Shareowner Action Handbook

Proven Shareowner Action Formulas

Proven Shareowner Action Formulas

Shareowner action can be complicated, just like the cartoon to the left from Nearing Zero. We’ll try to point you to proven strategies that work.

Please e-mail me and let me know what other resources should be included on this page.

Those just getting started in corporate governance might benefit from taking a quick spin through a PowerPoint presentation I prepared on how I got interested in the subject, which also outlines five things people can do to make corporate governance more democratic. The talk is entitled Corporate Governance for the 99%. I would be happy to give similar presentations to your group if interested and I’m available. (request file)  Four steps in shareowner action from Social FundsWikipedia on Shareholder Resolutions.

Shareowner Action: Vote

Before even thinking about filing proxy proposals, make sure you are taking the most fundamental shareowner action by voting your proxies. Seeing how funds vote before the meeting can often be helpful. Primary sources include:

TProxy Insighthe best source I have found for locating votes announced before annual meetings is Proxy Insight, a subscription service. If you really want to know who is voting how… or who even who is likely to vote one way or another based on the historical record, Proxy Insight has the best data I have found. If you want to hire someone to analyze proxy votes, another great resource is Jackie Cook’s Fund Votes

Shareowner Action: Search Edgar

Search SEC’s EDGAR corporate filings (DEF 14A is proxy). Quick iiWisdom search of proxies.

Shareowner Action: How to File Proxy Proposals

The most fundamental resource for filing proposals is the Electronic Code of Federal Regulations, specifically § 240.14a-8 Shareholder proposals. One of the best relatively up-to-date (2011) booklets on filing shareowner proposals from the Council of Institutional Investors (download pdf). It provides step-by-step guidance. See also, AFL-CIO page How to File a Shareholder ResolutionNorthwest Corporate Accountability Project: Somewhat dated but worth scanning through for advice around filing resolutions.

Basically, shareowners need to hold at least $2,000 of common stock in a company for a year before filing a proposal. The SEC looks back within the 60 calendar days before the date the shareowner submits the proposal to determine if value value was at least at $2,000 at some point during that time.

Need help? Investor Voice – Hire this experienced group to file and pass your resolution.

Shareowner Action: Proposal Templates

Shareowner action shouldn’t be undertaken in a vacuum. It is always easier to borrow language from prior submissions than it is to write your proposal from scratch. If the language has served for a couple of years, there is a good chance it withstood the test of a no-action request to the SEC. In addition, funds often vote against or abstain from proposals they have never seen before. Using a prior submission often means funds have developed a voting policy on the topic. Two great overview sources are proxy preview 2016 and ICCR’s 2016 Proxy Resolutions and Voting Guide.

Three of the best no-cost databases of proposals that made it into the proxy are:

Shareowner Action: Subscription Services

  • Proxy Insight provides comprehensive information on the votes of key global shareholders.
  • SharkRepellent, FactSet’s corporate governance database, provides takeover defense and corporate governance data for more than 5,600 U.S. incorporated public companies.

Shareowner Action: SEC Guidance

Supplement the above with the following SEC: Staff Legal Bulletins:

A shareholder could satisfy Rule 14a-8(b)(2)(i) by obtaining and submitting two proof of ownership statements verifying that, at the time the proposal was submitted, the required amount of securities were continuously held for at least one year – one from the shareholder’s broker or bank confirming the shareholder’s ownership, and the other from the DTC participant confirming the broker or bank’s ownership. 14G (CF) clarifies, two letters are not needed if the broker and clearing bank are within the same overall firm.

  • 14H (CF) addresses the provisions of Rule 14a-8(i)(9), which permits a company to exclude a proposal “[i]f the proposal directly conflicts with one of the company’s own proposals to be submitted to shareholders at the same meeting.” For several years SEC staff have misinterpreted that to mean companies can gin up a proposal on the same subject and get the shareholder proposal thrown out. The SLB clarifies the exclusion only applies “if a reasonable shareholder could not logically vote in favor of both proposals.” That should curtail most abuses. Therefore we can expect use of this exclusion to be rare going forward. See also “Directly Conflicts” Clarified by Staff Legal Bulletin.

SEC Rule 14a-8 Proposals of Security Holders, lays out various grounds that can be used to omit shareholder resolutions or proposals (both terms are used interchangeably). When companies object to a proposal, they frequently hire a law firm to research and document every possible reason they can think of to exclude your proposal.

Companies or their legal counsel then file a request to the SEC, asking them to take no action if the company omits the resolution from the proxy.

The letters come from staff at the Division of Corporation Finance (CorpFin) and the Commission is rarely involved. Although no-action letters are only opinions, they are given substantial weight by courts when cases end up there… which is rare. Requests for no-action letters will usually cite similar instances where no-action relief was granted in the past. Shareholder Proposals: SEC Staff’s Role explains the process. The first SEC database below can be valuable in defending proposals, since you can look up most letters issued since 2007.  The second database tracks incoming requests. CorpFin has not yet responded to these, which can be interesting to review to know regarding issues, corporations and shareholder actions.

Shareowner Action: SEC No-Action Letters

If a company intends to exclude a proposal from its proxy materials, it must submit its no-action request to the Commission no later than 80 calendar days before it files its definitive proxy statement unless it demonstrates “good cause” for missing the deadline. NYSE recommends that shareholders receive notice of a shareholders’ meeting, along with proxy solicitation material, a minimum of 20 days before the meeting. Most allow more like 30. 

Shareowner Action: Reconsideration

If Staff denies the company’s no-action relief request (or grants it), the company (or shareholder) can request that the staff reconsider its determination. In general, the staff will only grant reconsideration requests if one of the following has occurred:
  • New facts have arisen.
  • There has been a change in law.
  • The company (shareholder) can demonstrate that the staff clearly erred in its no-action decision.
Reconsideration is unlikely if the company (shareholder) simply restates the arguments from its original no-action request or advances new arguments that could have been presented in the original request.
Alternatively, the company or shareholder can petition the full Securities and Exchange Commission to review the staff’s no-action decision. This petition process is conducted by Staff, which is ultimately responsible for determining whether the appeal includes matters that involve substantial importance and that are novel or highly complex and ripe for review by the SEC. It is highly unlikely that Staff will recommend the SEC review an appeal and, if reviewed, that the appeal will be granted.

Shareowner Action: Guidance from Law Firms to Issuers

It is often very helpful to know what law firms are telling their clients about the last proxy season, the current season and developments on no-action requests. I should be updating and adding more to this section. Feel free to recommend some of the best or most topical discussions.

Shareowner Action: Winning

Shareowner Action: Change the World by Changing the Rules

Want to change SEC rules or procedures? Yes, you can petition the Commission but I haven’t had much luck with that route. Send comments to the SEC’s Investor Advisory Committee. If the SEC-IAC takes up your cause and sends a recommendation to the Commission, they are legally obligated to respond. Also, send your comments to me, James McRitchie. If I agree with you, I will help get the word out and help you lobby for change.

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