A new report from research firm FactSet Insight highlights a growing trend of public corporations trying to avoid proxy fights by limiting dissident shareholder access to proxies. The introduction to the report points out that the increasing number and relatively high success rate of proxy fights has “created an incentive for companies to devise meaningful limits to the ability of dissidents to call shareholder meetings or to get proxy access to include a shareholder nominee in the company proxy.”
Companies using SEC “no-action letters” to avoid proxy fights
According to the the FactSet Insight report, public companies are increasingly trying to fight off dissident investors who want to get new members on the BoD by refusing to add the names of the candidates to the proxy form for shareholders to vote on. Company management obviously can’t just blanket deny all requests from legitimate shareholders who want to put candidates for the board on the proxy, but they can legally exclude shareholder proposals from the proxy for a number of reasons.
The strategy companies take is to seek guidance from the SEC under Rule 14a-8, called a “no-action letter,” inquiring if the SEC would take enforcement action against the firm if it excludes a specific shareholder proposal. The “no-action letter” rule reaffirms shareholder’s rights to have proposals in the proxy if all procedural requirements are met, but also spells out 13 specific exclusions companies can rely on to deny proxy access.
Recent Whole Foods “No-Action Letter”
In one interesting recent no-action letter situation, Whole Foods Market, Inc. (NASDAQ:WFM) recently sought guidance from the SEC regarding excluding a shareholder proposal by offering its own alternative proposal. The no-action letter from Whole Foods is unusual as it attempts to directly preempt a shareholder proposal, and because both management’s and the dissident proxy access proposals seek to deviate from the SEC standard procedural requirements for proxy access. The FactSet report notes the only other no-action letter related to Rule 14a-8 in this manner was from Western Union in a proxy fight regarding its May 23, 2012 shareholder meeting, and management’s proposal was intended to replace the proxy access proposal submitted by Norges Bank Investment Management. Western Union eventually withdrew its no-action letter and the proposal to allow proxy access to shareholders with just 1% of the float was voted down at the shareholders meeting.