Tag Archives | USPX

Let's Get Rid of Caveman Directors

Women serving on corporate boards are far more likely than their male counterparts to favor increased boardroom diversity, new regulations for executive compensation, proxy access for shareowners and enhanced risk management, according to a new survey of corporate directors  by Heidrick & Struggles, WomenCorporateDirector (WCD), and Dr. Boris Groysberg. (Survey: Men and Women Corporate Directors Disagree Sharply on Diversity and Governance, Business Ethics, 10/7/10)

It makes me wonder, Did they really survey male directors, or did they slip in a large number of cavemen just to make women look so much more intelligent? I’m not about to get a sex change, but once again my group is making me embarrassed. These guys probably also think Pluto is still a planet.

As if this news wasn’t bad enough for guy egos, another study examined stock performance of the 26 publicly traded companies headed by females on the Power Women 100 list and found that as a group they outperformed the overall market–companies dominated by male chief executives–by 28%, on average, and topped their respective industries by 15%. (Girls Rule, Forbes, 10/7/10)

What’s the best way to predict the future? Create it. Free USPX Training – Learn How to File Shareowner Proposals.

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Free USPX Training – Learn How to File Shareowner Proposals

For a second year, the United States Proxy Exchange (USPX) is offering shareowners one-on-one training in the intricacies of filing shareowner proposals. The instructor will be a prominent shareowner activist who has successfully filed hundreds of shareowner proposals. The training is free for USPX members, and instruction is provided entirely by phone and e-mail. To file one or more proposals, you will need to have held at least $2000 in a corporation’s stock for at least a year. We will walk you step-by-step through the process, assist you in responding to challenges and make sure your proposals are presented and voted on at the annual meetings. This is a wonderful way to step up your involvement as a shareowner. To get started, e-mail the USPX.

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Symantec Reverses Course: Won't hold a Virtual-Only Meeting Next Year

As reported earlier (See Protesting Symantec’s All-Virtual Annual Meeting, 22 Sep, 2010) Symantec Corporation set the pathetic precedent of being the first Fortune 500 company to hold a virtual-only annual meeting without shareowner-approved safeguards to protect participant rights. That happened September 20, 2010. But two weeks later, Symantec has backed down. Responding to a letter writing campaign organized by the United States Proxy Exchange (USPX), which received national media attention, Symantec announced they will not hold a virtual-only annual meeting in 2011. Reuters broke the story.

This wonderful news came on the heals of shareowners’ success convincing Intel to scrap plans to hold a virtual-only meeting in 2010. Intel held a hybrid meeting instead.
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Proxy Access D-Day

I haven’t been following all the chatter around the deadline for filing for proxy access, since it is highly unlikely I will be taking part until some group like USPX works to group to proxies of individual investors. However, those with the need to know can find the information at CorporateCounsel.net (Mea Culpa: Proxy Access’s Lookback Test – March 13th, 2010 is the D-Day), a great resource for all the legal concerns, both large and trivial, surrounding corporate governance.

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Symantec Audio-Only Meeting Gets National Coverage

At last, there have been a couple of articles in the national press on the Symantec Corp. virtual-only meeting. First, Ross Kerber reported for Reuters, Shareholder meetings via Web mute dissident voices (9/24/2010) Kerber observed,

Soon movies might be the only place to hear pointed outbursts from investors. This year more than a dozen companies moved their annual meeting to online-only settings where they can rephrase or ignore contrarians.

Bruce Herbert, Steve Schueth, U.S. Proxy Exchange, CalPERS and CalSTRS were mentioned as opposing the move. Symantec claimed the fact that it included a pointed question on its performance during the online meeting, provided evidence it wasn’t stifling dissent.

Then on 9/26/2010 the New York Times published Gretchen Morgenson’s Questions, and Directors, Lost in the Ether.

Unlike other companies that broadcast video along with audio, Symantec held its meeting as audio-only — making it impossible for investors to observe the goings-on or see which Symantec executives had decided to make themselves available.

Symantec management read and answered only two questions from shareholders and failed to answer a question from Bruce T. Herbert, chief executive of Newground Social Investment. Morgenson also quoted several Symantec shareowners who were displeased with the audio-only meeting and she focuses on the fact that not all Symantec directors “attended,” although she was unable to find out who the missing directors were.

Morgenson mentioned the recent shareholder forum by Gary Lutin.

PARTICIPANTS in the forum have proposed these standards of fairness involving electronic shareholder meetings: a company should provide all shareholders with a reasonable opportunity to ask management questions relating to director elections and other matters to be decided at a meeting; a company should present those questions or views to management publicly so other shareholders can consider them; and, finally, a company should generate responses to these questions from managers or directors so other shareholders can consider them as well.

Morgenson ended her article with important observations from Lutin.

Most corporate managers also like being able to learn what interests their shareholders so they can respond before decisions are made. But it’s important to be alert to abuses that hide questions. If you want the marketplace to work, investors need to see which managers deserve their support.

Not mentioned in the article is the fact that Glyn Holton, of the United States Proxy Exchange (USPX), initiated the protest against Symantec. USPX appears to be on the threshold of building on the work of Lutin by

drafting a white paper detailing the legal, technology and procedural issues raised by virtual meetings. That will be followed with a members forum through which shareowners will draft shareowner-approved guidelines for the conduct of virtual meetings. Find out more and how you can be involved on our Virtual Shareowner Meetings page.

Long-term, we cannot address the issue of virtual meetings one company at a time. There are approximately 13,000 annual meetings in the United States each year. At some point, the trickle of corporations experimenting with virtual meetings will become a torrent. We need a comprehensive solution.

To that end, the USPX has formed the Coalition to Preserve Shareowner Meetings to pursue a two-pronged strateg:

1. Hold an on-line forum to draft shareowner-approved minimum guidelines for the conduct of virtual and/or hybrid meetings, and

2. Agree to sanctions the shareowner community will impose on corporations that conduct virtual meetings not in accordance with those guidelines.

Aside from Gary Lutin, members of the Social Investment Forum and public pension funds have mostly taken the lead in this area. We need others, especially retail shareowners to step up to the plate. I hope readers of CorpGov.net will join in those efforts by sending concerns and advice to [email protected]. I encourage individual shareowners, institutional shareowners and interested parties to join this newly forming coalition to participate in the forum and other activities. Join the USPX today. Member dues are modest and fund important activities.

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Protesting Symantec's All-Virtual Meeting

Steven Towns, writing for Seeking Alpha (Questioning Symantec’s ‘Virtual’ Shareholder Meetings, 9/20/2010) joined CII, CalSTRS, CalPERS, USPX and others in objecting to an all virtual meeting held buy Symantec. This follows up on Ted Allen’s September 16, 2010 article for RiskMetrics, Investors Object to Symantec’s Virtual Annual Meeting, my post of September 7, 2010 (also on Shareowners.org) and USPX’s page of resources on the issue with copies of letters sent.

Bruce Herbert of Newground Social Investment tuned in to the meeting and apparently found it frustrating. I’ll give it a few days to see if anyone else in the press reports on the virtual-only meeting or maybe Herbert will blog about it. If not, I’ll give Symantec at least one more post. I urge all readers and all funds to write to Ms. Corcos of Symantec protesting the virtual-only meeting. Please cc USPX. See this USPX page for sample letters.

In an e-mail to me and others, Corcos indicated “Symantec received a Low Concern rating on each of the four categories that RMG evaluates:  Board Structure, Compensation, Shareholder Rights and Audit.”  Maybe RMG also needs to hear from shareowners.

Corcos goes on to say: “If stockholders preferences change, we will reconsider hybrid models for future meetings.” I take that to mean, if enough protest they will switch to a hybrid model. Shareowners should keep bombarding them with letters and e-mails until they publicly announce next year’s meeting will be a hybrid one. That will deter other companies from moving to virtual-only meetings.

Gary Lutin’s Shareholder Forum has done a great deal to date trying to come to grips with the various issues through his leadership and that of Avital Louria Hahn. I anticipate USPX, which intends to hold additional ongoing forums on the topic, will build on their work and extend it, developing a broad consensus among shareowners of best practices.

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Documenting Share Ownership to File Resolutions

Hoping to put an end to the efforts by certain executives to frustrate the ability of shareowners to submit proposals, I joined with John Chevedden and Glyn Holton in providing written advice to Meredith Cross, Director Division of Corporation Finance at the SEC, on a proposed staff legal bulletin interpreting Rule 14a-8(b)(2).

Our letter explains the confused decision in the Apache vs. Chevedden lawsuit and discusses how that should be addressed in any template providing instructions on how to document ownership when filing shareowner resolutions.  We also discuss increasingly common efforts to frustrate shareowner proposals based on the timing with which brokers or banks must document their eligibility.

Although an increasing number of proposals have been omitted on the grounds that investors failed to provide sufficient evidence of eligibility, in the vast majority of these cases there is little question that proponents actually did own qualifying shares. Their proposals were thrown out on technicalities. We hope that an SEC Bulletin will clarify the requirements, both for shareowners and issuers, so that we can all spend less time on procedural items that were never intended to present a barrier.

Read the letter; let me know what you think of it. What other efforts should be made by the United States Proxy Exchange (USPX) to protect the rights of shareowners? Join us.

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Investment Clubs Get Moxie

BetterInvesting, the nonprofit association serving the retail investor primarily through education and investment clubs, announced a strategic partnership with Moxy Vote. BetterInvesting will promote the use of Moxy Vote’s free online proxy-voting service. According to Kamie Zaracki, CEO of BetterInvesting:

We’re excited to work with Moxy Vote. Since 1951, our association has been advocating that investors aren’t simply holders of stock shares — they’re owners of companies who should participate in the ownership by voting their proxies. Moxy Vote makes this easier for retail investors by providing a single site for maintaining proxy information, voting and obtaining information on the issues from their 40 participating Advocate organizations. This partnership will help us fulfill our mission of providing sound education that helps shareowners make better investment decisions.

In their press release, Moxy Vote co-founder Mark Schlegel says:

BetterInvesting has served the investment education needs of more than 5 million people over its history and as a result brings a wealth of experience and insight on how Moxy Vote should market its services to retail investors. Moxy Vote wants to put more information into the hands of retail investors, who hold 30 percent of publicly traded shares, and give the so-called little guy a needed voice in the boardrooms of the companies they own.

This is an excellent development that could very well strengthen both organizations and the overall clout of shareowners IF the partnership is fully embraced by both. I have little doubt that Moxy Vote stands ready to serve but will BetterInvesting actually begin to stress the importance of proxy voting or corporate governance among its members. Do a search on their site for proxy voting or corporate governance and you find virtually nothing.

BetterInvesting has traditionally emphasized how to analyze and buy stock and mutual funds. Little effort has been devoted to what investors can do as owners. For example, I haven’t seen any evidence the organization spends any effort describing governance basics, such as analyzing CEO compensation, possible advantages of annual director elections, why the move to majority voting requirements, how to file a proxy resolution or even what resources are available to help you decide how to vote proxies. If investment club members begin to see themselves as owners, rather than speculators, the partnership could be truly transformative. We should all be watching to see how both organizations follow through.

I hope this is just the start. BetterInvesting could also form partnerships with groups like the United States Proxy Exchange (USPX) and VoterMedia.org. USPX, for example, is training members on how to present proxy proposals at annual meetings so that proponents don’t have to bear the expense of flying across the country to make a 2 or 3 minutes statement at annual meetings. If investment clubs took on this effort with USPX, we could soon have “field agents” at every annual meeting. Investment clubs could also rate and provide seed funding to bloggers and others who provide investor education. Those rated at the top would get the most funding. See prototype.

According to the press release:

Since 1951, BetterInvesting, the brand identity of the National Association of Investors Corporation, has helped over 5 million people become better, more informed retail investors. BetterInvesting, based in Madison Heights, Mich., helps its members build wealth through local, regional and national learning events as well as through Web-based tools, software, member publications and online resources. As the nation’s largest nonprofit organization dedicated to investment education, it provides investing knowledge and practical investing experience through local investment clubs, local volunteer chapters, online courses and an active online community. BetterInvesting and its subsidiary, ICLUBcentral, currently serve over 120,000 investors.

Moxy Vote offers a free online platform at www.moxyvote.com that simplifies the proxy voting process for retail investors. It does this by providing information on the issues at stake and offering the functionality to actually process a vote. Shareholder Advocates can rally like-minded shareholders to vote alongside of them for their causes.  Moxy Vote has been profiled in the Wall Street Journal, New York Times, Investor’s Business Daily, Kiplinger’s and a number of other publications. It has also received favorable reviews from industry experts such as Nell Minnow, Jim McRitchie and Mark Latham.

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CorpGov News Bites

CalPERS. A report from consultant Wilshire Associates found that activist involvement by CalPERS increased returns at many of  the 142 “Focus List” companies. Prior to the pension’s involvement, the companies’ returns averaged 83.3% below their various benchmarks; afterward they yielded returns 12.7% above the benchmarks. Although the cumulative 12.7% is not as high as past results, their corporate governance program still much more than pays for itself. From the report:

Most investment resources in the industry continue to be focused on identifying small misvaluations in publicly traded stocks. This is, perhaps, unfortunate since investors are not earning a satisfactory return on the manager fees and brokerage costs they pay, given the evidence showing that the public stock markets are fairly efficiently priced. However, the evidence is equally clear that many corporate assets are poorly managed and that resources spent on identifying and rectifying those cases can create substantial opportunity and premium returns for active shareholders.

CalPERS announced several actions to address concerns raised by the City of Bell salary controversy, including:

  • Posting audit reviews of public agency membership and payroll data submitted to the retirement system
  • Highlighting significant findings of public agency reviews and regularly report them to the CalPERS Board
  • Establishing procedures and guidelines for CalPERS working-level staff to notify supervisors and senior management of unusually high compensation and salary increases such as those that occurred in Bell

In addition, CalPERS helped establish the Public Employee Compensation and Benefits Task Force, which includes CalPERS staff and representatives public employer organizations, League of California Cities, California State Association of Counties, employee and labor organizations, legislative staff and other, focusing on:

  • Options for providing greater public disclosure of public employee compensation, benefits, and other information related to total employee compensation and benefits
  • Options regarding caps on total compensation that can be considered for retirement purposes
  • Options for mitigating the impact of excessive salaries on the retirement costs of a public employee’s previous public employers and other public agencies in the same liability risk pool

CalPERS had previously announced plans to review the compensation of CalPERS-covered employees who earn $400,000 or more per year in salary.  Phase two of the review will look at CalPERS member salaries of $245,000 per year and above.

On September 7, 2010, from 6:00 p.m. – 7:30 p.m., the Sacramento Central Labor Council and PERSWatch.net will host a “CalPERS Candidates’ Forum,” moderated by the League of Women Voters of Sacramento County. The forum will be held in the CalSTRS Boardroom at 100 Waterfront Place in West Sacramento, next to the pyramid. We’re trying to arrange for free parking but haven’t confirmed that yet. This is your opportunity to meet and question the candidates. A video of the forum will be archived on the CalPERS website.

Citigroup. Nice item by David Reilly in the WSJ (Citigroup’s Paltry Debt Penalty, 8/17/10) He sides with U.S. District Judge Ellen Segal Huvelle who refused the SEC’s proposed $75 million settlement with Citigroup over the bank’s failure in 2007 to disclose sub-prime mortgage risks. Goldman Sachs recently paid $550 million for a lesser offense but the SEC only wants $75 million from Citigroup. Why go after only two Citigroup executives for the paltry sums of $100,000 and $80,000 and why should shareowners pay for the execs alleged missteps?

The problem is Citigroup shareholders, under current rules, couldn’t necessarily oversee their company. That is partly due to the difficulty in challenging board directors… For shareholders to be held accountable, the SEC has to let them act more like owners.

Unfortunately, even under the SEC’s most probable proxy access rules shareowners may just have a better view of wrong doing and their money sliding away, since even under the best of circumstances they will only get to nominate 1/4 of the board.

Climate Change. With extreme weather mounting and Congress dithering, WRI report outlines what we can do now to reduce GHGs. The summary, “Everything You Need to Know About Global Warming in 5 Minutes,” by Boston investment manager Jeremy Grantham of GMO does a great job of ticking off the causes, consequences, and controversies surrounding climate change. (The Go-Getter Approach to Climate Change, 17 August 2010, MurninghanPost.com.

Cooperatives. If sustainable technologies are about the what of the living economy, local and shared ownership designs are about the who: who will own the productive capacity of the nation, who will control it, and who will benefit from the wealth created. Minwind Energy is an example of shared ownership, an emerging, broad category of ownership design in which ownership is shared among individuals (as in cooperatives or employee-owned firms) or between individuals and a community organization (as in a community land trust, where families own their homes while a nonprofit owns the land they stand on). (A Different Kind of Ownership Society, via Yes! Magazine, Marjorie Kelly and Shanna Ratner, 8/3/10)

Corporate Governance. It is no longer realistic to look to government to rectify problems caused in the private sector, or to simply ignore such problems and their broader consequences. We all need to look for innovative ways to avoid such problems, such as using the governance process to do so. (Why Corporate Governance Matters to Everyone, Marty Robins, The Huffington Report, 8/17/10)

With the specter of dramatic regulatory changes hovering over them, U.S. public companies have been acting aggressively to streamline corporate governance practices and establish their executive compensation priorities, according to Shearman & Sterling’s eighth annual Corporate Governance Surveys of the 100 largest U.S. public companiesKey corporate governance findings include:

  • Majority voting in uncontested director elections has been implemented in some form by 82 of the 100 largest companies, up from 75 last year and from just 11 as recently as 2006.
  • Despite amendments to NYSE Rule 452 implemented last year (eliminating broker discretionary voting in director elections), no director standing for reelection at one of the 100 largest companies failed to receive majority support this year.
  • The number of Top 100 Companies at which the CEO is the only member of the board of directors who is not independent increased significantly, rising to 59 this year from 49 last year.
  • The number of Top 100 Companies with classified boards, of which there were 54 in 2004, declined to only 20, and of those 20, more than one-third were either in the process of declassifying their boards or received approval from their shareholders this year to do so.
  • Seventy-one companies disclose they maintain an executive compensation clawback policy (an increase from 56 companies in 2009 and 35 in 2007  — representing a 103% increase in four years). This will become increasingly significant, as the new Dodd-Frank Act mandates clawbacks if a material restatement would have affected the amount received.
  • There was a decrease in the overall number of compensation-related shareholder proposals; however, advisory say-on-pay policies continued to be the most prevalent proposal. In addition, the survey suggests that companies cannot assume that their say-on-pay advisory resolutions will pass. For example, three public companies (including one Top 100 Company) failed to win majority support in the 2010 proxy season.

Economy. Biflation, generally defined as inflation and deflation occurring simultaneously in different parts of the economy—specifically, rising prices for commodities that trade in global markets and falling prices for things bought with credit domestically, like homes and automobiles. (Is ‘Biflation’ Real?, Newsweek, 8/16/10)

Electronic Board Meetings. Despite the obvious advantages of using technology and moving to electronic meeting management, few companies have achieved buy-in and taken board meetings to an electronic platform. Some have, however – and South Jersey Industries (SJI) is one such early adopter. (Best practice: establishing an electronic meeting management process, Corporate Secretary, 8/17/10)

Global Corporate Citizenship. Prof. Surinder Pal Singh outlines how global corporate citizenship rests on four pillars: values; value protection; value creation; and evaluation. These four pillars not only underpin the long-term success and sustainability of individual companies, but are also a major factor in contributing to broader social and economic progress in the countries and communities in which these companies operate. Along with good governance on the part of governments, they offer one of our greatest hopes for a more prosperous, just and sustainable world. (The Concept of Corporate Citizenship in a Global Environment, Political Wag, 8/17/10)

As the US markets continue to debate whether we are still in a recession, on the road to recovery, or headed for a double recession, the Indian government is busy imposing regulations to boost corporate philanthropy and social responsibility. In an economy that continues to post steady growth despite upheavals across Europe and the U.S., India Inc. is increasingly facing scrutiny for its role—or notable absence—in the social and environmental growth of the country. (Forcing CSR in India: Is Regulation the Answer?, The CSR Blog, 8/16/10)

Green Chemistry. Two California departments within Cal/EPA are working to identify “chemicals of concern” in consumer products. Eventually, they will push companies to substitute less toxic chemicals and maybe even ban some of those that are killing us now.

Greenest Campuses. 162 American colleges and universities rated by the Sierra Club. Also includes first steps on Chinese campuses.

Proxy Plumbing. The Shareholder Communications Coalition consisting of the Business Roundtable, National Association of Corporate Directors, National Investor Relations Institute, Society of Corporate Secretaries and Governance Professionals, and the Securities Transfer Association prepared a PowerPoint presentation to explain its recommendations for reforming the proxy voting and shareholder communications rules. “This presentation document is intended to help public companies, investors, and other interested parties understand how the proxy system can be improved to benefit all stakeholders.” This is an important initial assessment of feedback on the SEC’s proxy plumbing concept release. I suspect I will disagree with several parts but I heartily endorse their call to:

  • Do away with the VIF and replace it with a proxy card.
  • Pass voting authority directly to beneficial owners.
  • Enable beneficial owners to transfer their proxy authority back to their brokers or bank (e.g. client directed voting) or to another third-party.

Research in Progress. Stanford’s Rock Center for Corporate Governance and the Corporate Secretary’s organization are conducting a survey “to get some hard data and research on what companies are actually doing and hopefully figure out once and for all what elements of governance reform actually lead to improvements and which do not.”

SECRebecca Files finds that cooperation with the SEC through forthright disclosure of a restatement (e.g., disclosures reported in a timely and visible manner) increases the likelihood of being sanctioned, perhaps because it improves the SEC’s ability to build a successful case against the firm. However, both cooperation and forthright disclosures are rewarded by the SEC through lower monetary penalties. (SEC Enforcement: Does Forthright Disclosure and Cooperation Really Matter?, SSRN, 7/14/10)

The SEC settled its suit with New Jersey over securities fraud by issuing a cease-and-desist order, which the state accepted without admitting or denying the findings. No penalties were imposed. According to the SEC NJ claimed it had been properly funding public workers’ pensions when they had not. The SEC has a special unit looking into more public pension disclosures. (Pension Fraud by New Jersey Is Cited by S.E.C., NYTimes, 8/19/10)

The S.E.C. said the fraud began in 2001, when New Jersey increased retirement benefits for teachers and general state employees. New Jersey did not have the money to put behind the new benefits, but every year after that, the state treasurer certified that the pensions were being funded according to the plan.

The SEC finally confirmed they will consider adopting proxy access rules on 8/25. Still no word on threshold, holding period, small issuer exemption. next Wednesday, August 25th at an open Commission meeting. No word on how the big question marks – the ownership threshold and holding period – will be resolved. Sunshine notice. The U.S. Chamber of Commerce has retained Eugene Scalia, the son of U.S. Supreme Court Justice Antonin Scalia, to review the forthcoming SEC rules for a potential legal challenge. (SEC Plan to Pry Open Corporate Boards May Face Challenge, Bloomberg, 8/11/10) J. W. Verret of the George Mason University School of Law has already proposed more than a dozen way to circumvent the law in his paper Defending Against Shareholder Proxy Access: Delaware’s Future Reviewing Company Defenses in the Era of Dodd-Frank.

Shareowner Engagement. With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, power has shifted to shareholders.  The 2011 proxy season is a game-changer as the rules require boards to seek shareholder support for compensation programs and even directorship candidates. (Directors, Do You have a Shareholder Engagement Program?, Karen Kane Consulting, 8/12/10)

United States Proxy Exchange (USPX).  The USPX is a non-government organization dedicated to facilitating shareowner rights, primarily through the proxy process. They are structured as a chamber of commerce but unlike a typical chamber of commerce—which represents corporate executives—the USPX represents shareowners. Membership includes both institutional investors and sophisticated retail investors—many of whom have finance, corporate or legal expertise from their careers. Together, they work to promote an environment where engaged shareowners create value through the corporations they own. Check out their new website. Please join me; sign up for membership.

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Rejected No-Action Request Clarifies Required Ownership Evidence

As reported last week by Glyn Holton in the Investor Suffrage News, available through subscription, investors won another round with the SEC’s denial of a no-action letter to News Corp. From that News:

You may recall last spring’s Apache vs. Chevedden lawsuit. It was a classic SLAPP (strategic lawsuit against public participation) suit, with Apache Corp trying to squeeze shareowner activist John Chevedden financially. The crux of the case was Apache trying to reinterpret poorly-written SEC Rule 14a-8(b)(2), which governs how shareowners must document their ownership of a corporation’s shares for the purpose of submitting a shareowner proposal. Based on an amicus curiae brief submitted by the USPX, the judge flatly rejected Apache’s reinterpretation of the rule. But she found a technicality on which to allow Apache to exclude Chevedden’s proposal from their proxy materials for 2010. That narrow decision appears to be based on factually incorrect information, but that hasn’t stopped three corporations—Union Pacific, Devon Energy and News Corp—from trying to piggyback off the flawed ruling. Since the Apache vs. Chevedden decision, all three have submitted no-action requests to the SEC to allow them to exclude proposals by Chevedden (or those he works closely with). The USPX has helped Chevedden draft responses to each. All three requests have been rejected by the SEC. This is fantastic news for shareowners. Attempts to reinterpret Rule 14a-8(b)(2), and thereby make it more difficult to submit shareowner proposals, have been defeated.

The third of those no-action decisions was just released today. It is important because the first two were decided on technicalities. With the News Corp request, there were no technicalities with which to dismiss the request. SEC staff had to decide in favor of News Corp or in favor of Kenneth Steiner based on the merits. It took them two months—longer than any other Rule 14a-8 no-action request so far this year—but they today decided in favor of Steiner (and Chevedden). Furthermore, they have indicated they will release a fill-in-the-blanks template letter for banks or brokers to confirm share ownership in the future. That should finally put an end to efforts to reinterpret Rule 14a-8(b)(2).

We are delighted with the SEC’s denial of News Corp’s request. Since the SEC’s announcement of their refusal to grant a no-action letter on Steiner’s proposal, News Corp revamped their performance pay plans. (see News Corp gets the performance pay bug, The Corporate Library, 8/4/10)  As Holton indicated above, this is the clearest evidence to date that the SEC rejects attempts to reinterpret Rule 14a-8(b)(2) to require shareowners to obtain a letter evidencing beneficial ownership from the “record holder,” which in the case of stocks held in “street name” is Cede & Co., an agent the Depository Trust Corporation, the central clearinghouse.

We look forward to the forthcoming fill-in-the-blanks template letter for banks or brokers within the Staff Legal Bulletin that I expect will come from Meredith Cross, Director, Division of Corporate Finance at the SEC. In fact, we hope to provide the SEC with some advice. Meanwhile, those of you who subscribe to theCorporateCounsel.net can find out more at Corp Fin to Issue Rule 14a-8 Staff Legal Bulletin Before ’11 Season, 8/5/10.

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Devon's AGM (Updated)

John Chevedden recently had one of his more common shareowner proposals at Devon Energy (update at bottom):

Resolved, Shareholders request that our board take the steps necessary so that each shareholder voting requirement in our charter and bylaws, that calls for a greater than simple majority vote, be changed to a majority of the votes cast for and against the proposal to the fullest extent permitted by law. This includes each 67% supermajority provision in our charter and/or bylaws.

Chevedden has assisted me on such proposals. They have typically been winning strong support, often in the 70% and 80% range. His proposal included a supporting statement that noted several other issues with the company. For example, The Corporate Library rated the company “D” with “High Governance Risk,” “Very High Concern” for our takeover defenses and “Very High Concern” for executive pay. See proxy item 3.

Julie Skye presented Chevedden’s proposal at Devon’s Jun 9th AGM. Imagine her shock when the meeting Chair asked if there was a second (there was none) and the Inspector of Elections failed to report out voting results? Fortunately, with assistance from the United States Proxy Exchange, Chevedden was able to cite the fact that in response to Motorola (1987), SEC staff affirmed there is no need for a second on shareowner proposals.

Timothy Smith, of Walden Asset Management, also wrote protesting Devon’s “parliamentary maneuvers to prevent hearing the views of stockholders on a legitimate corporate governance matter” and urging them to “put the vote on the record and properly identify the tally in the 8K form required by the SEC.”

According to Chevedden, the Devon Chair called him and said the proposal passed overwhelmingly and it will thus be reported in the 8-K. Devon had earlier requested a no-action letter from the SEC, relying on Apache and was denied. Interesting coincidence that Apache recently completed its acquisition of Devon Energy’s oil and gas assets in the shallow waters of the Gulf of Mexico Shelf for $1.05 billion.

It is hard for me to believe Devon’s counsel didn’t know that no second is required to present a shareowner resolution at an AGM. Why would a company bother with such fruitless maneuvers? Is anyone grading companies on their performance at AGMs like Lewis Gilbert used to do? If so, they should certainly get a failing grade. Unfortunately, obstruction of shareowner rights, especially at the procedural level, doesn’t get much press. I doubt you’ll be reading of this incident in the mainstream press.

The SEC just posted Devon’s 8-K as this post was scheduled to go live. Here is Devon’s explanation:

A shareholder proposal for a Simple Majority Vote was presented. The Company, in accordance with normal Annual Meeting procedures, asked for a second to the motion for the proposal. There being no second, the vote on the proposal was not called. Subsequent to the meeting, the Company determined upon further investigation that the staff of the Securities and Exchange Commission had actually provided informal guidance on this issue in the form of correspondence issued twenty-three years ago, in which the staff indicated that the voting of proxies received with respect to a shareholder proposal included in a company’s proxy material pursuant to Rule 14a-8 should not be conditioned upon the proposal being seconded at the meeting, absent a second being required by state law or by a company’s governing instruments. Based on this earlier guidance, a second to the motion in support of the shareholder proposal was not required and, accordingly, the vote on the proposal has been certified. A total of 72% of all voted shares were cast in favor of the shareholder proposal. The results of the vote are as follows:


Ted Allen, writing for the RiskMetrics Group, Devon Energy Drops Objection to Shareholder Proposal, infers that presenting a proposal at a meeting or getting a second, if required by state law or corporate bylaws, seems like a needless formality, given that the vast majority of votes are cast before a shareholder meeting. Perhaps the SEC should address this relic in its proxy plumbing concept release.

The Devon case is another example of the various SEC, state, and corporate procedural rules that can thwart shareholders in their efforts to bring resolutions to a vote. While most investors vote in advance through electronic means and seldom attend meetings in person anymore, some of the SEC’s requirements for proponents still reflect the ways that shareholder meetings used to be conducted. For instance, under SEC Rule 14a-8(h)(3), a company may exclude a proponent’s resolution for two years if the proponent (or a qualified representative) fails to appear in person to present the proposal and cannot demonstrate “good cause” for failing to attend.

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Update on Virtual Shareowner Meetings

As they have done for the past few years, Intel Corp. hosted a hybrid shareowner meeting today, allowing shareowners to attend in person or via the Internet. This meeting was important because Intel had planned to make it a virtual meeting, hosted exclusively on the Internet. A strong reaction from shareowners prompted Intel to back down for this year, but this may be just a one-year reprieve. As the same technology used for today’s hybrid meeting would be used for an exclusively virtual meeting, we had today a glimpse of what a virtual Intel meeting might be like. (see Intel Virtual Mtg Out for 2010 But Exploring Future with USPX)

Broadridge provided the technology, and the meeting was hosted on a Broadridge website. Shareowners accessed the meeting using the same 12-digit control numbers they use to vote shares on-line through Broadridge’s proxyvote.com website. Since it is unclear how a competing technology provider might authenticate sharewoners, Broadridge is poised to monopolize the market for virtual—and even hybrid—shareowner meetings.

In the days leading up to the Intel meeting, shareowners were welcome to post questions to an “Investor Network” website that is in beta testing by Broadridge. Many questions were posted and Intel staff answered a number of them on that same website prior to the meeting. Intel represents that questions posed over the Internet during the meeting, if not answered during the meeting, will be answered on that website. The process appears manual. I tested the system by posting a question during the meeting. It was not answered during the meeting, and an hour after the meeting, it had not appeared on the Investor Network website.

The meeting itself was a typical shareowners meeting. It lasted just 40 minutes, with the chair and CEO fielding questions while the polls were open. It was professionally run and actually one of the better shareowner meetings I have recently participated in. Despite the availability of access via the Internet, about twenty-five shareowners attended in person. Many corporations that don’t offer Internet access fail to get that number.

Questions from the audience were mostly interesting. Two individuals praised the hybrid format while arguing that an all-virtual meeting would not be good for shareowners. In response, chair Jane Shaw said no plans have been finalized as to whether Intel will go all-virtual in 2011 “or beyond.” She declined to endorse criticisms of an all-virtual format, which suggests there is still interest in going all-virtual.

As feared, Broadridge’s technology largely reduces shareowners to a spectator role. I routinely speak out at shareowner meetings, sometimes to ask questions, but also to address procedural errors by the chair, which are common. No such opportunity existed with Intel’s meeting today. You can shout at your computer screen, but it won’t do any good. The user interface is dominated by a small video of the meeting. There are links to the proxy materials, meeting rules and a few other documentations. You can click on a button to fill in your ballot at any time during the meeting up until the polls close. There is also a small window for typing in a question. The brevity of the meeting and the fact that the chair appeared to read Internet questions from a sheet of paper suggest that Internet questions were pre-selected from questions submitted in advance of the meeting. In summary, there appears to have been no means for shareowners participating via the web to participate during the meeting. Other than filling out the ballot, our role was entirely passive. Neither before, during nor after the meeting was there any mechanism for shareowner-to-shareowner communication.

Needless to say, there will need to be improvement before shareowners can support corporations in hosting all-virtual meetings. The United States Proxy Exchange (USPX) is spearheading shareowners’ response to the opportunities and risks virtual or hybrid meetings pose. We will be hosting a deliberative conference this November in Boston at which shareowners will set guidelines for the conduct of virtual meetings. Intel has already committed to participate in that conference, and I invite all institutional and retail shareowners to join us as well. Details about the conference will be announced in a few weeks. To receive that announcement, please e-mail me at mailto:[email protected].

(Publisher’s note: Thanks to Glyn Holton for this guest commentary and for his good work at the USPX. Guest posts on substantive corporate governance issues are always welcome. Contact James McRitchie.)

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Pyrrhic Victory? Apache Delays Shareowner Proposal, Loses Attempt to Require Broker Letters From DTC

March 10, 2010, Press Release from the United States Proxy Exchange (USPX).

Shareowners are celebrating a dramatic win in the Apache vs. Chevedden lawsuit, which was decided in an expedited manner by Judge Lee H. Rosenthal in Federal District Court in Houston today.

Shareowners were glum when the judge’s decision first arrived. It started by announcing a “narrow” decision in Apache’s favor, but as they read on, shareowners realized just how “narrow” that decision was. On page after page of the decision, the judge rejected Apache’s evidence, its arguments, and ultimately its claim that (essentially) proponents of shareowner resolutions must document their holdings with a letter from DTC. Because it is impossible for DTC to provide such a letter, a ruling on the issue in Apache’s favor would have crippled shareowners’ ability to submit proposals. The judge’s rejection of Apache’s position transformed the lawsuit from a possible weapon of mass destruction against shareowner rights into a minor dispute over whether or not Apache may exclude John Chevedden’s proposal from its proxy materials this year. At the very end of the decision, the judge decided that minor issue in Apache’s favor. She did so on a technicality. That was the “narrow” decision.

The case was a split decision, but shareowners won. Apache got a consolation prize. Shareowners did more than dodge a bullet. We proved that we can pull together and not only present a united front, but actually win on substantive issues against expensive corporate lawyers. We learned some valuable lessons through the experience. We doubt Apache Corp. will be suing any more resolution proponents soon. If they do, shareowners will be more than ready for them.

For further information, please contact USPX Executive Director Glyn A. Holton at 617.945.2484 or [email protected].

Apache was able to keep a “simple majority vote” shareowner proposal off this year’s proxy by spending tens of thousands of dollars of assets collectively owned by all shareowners in order to take a single shareowner to court, threatening him with the possibility that the judge would require him to reimburse Apache for its costs. Chevedden lost on the adequacy of the letter from his broker, not on the central contention by Apache that letters evidence ownership must be issued by the registered owner, in this case the Depository Trust Company’s Cede & Co.

However, the judge did not award attorney fees to Apache. Even more important, the judge dismissed Apache’s arguments that “record holder,” as used in SEC Rule 14a-8(b)(2), means a registerd holder whose name appears in the company’s records as a shareholder. Several of Apache’s arguments were dismissed; at least one was even called “disingenuous.” In the judge’s words, the examples provided by Apache “show that DTC will only process letter requests forwarded to it by participants, not by beneficial owners.”

Apache’s very limited victory came because “the inconsistency between the publicly available information about RTS and the statement in the letter that RTS is a ‘broker’ underscores the inadequacy of the RTS letter, standing alone, to show Chevedden’s eligibility under Rule 14a-8(b)(2).” Atlantic Financial Services of Maine, a wholly owned subsidiary of Ram Trust Services is on the SEC, FINRA, and SIPC membership lists; apparently, Ram Trust Services is not. Chevedden’s letter, from Ram Trust Services, which issues his monthly statements, was deemed inadequate by the judge.

The only issue before this court is whether the earlier letters from RTS – an unregistered entity that is not a DTC participant – were sufficient to prove elegibility under Rule 14a-8(b)(2), particularly when the company has identified grounds for believing that the proof of eligibility is unreliable. This court concludes that the December 2009 RTS letters are not sufficient.

I expect Chevedden will be back next year, again proposing “simple majority” vote requirements at Apache. Similar proposals have won from 74% to 88% support at the following companies in 2009: Weyerhaeuser, Alcoa, Waste Management, Goldman Sachs, FirstEnergy, McGraw-Hill and Macy’s. In the meantime, an important right has been upheld. Shareowners will continue to evidence ownership through their banks and brokers, not through DTC, which usually doesn’t know who they are or what shares they hold.

March 10, 2010, Memorandum and Order from Judge Lee H. Rosenthal, in the United States District Court for the Southern District of Texas, Houston Division. Apache’s response to Chevedden’s Motion for Summary Judgment. John Chevedden’s Motion for Summary Judgment.  Apache’s Reply Brief on the Merits.  United States Proxy Exchange amicus curiae brief. Apache’s Brief on the Merits. More documents at VotePal.com, which offers “help for people interested in challenging for corporate director seats.”

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Hyperbolic Message With Unconstrained Abandon: Apache v Chevedden

As regular readers know, I’ve joined with Glyn Holton of the United States Proxy Exchange (USPX) recently in defending a direct assault on shareowner rights that came in the guise of a lawsuit by Apache, a $33 billion company, against John Chevedden. (see Who Should Submit Shareowner Proposals?, HLS Forum on Corporate Governance and Financial Regulation, 3/9/10) In “Apache’s Reply Brief on the Merits,” they characterize our defense of shareowner rights as follows:

It may be fun for USPX (and its co-signer CorpGov.net) to have yet another forum in which to broadcast their hyperbolic message with unconstrained abandon, but it’s nothing short of irresponsible for them to do so here.

They give no clue as to what is being considered “irresponsible.” We know Apache’s CEO G. Steven Farris has publicly declared in a comment letter to the SEC on proxy access that:

Non-binding proposals should not be permitted at all. They have no legal standing under the corporate laws of Delaware and other slates, are an inefficient and ineffective method of communication between shareholders and companies, and distract attention from the genuine business issues presented for shareholder votes at shareholder meetings. The Commission should eliminate the federally created right of share holders to make non-binding proposals.

Is he now trying to obtain through the court what he could not at the SEC? Am I being irresponsible because I oppose that viewpoint?

Since there are no disputes of fact, only of law, John Chevedden filed a Motion for Summary Judgment in Apache Corp. v. Chevedden, which is now on its way to the court. Apache’s response to the MSJ is also in route.

The heart of Apache’s argument is that to be able to submit a shareholder’s proposal, shareowners must have their shares directly registered with the company or, if held in “street name,” they must get a broker letter from the Depository Trust Company’s nominee, Cede & Co.

The reason we are so interested in this case (hyperbolic or not) is that if Apache wins, it could essentially cut shareowner proposals to a trickle. Only directly registered shareowners would be able to file.  Those of us holding shares in street name wouldn’t be able to get a broker letter from DTC, or would certainly face additional difficulties, since DTC has no direct knowledge of who the beneficial owners are for the stocks they hold.

As evidence that Chevedden could obtain such a letter, “as many shareholders do” Apache contends, Apache’s attorneys direct the court’s attention to a form on DTC’s website called a “Confirmation of Shares” letter and they attached letters, which they claim support their contention that beneficial owners can easily obtain evidence of ownership from DTC.

However, like the no-action letters in their Brief on the Merits, which they claim supported their case but did not, none of the attached letters involved a shareowner obtaining evidence from DTC that they beneficially owned stock. The purpose of all the letters cited is to nominate directors, give notice of a proposed bylaws amendment or take some other action that DTC can take because they are the legal owner of the shares and they have been requested to do so by direct participants in DTC. For example, here’s how share ownership is “confirmed” in one such letter:

DTC is informed by its Participant, Merrill-Lynch. Pierce Fenner & Smith Incorporated (“Participant”) that on the date hereof 85 of such shares (the “Shares”) credited to Participant’s DTC account are beneficially owned by The Circle K Corporation, a customer of the Participant (the “Customer”). (my emphasis)

If DTC were willing to issue “evidence of ownership” to a beneficial shareowner holding in street name for the purpose of filing a shareowner proposal, it would have to be qualified, such as:

We have received a letter from our participant firm Northern Trust saying they received a letter from non-participant firm RAM Trust saying that a client of theirs, John Chevedden, holds shares of Apache Corp …

It reminds us of the parlor game played by whispering something in a circle, asking your neighbor to pass it on, and finding out how distorted it becomes by the time it goes fully around.

A ruling in favor of Apache would come close to accomplishing a previously stated goal of Apache’s CEO G. Steven Farris to “eliminate the federally created right of share holders to make non-binding proposals.”

I don’t think the law requires that shareowners holding in street name have to get evidence of ownership from DTC, rather than from their bank or broker, as we all have been doing for many years. I have never seen such a letter and Apache, which has accepted letters evidencing ownership from banks and brokers for previous shareowner proposals, has been unable to come up with one tangible instance where that has occurred.

Will the judge push shareowner rights off a cliff? We may know by the end of the week.

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Who Should Submit Shareowner Proposals?

In Apache v. Chevedden, Apache’s court brief says: “When it comes to shareholder proposals, Apache is the ‘David’ and Chevedden is the ‘Goliath.’” That seems strange coming from a $33 billion market cap company. However, after reading their brief, I agree; the company seems to be at a disadvantage. They don’t seem to know how corporate ownership in America works.

The lawsuit stems from what appears to be ambiguous language contained in SEC Rule 14a-8(b)(2) regarding how to demonstrate proof of ownership when submitting a shareowner proposal.

… at the time you submit your proposal, you must prove your eligibility to the company in one of two ways:

(i) The first way is to submit to the company a written statement from the “record” holder of your securities (usually a broker or bank) verifying that, at the time you submitted your proposal, you continuously held the securities for at least one year. You must also include your own written statement that you intend to continue to hold the securities through the date of the meeting of shareowners …

Unlike most Americans, Apache’s attorneys know that shares registered in “street name” are held by the Depository Trust Corporation (DTC), under its nominee name Cede & Co. When shareowners buy and sell, it isn’t actually shares they trade but “security entitlements.” What Apache’s attorneys don’t seem to realize (Or perhaps they’re just pretending not to?) is that DTC has no direct knowledge concerning who the beneficial owners are. In their Brief on the Merits, they assert:

Chevedden and other shareholders may, as many shareholders do, prepare a letter to be signed by the DTC or its nominee Cede & Co. (if that is the actual “record” holder of the securities at issue) that can be used to establish ownership.

As many shareholders do? Doesn’t “many” have to be a number higher than zero? In Chevedden’s case, DTC knows of Northern Trust’s security entitlements but has no information about his broker or Chevedden. Northern Trust knows of the broker’s security entitlements, but has no information about Chevedden. Of the three financial institutions, only Chevedden’s broker has direct knowledge of his ownership of Apache’s security entitlements. Only his broker could write a letter confirming Chevedden’s ownership of those shares.

Glyn Holton, Executive Director of the United States Proxy Exchange, wrote the bulk of an amicus curiae brief to help the court better understand how shares are held through a daisy chain of entitlements and how converting rules to “plain English” can lead to apparent ambiguity. I was delighted to help with several sections and think you will find it a compelling read. (see also: Apache vs. Chevedden Takes Dramatic Turn, and David vs Goliath)

If Apache prevails, shareowner proposals could essentially disappear, since no one will be able to get a “broker letter” from DTC. One alternative I have seen is that instead of shareowners submitting proposals, they could get Cede & Co. to do it! While I’ve never seen a “broker letter” from Cede & Co., I did see this true life example where they filed a shareowner proposal on behalf of Morgan Stanley.

Would we really be better off if Cede & Co., which actually “owns” the shares (but not the security entitlements) submitted the proposals? In the example I’ve seen, Cede & Co. makes the following disclaimer:

While Cede & Co., is furnishing this demand as the stockholder of record of the shares, it does so at the request of Participant and only as a nominal party for the true party in interest, the Customers. Cede & Co. has no interest in this matter other than to take those steps which are necessary to ensure that the Customers are not denied their rights as the beneficial owner of the Shares, and Cede & Co. assumes no further responsibility in this matter.

So, under this scenario, Chevedden must send a shareowner proposal to his broker. His broker must send it to their bank. The bank then sends it to Cede & Co. and they submit the proposal to Apache. Would it really better to have a “nominal” party with “no interest” filing resolutions? Maybe they could get stimulus money for creating more paper shuffling jobs. Let’s hope the Federal District Court in Houston doesn’t make us go there.

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Apache vs. Chevedden Takes Dramatic Turn

The drama of a retail investor fending off a sweeping lawsuit by a $33 billion corporation took a dramatic turn today, as the United States Proxy Exchange (USPX) intervened, filing an amicus curiae (friend of the court) brief in Federal District Court in Houston.

John Chevedden, a retail investor and champion of shareowner rights, is known for filing insightful shareowner proposals, which frequently win majority votes at shareowner meetings. Over his career, he has filed more than a thousand. Corporations, viewing his populist form of corporate governance as an irritant, have tried to shut him down before. None, however, has done so as aggressively as Apache Corp, which filed suit against Chevedden earlier this year.

The lawsuit is in response to a shareowner proposal Chevedden filed to be voted on at this year’s Apache Corp. annual meeting. Apache is seeking a decision in federal court that they may ignore the proposal, and they are asking the court to force Chevedden to cover their legal expenses. (Apache’s Brief on the Merits)

Largely frivolous, the suit centers on a poorly written SEC rule about how to document share ownership for the purpose of submitting a proposal. Chevedden followed standard procedure accepted by shareholders and corporations over many years. He forwarded to Apache a letter from his broker confirming he had held at least $2,000 of Apache stock for a year. Apache did not accept that. Technically, SEC Rule 14a-8 says that a beneficial shareowner can prove ownership by submitting “to the company a written statement from the ‘record’ holder of your securities (usually a broker or bank) verifying that, at the time you submitted your proposal, you continuously held the securities for at least one year.”

Apache’s lawyers have advanced the position—contrary to standard practice followed with shareowner proposals for years—that a letter from a shareowner’s broker is not acceptable evidence of share ownership. They define the term “record holder” so narrowly that it would be largely impossible for proponents of shareowner resolutions—even large institutional investors—to ever actually “prove” they own shares. This leads quickly into murky questions of what it actually means to “own” shares and how one might go about proving such ownership.

The questions aren’t academic. An adverse ruling in the case could shut down most shareowners’ ability to file proposals. With Chevedden representing himself against a high-priced Houston law firm, an adverse ruling was highly likely.

That outcome became more remote today with the filing of the USPX amicus curiae brief. The brief is a tour de force, exploring all aspects of the at-issue SEC rule—its history, practical implications, accepted interpretation and treatment in recent SEC staff legal bulletins and no-action letters.

James McRitchie, who publishes the CorpGov.net blog, helped write the brief. Glyn A. Holton, executive director of the USPX, was the lead author. McRitchie commented today

Wow!  I’m so proud to be a signatory to this brief … I feel almost like it is part of the Declaration of Independence or something. A $33 billion company… able to hire the most expensive attorneys in the world and our side with no legal counsel …

The clock is ticking. Apache Corp has to send their proxy materials to be printed soon, and the lawsuit must determine if Chevedden’s proposal will be included. Apache’s lawyers will be scrambling this weekend to prepare a response to the USPX brief by Monday. Trying to continue with a frivolous lawsuit in the face of a compelling brief from the USPX, it is not clear what they can accomplish. This may turn into one of those rare events where a small retail investor turns the tables on a large corporation and their expensive lawyers … and actually wins. We will find out in a few days. For further information, please contact USPX Executive Director Glyn A. Holton at 617.945.2484 or [email protected].

OK, so maybe the quote from me was a little over the top, but I really do feel that corporations, run largely by management – not by regular employees or shareowners, have too much control… especially after Citizens United. Let’s hope the judge has enough sense to recognize this case as a SLAPP suit aimed at intimidating shareowners. I’m not ready to roll over and play dead!

In contrast to Apache, whose CEO, G. Steven Farris, argued to the SEC that non-binding resolutions should be banned outright, when AmerisourceBergen received a 2010 proposal from Ken Steiner on the same topic as the one Chevedden proposed at Apache (eliminating all supermajority vote requirements), they put the proposal on the ballot as a binding company proposal and it was approved by shareowners on March 4, 2010. (AmerisourceBergen Re-Elects Three Board Members and Reaffirms Fiscal 2010 Expectations at Annual Meeting of Stockholders, Press Release, 3/4/10)

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USPX to File Amicus Curiae Brief in Apache vs. Chevedden

Yesterday, Judge Lee Rosenthal of the Federal District Court in Houston issued an order  (ApacheOrder) granting the United States Proxy Exchange (USPX) leave to file an amicus curiae (friend of the court) brief in Apache vs. Chevedden. The USPX had petitioned the court for leave on February 16, stating in part:

Amicus curiae filings are often appropriate in cases where one party is pro se or where a decision might impact parties that are not litigants. Both conditions are present in this case. Mr. Chevedden is representing himself, and an adverse decision could impair property rights of most shareholders in the United States in ways the court should be made aware of.

The directors, staff and volunteers of the USPX have extensive experience with SEC Rule 14a-8 resolutions. Their perspective and expertise are complementary to, but not duplicative of, the analysis given by the parties and might assist the court in deciding this case.
The USPX is a non-government organization, incorporated in the Commonwealth of Massachusetts, dedicated to facilitating the exercise of shareholder rights, primarily through the proxy process.

Apache’s lawyers have advanced the position—contrary to standard practice followed with shareowner resolutions for years—that a broker letter is not acceptable evidence of share ownership. An ambiguous sentence in SEC Rule 14a-8 states that beneficial shareowners who are not owners of record must prove ownership by submitting “a written statement from the ‘record’ holder of your securities (usually a broker or bank) verifying that, at the time you submitted your proposal, you continuously held the securities for at least one year.” For almost all retail and institutional shareowners, the owner of record is Cede & Co. But Cede & Co. has no information about beneficial owners. Apache’s lawyers have not explained how Cede & Co. would provide letters confirming matters of which they have no knowledge. Apache’s lawyers have not addressed whether Cede & Co.-–even if it had such information— would be willing to participate in the shareowner resolution process in this way. There are no SEC rules requiring them to do so!

An adverse ruling in Apache vs. Chevedden might undermine the use of broker letters while not providing any clear alternative. This could have a chilling effect on the ability of all shareholders to submit shareowner resolutions. John Chevedden is heroic, standing up to Apache and its lawyers. All shareowners owe him their gratitude, not only for his efforts in this case, but for his tireless work on their behalf over many years of submitting shareowner resolutions.

However, pro se litigants are rarely successful. With John Chevedden representing himself against high-priced Houston lawyers, the potential for an adverse ruling was significant. Now that the USPX is involved, all shareowners can breath a little easier. That doesn’t mean we are out of the woods, but shareholders now have an independent and authoritative voice advocating for their rights before the bench.

For further information, please contact USPX Executive Director Glyn A. Holton at 617.945.2484 or [email protected].

It would be great to see participation by other shareowners assembling supporting arguments in Chevedden’s defense. As noted above, if he loses, we can expect many more companies to refuse to accept a simple broker’s letter as evidence of ownership. See previous post on this case at David vs Goliath (updated).  See also, Apache Sues Activist John Chevedden, Ted Allen, 1/19/10 Risk Metrics Group; When companies know better than shareholders, Houston Chronicle, 2/6/10. Apache’s briefs filed with the court can be found at http://www.votepal.com/.

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Intel Virtual Mtg Out for 2010 But Exploring Future with USPX

Bowing to shareowner concerns, Intel Corp. scrapped plans to hold an exclusively on-line virtual annual meeting in 2010 and is likely to participate in a Fall conference to establish safeguards for the conduct of virtual meetings in the future, the United States Proxy Exchange (USPX) announced today.


Last Fall, Intel Corp. announced plans to scrap its annual shareowner meeting for 2010 and host an on-line forum in its place. In 2000, Delaware enacted legislation allowing corporations to do exactly this. Sadly, that state’s legislators granted shareowners no say in the matter, leaving the decision solely to the discretion of corporate boards.

Broadridge Financial Services has developed software for the conduct of virtual meetings. A handful of smaller corporations have already adopted that software and switched to entirely virtual meetings. For a number of years, Intel has held hybrid shareholder meetings, allowing people to attend both in person or via the Internet. Their plan had been to go to an all virtual meeting in 2010.

There is every reason to believe that, with strong safeguards, virtual shareowner meetings could enhance shareholder participation in meetings while protecting—even restoring— shareowner rights that have atrophied over the decades. However, no such safeguards are in place. Here are just a few scenarios illustrating how virtual meetings will deprive shareowners:

  1. A well known shareowner activist plans to ask some pointed questions at the shareholder meeting, but his connection to the meeting somehow fails. He is left wondering if he was targeted or if there truly was an honest technical problem.
  2. A shareowner wants to challenge the chair’s conduct of the meeting with a point of order. She is within her rights to do so and may interrupt the chair for this purpose, but she finds that the electronic forum software won’t allow her to do so ….. one more shareholder right lost.
  3. A shareowner wants to make a floor amendment, but the software doesn’t allow that either.
  4. The meeting software provides no means of group communication, such as applause of booing, so shareowners come away from meetings with no sense of how other shareholders felt.
  5. Corporate executives decide to pre-record their comments for a virtual shareowner meeting, including answers to pre-selected “shareowner questions.” The executives then don’t bother logging in during the actual “meeting.”

Most annual meetings are heavily scripted. The chance for real interaction often comes in informal encounters before and after the formal meeting. Those opportunities would also be gone with virtual meetings.

Formation of the Coalition to Preserve Shareowner Meetings

Following the announcement by Intel, shareowners discussed what might be an appropriate response to virtual shareholder meetings. Intel was the first major corporation to announce plans to switch to a virtual meeting, and more corporations were likely to follow suit. Without safeguards in place to protect shareholder rights, the situation was critical. There were few attractive options.

The SEC would be unlikely to intervene to preempt a Delaware law. We could launch a withhold vote campaign against the directors of Intel and other corporations that host electronic-only meetings, but that would entail participating in—and thereby accepting as legitimate—the virtual meetings.

In November, the USPX announced it was exploring a two-pronged strategy to address the issue of virtual shareowner meetings:

  1. Host a conference in the Fall of 2010 to develop safeguards that would allow virtual meetings to be held in a manner that protects shareowner rights, and
  2. Organize a withhold proxy campaign against corporations holding virtual meetings without safeguards.

Since that announcement, USPX has made considerable progress on both aspects of the initiative. A formal announcement of the formation of a Coalition to Preserve Shareholder Meetings is expected shortly. That announcement will include details on the Fall conference.


“The United States Proxy Exchange applauds Intel’s decision to postpone implementing of virtual shareholder meetings until after the Fall conference. We welcome all parties— investors, shareowner advocates and service providers—to join the Coalition to Preserve Shareholder Meetings and participate in the Fall conference, said Glyn Holton.

Interested parties should contact USPX Executive Director Glyn A. Holton at 617.945.2484 or [email protected]. See also, Intel Yields on Virtual Meeting, 1/20/10. I hope to be at this conference myself and urge others to join us.

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Co-Filers Wanted on Petition to Eliminate Street Name Registration

As I indicated in my last post (Can We Change Voting Behavior?), I’m working with the United States Proxy Exchange (USPX) on a petition to the SEC to end “street name registration.”  That largely ad hoc system took root under emergency conditions stemming from a paperwork crisis during the 1960s, before networked computers were ubiquitous in trading markets. Street name registration, and a system that immobilized stock, were supposed to be temporary measures but they have grown to undermine our ownership culture. Just as poker chips allow us to play under rules that often favor the house, those holding “security entitlements” do not acquire the rights of real shareowners.

Street name registration is the primary reason proxy solicitations cost hundreds of thousands of dollars—and that exorbitant cost is why entrenched boards routinely run unopposed. Eliminating street name registration, in favor of a direct registration system, could bring the cost of proxy solicitation down to a few thousand dollars, which would have a bigger impact on shareowner rights than the SEC’s proposed proxy access initiative. It would also eliminate the use of voter information forms and other vehicles that circumvent the legal rights of shareowners with official proxies.

We welcome interested parties to co-sign the petition with us. The January 12, 2010 draft petition may go though minor revisions, based on your recommendations, but the substantive points will remain. We intend to submit the petition by the end of January to help ensure it is considered by staff preparing recommendations to the Commission concerning how to resolve various “proxy mechanics” issues.  If you are interested in signing on to the petition, please e-mail Glyn Holton, Executive Director, United States Proxy Exchange, indicating you want to co-sign, and provide the following:

  • Your signature block with your organization affiliation, if any
  • Please note the affiliation is for “identification purposes only” if you are not signing on behalf of the organization
  • Please include a small pdf of your signature that can be used in the filing
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Can We Change Voting Behavior?

We Own You!: How technology can help stockholders take control of the corporations they own, Slate.com, 1/12/10.  Eliot Spitzer writes,  “Twitter, text messages, YouTube, and other technology transformed politics in 2008. This success raises a compelling question: Can the same technology awaken the more dormant world of corporate democracy?… Could proxy voting in 2011 generate the same enthusiasm as actual voting did in 2008?” It just might if we can get a few people with Spitzer’s star power to focus attention.

Good to see Eliot Spitzer talking up use of ProxyDemocracy.org, MoxyVote.com and Shareowners.org. He gets his facts slightly wrong, Both ProxyDemocracy.org AND MoxyVote.com intend to be neutral information providers. MoxyVote.com labels its information sources as “advocates” but that doesn’t mean MoxyVote.com agrees with them.

Both work on the concept of trusted brands to help shareowners vote more easily and more intelligently. In the case of ProxyDemocracy.org, their “respected institutional investors” spend considerable resources investigating not only resolutions but also director nominees. By announcing their votes in advance, they allow retail shareowners to benefit from their research and they create brands with a larger following than they would have voting alone.

Spitzer says there are at least two critical hurdles that still have to be overcome:

  1. “First, most shareholders don’t vote because they assume their votes don’t matter; shareholder votes are almost never close.” However, this year that is changing. With most of the Fortune 500 using majority vote requirements to elect directors and with “broker votes” no longer allowed when retail shareowners fail to vote within 10 days of the annual meeting, your vote counts more than ever. We are sure to see several directors turned out of office. That doesn’t stop them from replacing tweedle dee with tweedle dum, but its a good start.
  2. “There is no water cooler for corporate democracy. A presidential or mayoral race prompts conversations among friends and colleagues and generates daily press coverage. A corporate proxy vote doesn’t. We don’t all own the same shares, and even if we did, we probably wouldn’t talk about it.” That’s where sites like Shareowners.org and my own blog come in. People should be talking about how they are voting. It would be great to have TV shows like the Nightly Business Report actually providing analysis of the issues facing owners, rather than tips for the next bet. If PBS doesn’t do it, Spitzer could do it through Slate.com.

Of the two problems, the second is more important. When shareowners start talking to each other about how they’re voting, more will vote… and, more will vote intelligently. We will also start taking on more of the issues that currently send the system off balance.

For example, this morning I received a copy of a letter from Goldman Sachs to the SEC referencing my resolution to allow shareowners to ask the board to amend the bylaws, allowing owners of 10% of the company’s stock to call a special meeting. Management at Goldman Sachs wants to omit the resolution from the proxy on the basis that they intend to submit a proposal to the 2010 annual meeting to allow shareowners of 25% to hold a special meeting.

They argue that Rule 14a-8(i)(9) allows them to exclude the proposal from its proxy, since the proposal directly conflicts with their proposal. In the past, the SEC has allowed such exclusion based on confusion that would reign if shareowners passed both resolutions. That is nonsense. If both pass, the lower threshold applies. If we can ever get the “water cooler” discussions going around corporate democracy, shareowners won’t stand for a system that tips the balance of power to management at every turn. We will see if the SEC under Mary Schapiro acts to protect shareowners by allowing the resolution, or if they protect management by issuing a “no action” letter.

“Street name registration” undermines our culture, turning investors into gamblers by providing them “security entitlements,” instead of real ownership rights. Just as poker chips allow us to play under rules which often favor the house, those holding “security entitlements” do not acquire the rights of share owners. For example, one right sharowners have is to receive a proxy, whereas those of us registered in street name receive a voter instruction form (VIF). SEC rules guarantee certain rights to proxy holders but not, it is argued, to those voting through VIFs. (see
Investors Against Genocide Fighting American Funds, Broadridge and Vague SEC Requirements: More Problems Solved Using Direct Registration.

On January 13th I will post a draft petition to the SEC that I have been working on with Glyn Holton, of the United States Proxy Exchange, and others to convert from “street name” to a system of direct registration. I hope you will consider signing on as a co-filer. Can we change voting behavior? Yes, we can! Just give us the rights of ownership and see how democracy transforms the world of corporations.

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Guest Commentary From Glyn Holton: Emergency at Intel

Intel Corp. recently announced they will no longer hold annual shareholder meetings. Instead, they plan to host shareholder forums, or “virtual shareholder meetings.” In 2000, Delaware enacted legislation allowing corporations to do exactly this. Arrogantly, that state’s legislators granted shareholders no say in the matter, leaving the decision solely to the discretion of corporation’s entrenched boards.

There is every reason to believe that, with strong safeguards, virtual shareholder meetings could enhance shareholder participation in meetings while protecting—even restoring—shareholder rights that have atrophied over the decades. However, no such safeguards are in place. Intel and other smaller corporations are taking a go-it-alone approach, forcing virtual shareholder meetings on unhappy shareholders. After Delaware changed its laws, the Council of Institutional Investors wrote the CEOs of all Delaware corporations asking them not to conduct virtual meetings. Unions have expressed concerns. Walden Asset Management has encouraged shareholders to write letters to Intel.

Here are just a few scenarios illustrating how virtual meetings will deprive shareholders:

  1. A well known shareholder activist plans to ask some pointed questions at the shareholder meeting, but his connection to the meeting somehow fails. He is left wondering if he was targeted or if there truly was an honest technical problem.
  2. A shareholder wants to challenge the chair’s conduct of the meeting with a point of order. She is within her rights to do so and may interrupt the chair for this purpose, but she finds that the electronic forum software won’t allow her to do so ….. one more shareholder right lost.
  3. A shareholder wants to make a floor amendment, but the software doesn’t allow that either.
  4. The meeting software provides no means of group communication, such as applause of booing, so shareholders come away from meetings with no sense of how other shareholders felt.
  5. Corporate executives decide to pre-record their comments for a virtual shareholder meeting, including answers to pre-selected “shareholder questions.” The executives then don’t bother logging in during the actual “meeting.”

Most annual meetings are heavily scripted. The chance for real interaction often comes in informal encounters before and after the formal meeting. Those opportunities will also be gone with virtual meetings.

Shareholders have been discussing what might be an appropriate response to Intel’s move, but there are few attractive options. The SEC will not intervene to preempt a Delaware law. We could launch a withhold vote campaign against the directors of Intel and other corporations that host electronic-only meetings. That would entail participating in—and thereby accepting as legitimate—the virtual meetings.

We reject Delaware’s law in the same way abolitionists rejected the Supreme Court’s Dred Scott decision in 1857. A corporation that doesn’t hold shareholder meetings is dead in the same way that a human being that doesn’t breathe is dead. Putting up a website and calling it a “meeting” doesn’t change that.

This is a crisis because the problem is going to spread. Working with Jim McRitchie of CorpGov.netand other interested parties, the United States Proxy Exchange (USPX) is exploring whether to launch a withhold proxy campaign against Intel and other corporations that adopt electronic-only meetings. Under such a campaign, shareholders would refuse to participate in those “meetings” on the grounds that they are illegitimate. Shareholders would withhold their proxies. If enough did so, offending corporations would fail to achieve quorum. Because retail brokers will vote “routine” matters, such as management sponsored resolutions, it won’t be enough for investors to not return their proxy materials. They will have to explicitly ask their broker to withhold a proxy on their behalf.

If we decide to proceed with a withhold proxy campaign, we will implement a web portal through which institutional and retail shareholders may join the campaign and coordinate their activities. At this early stage, please e-mail Glyn Holton to express support or ask questions. We will then keep you informed of developments.

Note from CorpGov.net publisher: See also virtual meetings Virtual Shareholder Meetings by Elizabeth Boros. The USPX aims to be a chamber of commerce, representing the legitimate interests of shareholders and is in the process of getting 501(c)(6) status with the Internal Revenue Code. The board set dues at $9 a month. Membership benefits include advocacy, web-based resources, and a magazine to be launched this Spring. Step up to the plate and e-mail Glyn Holton to become a member.

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