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Shareholder Proposal: Best Response is Not a Lawsuit

, July 3, 2014 ,

HarvardCorpGovAmy L. Goodman and John F. Olson, both of Gibson, Dunn & Crutcher LLP posted Shareholder Proposal Developments During the 2014 Proxy Season on the Harvard Law School Forum on Corporate Governance and Financial Regulation yesterday. It included some good information and analysis but seemed a bit too much like the response to a shareholder proposal should be a lawsuit — an advertisement for Gibson Dunn to this, admittedly biased, eye.

corporatesecretary

David Bogoslaw, Editor of the Corporate Secretary sent out an email in response that was more balanced with regard to shareholder proposals and lawsuits. I was heading out to Ottawa yesterday, so only had time for a brief response. The following is my open email to Mr. Bogoslaw. Continue Reading →

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Chipotle Mexican Grill (CMG): How I Voted – Proxy Score 0

, May 12, 2014 ,

cmgChipotle Mexican Grill, $CMG, is one of the stocks in my portfolio. Their annual meeting is coming up on 5/15/2014. ProxyDemocracy.org had collected the votes of three funds when I checked and voted on 5/8/2014.  I voted with management 0% of the time.  View Proxy Statement.

Warning: Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime) Continue Reading →

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Omnicom (OMC) Group Loses to Chevedden: Shareowner Rights Preserved

, March 12, 2014 ,

OmnicomIn a memorandum and order issued yesterday, Judge Louis L. Stanton, of United States District Court for the Southern District of New York, ruled John Chevedden’s motion to dismiss is granted. Omnicom’s motion for summary judgment is denied. “The clerk is requested to enter judgment dismissing the complaint, with costs and disbursements in favor of Mr. Chevedden according to law.” Continue Reading →

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Quick Bites on CorpGov

, January 9, 2014 ,

UnknownDon’t miss the following great reads:

 Activist shareholders’ top priorities for 2014. A must read for directors and shareowners alike. Here’s the first paragraph.

Many of us free ride on actions taken by active, long-term shareholders. These unsung heroes goad managers and boards to reach better decisions, make available desirable employment opportunities and, overall, push them to act like good corporate citizens. These active investors accomplish these things by talking to companies, preparing proxy proposals for all shareholders to consider, and offering recommendations on director elections and company-sponsored proxy measures.

Ralph Ward digs past the standard bullshit in his 2014 Boardroom Insider. Always plenty to chew on in a few short pages. Here’s a tidbit, which I hope will leave you wanting more, which includes more tips than you’ll find in pages and pages of other publications aimed at directors. Continue Reading →

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Grundfest on Securities Class Action Litigation

, February 2, 2011 ,

Every year, the Stanford Law School Securities Class Action Clearinghouse, in conjunction with Cornerstone Research, releases its annual overview of securities class action lawsuit flings. As I noted in a post last week, this year’s version introduced a number of innovations and reflected a host in interesting observations.  (Interview with Stanford Law Professor Joseph Grundfest About the State of Securities Class Action Litigation: The D & O Diary, 1/25/2011) Here’s one of the many Q&As:

Q. Do you have any predictions about 2011 securities litigation activity, as far as anticipated levels or trends?

A: I would expect the core rate to remain constant, and from there I would expect a bump up as even more merger disclosure litigation finds its way to federal court and a bump down as Morrison reduces the incidence of claims targeting foreign trading activity. Farther down the road, I would not preclude an increase in litigation activity attributable to whistleblower “tag along” cases that will be filed shortly after the Commission announces litigation or settlements arising from Dodd Frank bounty hunter disclosures.

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J&J Directors on the Line

, January 4, 2011 ,

A group of Johnson & Johnson (J&J) shareholders are seeking legal retribution for what they see as managerial oversights and ignorance of “red flags” that may have provided notice of the recent federal investigations of the company’s “manufacturing defects” and potentially illegal “marketing practices.” The multiple investigations began earlier this year when the company froze operations at a Pennsylvania manufacturing facility following a recall of children’s Tylenol. J & J is the world’s largest manufacturer of health care products, but in the past year it recalled over 40 different medicines because of incorrect or sloppy labeling and/or contamination of the products. The government investigations, and some of the recalls, involved, among others, Motrin and children’s Tylenol. (Johnson & Johnson Shareholders Seek Damages from Directors | Injury Board Charlottesville, 1/1/2011)

This is one suit worth watching. Generally, the courts have stayed clear of second guessing business judgment. Will this case be any different? The case may turn on whether or not the board acted “in good faith.” If, by some miracle, the courts side with shareowners, expect Robert C. Pozen’s recent call for professional boards to get a lot more traction. (see A New Model for Corporate Boards, WSJ, 12/30/2010)

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Proxy Access on Hold

, October 5, 2010 ,

The SEC placed proxy access on hold and will ask the U.S. Court of Appeals for the District of Columbia for an “expedited review” of a legal challenge by the U.S. Chamber of Commerce and the Business Roundtable, according to a legal order posted on the agency’s website today. The move means rules allowing shareholders to nominate directors on corporate ballots won’t take effect Nov. 15 as planned. (SEC Delays Rules Easing Ouster of Directors Amid Review of Legal Challenge, Bloomberg, 10/4/10)

According to the SEC filing:

The Commission has discretion to grant a stay of its rules pending judicial review if it finds that “justice so requires.”…

the Commission has determined to exercise its discretion to stay Rule 14a-11 and related amendments to the Commission’s rules, including the amendment to Rule 14a-8, pending resolution of petitioners’ petition for review by the Court of Appeals.
The Commission finds that, under all of the circumstances of this matter, a stay of Rule 14a-11 and related rule amendments is consistent with what justice requires. Among other things, a stay avoids potentially unnecessary costs, regulatory uncertainty, and disruption that could occur if the rules were to become effective during the pendency of a challenge to their validity. Because the Commission and petitioners will seek expedited review of petitioners’ challenge, questions about the rules’ validity will be resolved as quickly as possible.
The Commission further finds that, under all of the circumstances of this matter, it is consistent with what justice requires to stay the effectiveness of the amendment to Rule 14a-8 adopted contemporaneously with Rule 14a-11 because the amendment to Rule 14a- 8 was designed to complement Rule 14a-11 and is intertwined, and there is a potential for confusion if the amendment to Rule 14a-8 were to become effective while Rule 14a-11 is stayed.
Accordingly, it is ORDERED, pursuant to Exchange Act Section 25(c)(2) and Administrative Procedure Act Section 705, that the motion of petitioners filed on September 29, 2010 for a stay of the effect of Commission Rule 14a-11 and related amendments pending resolution of petitioners’ petition for review by the Court of Appeals be, and hereby is, granted; and it is further
ORDERED, pursuant to Exchange Act Section 25(c)(2) and Administrative Procedure Act Section 705, that the amendment to Commission Rule 14a-8 adopted on August 25, 2010 is stayed pending resolution of petitioners’ petition for review by the Court of Appeals.

“While we are disappointed in the delay, it is not the end of the world,” said Amy Borrus, deputy director of the Council of Institutional Investors. “The Council and concerned investors have pressed for years for this basic shareowner right. A few more months’ wait will not make a big difference.  Given the timing of the rule approval and publication in the Federal Register, it was already a stretch for active investors to use access in the 2011 proxy season. We look forward to expedited resolution of this case because of the cloud of uncertainty hanging over the rules as a result of the litigation. We continue to believe that access to the proxy is a fundamental shareowner right and that it will make boards of U.S. public companies more responsive to shareowners and more diligent in their oversight of management.” (The SEC Puts Proxy Access Rule on Hold, RMG Blog, 10/4/10)

As one who petitioned for proxy access in 2002, this delay looks appropriate for 14a-11 filings and, I suppose, 14a-8 resolutions also must be stayed because 14a-11 becomes the floor. Hopefully, we will have a clear route to access before the 2012 proxy season. I’m glad I didn’t spend a lot of time working on language for 14a-8 resolutions.

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BRT & Chamber Sue Over Proxy Access

, September 29, 2010 ,

As expected, the U.S. Chamber of Commerce and Business Roundtable filed a legal challenge to the SEC’s proxy access rules requiring a corporation to include in its proxy materials director nominees put forward by a shareholder (or group of shareholders) who have owned three percent or more of company stock for at least three years. Eugene Scalia and Amy Goodman of Gibson, Dunn, and Crutcher LLP will be counsel to the Chamber and Business Roundtable on this litigation.

In a petition for review filed in the U.S. Court of Appeals for the District of Columbia Circuit, the Chamber and Business Roundtable charge that the rule is arbitrary and capricious, violates the Administrative Procedure Act, and that the SEC failed to properly assess the rule’s effects on “efficiency, competition and capital formation” as required by law. In adopting the rule, the SEC:

  • Erred in appraising the costs that proxy access would impose on American corporations, shareholders, and workers at a time our economy can least afford it. For example, the Commission essentially disregarded numerous commenters who explained that the rule will be misused by special interest investors such as labor union pension funds and state pension funds;
  • Ignored evidence and studies highlighting the adverse consequences of proxy access, including that activist shareholders would use the rule as leverage to further their special interest agendas;
  • Claimed to be empowering shareholders, but actually restricted shareholders’ ability to prevent special interest shareholders from triggering costly election contests; and
  • Claimed to be effectuating state law rights, but gave short shrift to existing state laws regarding access to the proxy and related principles, including the law in Delaware and the Model Business Corporation Act, and created significant ambiguities regarding the application of federal and state law to the nomination and election process.
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Hedge Fund Avoids Shareowner Vote on Sale

, July 14, 2010 ,

Activist hedge fund Strategic Turnaround Equity Partners (STEP) is taking legal action against Detroit-based United American Healthcare Corporation (UAHC). UAHC apparently amended its bylaws so it did not need approval from regulators and shareowners to issue in excess of 20% of its shares to Pulse Systems. STEP portfolio manager Gary Herman branded UAHC as “the company with the worst board in America” and said:

They have entered into a series of transactions that have significantly impaired the value of the company and caused cash to go out the door to a related party. This whole series of events is rotten through and through. The board of directors have not acted in the interests of shareholders. On top of all that, UAHC has not held an annual meeting in over 600 days… The transactions with Fife are wrought with self-dealing and at the expense of shareholders. The company violated every principle of its fiduciary duty and loyalty to the shareholders and the company. We will pursue all the parties involved with these transactions to the fullest extent of the law.

STEP filed a lawsuit in Detroit to compel UAHC to hold an annual meeting so shareowners can vote on its proposed slate of directors. A similar case filed in a federal court was dismissed on what Herman calls “a technicality,” with the judge indicating the case should be heard in a state court. RiskMetrics Group has advised shareholders to vote in favour of STEP’s proposed nominees. (Hedge fund takes legal action as proxy battle intensifies, Hedge Funds Review, 7/12/10 – hat tip to Andrew Shapiro)

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