021).
Agreement
We reached an agreement for withdrawal. The Board of Directors of Costco Wholesale Corporation amended and restated the Company’s Bylaws, effective September 16, 2024. The amendments implement a cure process for certain deficiencies in director nomination notices submitted by shareholders. For nomination notices received by the Company within the time period specified in the Bylaws, the Company will notify shareholders of deficiencies in the notice and there will be an opportunity to cure such deficiencies within the time period. See the Form 8-k. and attachment.
(g)The chairman of the meeting shall have the power and the duty to determine whether a nomination or any business proposed to be brought before the meeting has been made in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defectively proposed business or nomination shall not be presented for shareholder action at the meeting and shall be disregarded. Notwithstanding the foregoing, solely with respect to a nomination pursuant to Section 2.1(b)(iii), if a shareholder’s notice was received by the Secretary at the principal executive offices of the corporation at least 20 days prior to the last date on which such notice could have been timely given as provided in this Section 2.1, and the Secretary determines, upon a facial review of such notice and without independent verification of the information provided therein, that the notice does not satisfy the requirements set forth in these Bylaws, then the following provisions shall apply: (i) within 10 days of receiving such notice, the Secretary shall notify such shareholder of such deficiencies (the “deficiency notification”) (the deficiency notification may be sent by email to the email address specified in the shareholder’s notice, in which case such notification shall be deemed to be received by the shareholder when sent by the Secretary); (ii) the shareholder shall have an opportunity to cure such deficiencies by delivering additional information to the Secretary at the principal executive offices of the corporation on or before the last date on which such notice could have been timely given as provided in this Section 2.1 (the “cure deadline”); and (iii) if the shareholder is unable to cure all such deficiencies by the cure deadline, then the chairman of the meeting shall declare that the proposed nomination shall not be presented for shareholder action at the meeting or otherwise; provided, that if the Secretary later determines that the nomination notice includes an untrue statement or omission of a fact required under these Bylaws to be stated in the nomination notice or the Holder fails to provide the supplemental statement or any updates on material changes as required by these Bylaws, then nothing herein shall preclude the chairman of the meeting from declaring that the proposed nomination shall not be presented for shareholder action at the meeting or otherwise. Notwithstanding the provisions of this Section 2.1, unless otherwise required by law, if any Holder directly or indirectly (x) provides notice pursuant to Rule 14a-19(b) of the Exchange Act and (y) subsequently fails to comply with the requirements of Rule 14a-19(a)(2) and Rule 14a-19(a)(3) of the Exchange Act (including because such shareholder fails to provide the Company with all information and notices required by Rule 14a-19 of the Exchange Act and this Section 2.1), then any person nominated by such Holder shall be ineligible for election and the chairman of the meeting shall disregard any proxies or votes solicited for each person whom the Holder nominates, notwithstanding that such proxies may have been received by the corporation and counted for the purposes of determining quorum. If any Holder directly or indirectly provides notice pursuant to Rule 14a-19(b) of the Exchange Act, such shareholder shall deliver to the Company reasonable evidence that it has met the requirements of Rule 14a-19(a)(3) of the Exchange Act no later than 5 business days prior to the applicable meeting.
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