Shareholder Proposal Developments During The 2015 Proxy Season by Gibson Dunn
To Our Clients and Friends:
This client alert provides an overview of shareholder proposals submitted to public companies for 2015 shareholder meetings, including statistics, notable decisions from the staff (the “Staff”) of the Securities and Exchange Commission (the “SEC”) on no-action requests, and information about litigation regarding shareholder proposals.
I. Shareholder Proposal Statistics and Voting Results
A. Shareholder Proposals Submitted
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According to data from Institutional Shareholder Services (“ISS”), shareholders have submitted approximately 943 proposals for 2015 shareholder meetings, which surpasses the total of 901 proposals submitted as of a comparable time last year. For 2015, across four broad categories of shareholder proposals–governance and shareholder rights; environmental and social issues; executive compensation; and corporate civic engagement (which includes proposals regarding contributions to or membership in political, lobbying, or charitable organizations)–the most frequently submitted proposals were governance and shareholder rights proposals (with approximately 352 submitted), largely due to the unprecedented number of proxy access proposals (108 proposals). If not for the dramatic rise in the number of proxy access proposals, proposals on environmental and social issues would have again comprised the largest category of proposals (with approximately 324 submitted), continuing a trend that began in 2014.
The most common 2015 shareholder proposal topics, along with the approximate numbers of proposals submitted, were:
- political and lobbying activities (110 proposals),
- proxy access (108 proposals), and
- independent chair (76 proposals).
By way of comparison, the most common 2014 shareholder proposal topics were:
- political and lobbying activities (126 proposals),
- independent chair (68 proposals), and
- climate change (56 proposals).
As is typically the case, John Chevedden and shareholders associated with him submitted by far the highest number of shareholder proposals for 2015 shareholder meetings. However, the season saw a dramatic increase in the number of proposals submitted by the New York City Comptroller, which submitted or co-filed at least 86 proposals on behalf of five New York City pension funds, including 75 proxy access proposals, as part of the Comptroller’s “Boardroom Accountability Project.” Other proponents that were reported to have submitted or co-filed at least 20 proposals each included: Calvert Asset Management Co. (40, largely focused on environmental matters); the New York State Common Retirement Fund (40, largely focused on environmental and political matters); AFL-CIO (36, largely focused on executive compensation matters); As You Sow Foundation (32, largely focused on environmental matters); Trillium Asset Management LLC (25, largely focused on environmental and social matters); Walden Asset Management (25, largely focused on environmental, social, and political matters); and UNITE HERE (22, largely focused on governance and shareholder rights matters).
Shareholder proponents withdrew approximately 17% of the proposals submitted for 2015 shareholder meetings, a decrease as compared to approximately 19% of the proposals submitted for 2014 meetings and approximately 28% of proposals submitted for 2013 meetings.
B. Shareholder Proposal No-Action Requests
During the 2015 proxy season, companies submitted 318 no-action requests to the Staff as compared to approximately 295 in the 2014 proxy season. In 2015, the percentage of no-action letters that were denied by the Staff jumped significantly to 39%, the highest level in four years.
The following table summarizes the responses to no-action requests that the Staff issued during the 2015 and 2014 proxy seasons:
Based on a review of the no-action requests, the Staff concurred that shareholder proposals could be excluded for the following principal reasons:
- 35% based on procedural arguments, such as timeliness or defects in the proponent’s proof of
- 32% based on ordinary business arguments;
- 21% because the company had substantially implemented the proposal; and
- 2% because the proposal was vague or false and misleading.
Two aspects of the foregoing data are worth noting. The first is the sharp drop in exclusions of proposals for being vague or false and misleading under Rule 14a-8(i)(3). In 2014, by contrast, Rule 14a-8(i)(3) accounted for 18% of excluded proposals, and only exclusions based on procedural arguments constituted a more frequent basis for exclusion. The second is that the Staff declined to issue responses to 48 no-action requests, or 15% of the 318 no-action requests submitted, in light of the Staff’s announcement on January 16, 2015 that it would no longer express views on Rule 14a-8(i)(9) during the 2015 proxy season (discussed further below in Section II.A). Rule 14a-8(i)(9), which provides for the exclusion of a shareholder proposal that conflicts with a company proposal to be submitted for a vote at the same shareholder meeting, had accounted for 11% of the exclusions granted by the Staff during the 2014 proxy season.
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