Shareholder Proposals & Staff Legal Bulletin No. 14H (CF): The Empirical Evidence (Part 3)
We are discussing the staff guidance issued in Staff Legal Bulletin No. 14H (CF) on shareholder proposals. Specifically, the Bulletin provided guidance on subsections (i)(7) (ordinary business) and (i)(9) (directly conflicts).
As a result of the staff's decision not to issue no action letters under subsection (i)(9) during the prior proxy season, companies were unable to obtain the exclusion of a shareholder access proposal by submitting an alternative on the same subject. For the most part, therefore, companies included the shareholder proposal in the proxy materials and did not provide an alternative. In seven cases, however, shareholders confronted proposals submitted by both shareholders and management.
The seven cases provided a petrie dish of sorts to test an interpretive approach taken under subsection (i)(9). In allowing the exclusion of proposals, the staff often relied on representations that the failure to do so could result in alternative and conflicting decisions that would potentially result in inconsistent and ambiguous results. Indeed, the no action letter issued in Whole Foods relied in part on this approach. See Whole Foods, Dec. 1, 2014 ("You indicate that the proposal and the proposal sponsored by Whole Foods Market directly conflict. You also indicate that inclusion of both proposals would present alternative and conflicting decisions for the stockholders and would create the potential for inconsistent and ambiguous results.").
So what happened in the seven cases? In three cases, the shareholder proposal received majority support (AES Corp., CloudPeak Energy & Visteon Corp). In those three cases, the shareholder proposal received support of between 66% and 76% of the shares voted. The percentage received by management? 36.17%, 25.92%, and 21.15%, respectively.
In three cases, the management propopsal received majority support: Exelon: 52.58%; Expeditors: 70.32%; SBA: 51.65%. In one case (Chipotle), the sharehodler proposal received 49.86% while the management proposal received 34.71%. For additional statistics, go here.
Thus, in no case were both adopted. Moreover, the percentage separating the two proposals was generally significant. In only one case were the two totals relatively close (SBA Communications, where management's proposal received 51.65% and the shareholder proposal received 46.28%).
In short, the results were neither ambiguous nor inconclusive. In the once case where the final tallies were close, the evidence suggested a shareholder base very divided on the issue. The information may not provide an easy path for management but its hard to call the results inconsistent and ambiguous. The data, therefore, suggested that the exclusion of alternative (as opposed to conflicting) proposals could not be justified as a benefit to shareholders.