Shareholder Access: An Update

As Ted Allen has noted over at ISS, at least two companies so far have agreed to either adopt or submit to shareholders (with a supporting recommendation from management) an access proposal. Both however involve proposals with ownership thresholds higher than those adopted in the SEC's shareholder access rule. 

Western Union has agreed to propose a bylaw that would allow 5% owners who held the shares at least three years to include a "limited" number of nominees in the company's proxy statement.  Western Union is arguing that because it is submitting this proposal to shareholders, it may omit a proposal submitted by Norges Bank.   The Norges Bank proposal sought to give access right to shareholders with 1% of the shares who had held the shares for one year.  Under Rule 14a-8(i)(9), companies can omit any proposal that "directly conflicts with one of the company's own proposals to be submitted to shareholders at the same meeting."  Western Union is asserting that the differences in the respective access proposals constitutes a direct conflict. 

The other company that has apparently adopted an access bylaw is KSW. According to Ted Allen's post: 

In early January, KSW Inc., a small-cap firm, adopted a proxy access bylaw (5 percent for one year) in response to a binding shareholder proposal from the Furlong Fund that requests a 2 percent stake for one year. The company is seeking SEC approval to omit the fund's proposal and asserts that it has "substantially implemented" the resolution.

The bylaw adopted by KSW sets out the standard. While establishing a 5% ownership requirements, the bylaw arguably also limits access to individual shareholders who meet that threshold, excluding groups of shareholders who collectively own that amount. 

The KSW bylaw describes a "Nominator" as "a stockholder . . . who meets the criteria, and complies with the procedures" in the bylaw.  It further provides that the Nominator must "have beneficially owned 5% or more of the Company’s outstanding common stock (the “Required Shares”) continuously for at least one year". 

The bylaw does not expressly provide that the ownership percentage may be met by a group of shareholders.  Contrast this with the proposal approved submitted to shareholders of Cryo Cell back in 2007 that sought to give access right to "a shareholder or a group of shareholders." 

The provision also gives the person presiding at the meeting the right to disqualify candidates.  See KSW Bylaw ("The presiding officer of the meeting for election of Directors will, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed by this By-Law 13, and if he or she should so determine, he or she will so declare to the meeting and the defective nomination will be disregarded.").

The other development has been, as the WSJ has noted, by HP to put a shareholder access proposal to a vote, although not this year. 

The Palo Alto, Calif., technology giant will give its stockholders the chance to approve so-called proxy access through a bylaw vote at its 2013 annual meeting. If the measure passes, investors who own at least 3% of H-P shares for at least three years would be allowed to nominate up to 20% of the company's directors, the company said. The vote would be binding, meaning H-P would be bound by the results.

HP apparently agreed to submit the proposal as part of a deal to get Amalgamated Bank  to withdraw an access proposal.

This is a very slow beginning to shareholder access.  The only real advantage to this case by case approach is that over time some proposals will be put in place (there are already a few) and some shareholder nominees will find their way into the company's proxy statement.  As companies get actual experience with shareholder access, the empirical data will likely make it much harder for opponents to assert that the practice is damaging to the governance of public corporations.    

J Robert Brown Jr.