Using Shareholder Proposals to Fill Regulatory Gaps

3rd Annual Business Law Symposium“Shareholder Rights: An Idea Whose Time Has Come”

Using Shareholder Proposals to Fill Regulatory Gaps

Wendy Gerwick CoutureAssociate Professor

University of Idaho College of [email protected]

CITIZENS

CORPORATIONS

CONGRESS

SHAREHOLDER-CITIZENS

CORPORATIONS

CONGRESS

SHAREHOLDER PROPOSALS


Inclusion of shareholder proposal in company’s proxy statement

Approval by a majority of shareholders

Implementation by corporation





Compromise re: implementation

is possible, even if proposal not included or not approved


is possible, even if proposal isn’t included or isn’t approved



Eligibility to Submit a Shareholder Proposal

“In order to be eligible to submit a proposal, you must have continuously held at least $2,000 in market value, or 1%, of the company’s securities entitled to be voted on the proposal at the meeting for at least one year by the date you submit the proposal. You must continue to hold those securities through the date of the meeting.”

17 C.F.R. § 240.14a-8(b)(1).



Improper Under State Law“If the proposal is not a proper subject for action by shareholders under the laws of the jurisdiction of the company’s organization.”17 C.F.R. § 240.14a-8(i)(1).



Improper Under State Law“If the proposal is not a proper subject for action by shareholders under the laws of the jurisdiction of the company’s organization.”17 C.F.R. § 240.14a-8(i)(1).

Generally, should draft as a non-binding

recommendation or request.



Violation of Proxy Rules“If the proposal or supporting statement is contrary to any of the Commission’s proxy rules, including § 240.14a-9, which prohibits materially false or misleading statements in proxy soliciting materials.” 17 C.F.R. § 240.14a-8(i)(3).



Violation of Proxy Rules“If the proposal or supporting statement is contrary to any of the Commission’s proxy rules, including § 240.14a-9, which prohibits materially false or misleading statements in proxy soliciting materials.” 17 C.F.R. § 240.14a-8(i)(3).

includes proposals that are “so inherently vague or indefinite that neither the stockholders voting on the proposal, nor the company in implementing the proposal (if adopted), would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires”



Relevance“If the proposal relates to operations which account for less than 5 percent of the company’s total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company’s business.” 17 C.F.R. § 240.14a-8(i)(5).



Relevance“If the proposal relates to operations which account for less than 5 percent of the company’s total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company’s business.” 17 C.F.R. § 240.14a-8(i)(5).

Even if a proposal does not meet the economic threshold, it can nonetheless be “otherwise significantly related to the company’s business” if it raises policy issues of significance to the issuer’s business.



Management Functions“If the proposal deals with a matter relating to the company’s ordinary business operations.” 17 C.F.R. § 240.14a-8(i)(7).




EXAMPLES: management of workforce decisions on production

quality & quantity retention of suppliers




BUT, if the proposal focuses on sufficiently significant social policy issues, it will “transcend day-to-day business matters”

***One factor: presence of widespread public debate.








BUT, if the proposal focuses on sufficiently significant social policy issues, it will “transcend day-to-day business matters”

***One factor: presence of widespread public debate.

COMMON TYPES OF PROPOSALS:• Preparation of report re: issue• Formation of committee re: issue• Assessment of risk re: issue• Minimization of operations implicating issue



Percentage of Shareholder Proposals Excluded Via No-Action Relief

(2013)

23%

Source: The Conference Board, Proxy Voting Analytics (2009-2013), Executive Summary, at 6 (based on shareholder proposals at Russell 3000 & S&P 500 companies).

Excluded Via SEC No-Action Relief

Percentage of Environmental & Social Issue Proposals

Excluded Via No-Action Relief (2013)

12 %

Excluded Via SEC No-Action Relief

Source: ISS, 2013 U.S. Proxy Season Review, Environmental & Social Issues, at 10.





XCompromise re: implementation

is possible, even if proposal

isn’t included



Proxy statement includes:

• Shareholder’s proposal and supporting statement (limited to 500 words)

• Company’s recommendation on the proposal, with supporting reasons



Russell 3000 Com-panies (2013)

17%

Source: The Conference Board, Proxy Voting Analytics (2009-2013), Executive Summary, at 6.

% Receiving Majority Support

S&P 500 Companies (2013)


12%

Source: The Conference Board, Proxy Voting Analytics (2009-2013), Executive Summary, at 6.

Environmental & Social Issue Proposals (2013)

2%











X

X



ISS 2013 U.S. Proxy Voting Summary Guidelines

2. Board Responsiveness

Vote AGAINST or WITHHOLD from individual directors, committee members, or the entire board of directors if:

2.1 For 2013, the board failed to act on a shareholder proposal that receives the support of a majority of the shares outstanding the previous year . . .




2. Board Responsiveness

Vote AGAINST or WITHHOLD from individual directors, committee members, or the entire board of directors if:

2.1 For 2013, the board failed to act on a shareholder proposal that receives the support of a majority of the shares outstanding the previous year . . .

“Responding to the shareholder proposal will generally mean either full implementation of the proposal or, if the matter requires a vote by shareholders, a management proposal on the next annual ballot to implement the proposal. Responses that involve less than full implementation will be considered on a case-by-case basis . . .”









X

X


CORPORATIONS

CONGRESS


EXAMPLE OF GAP-FILLING SHAREHOLDER PROPOSAL:

CORPORATE POLITICAL SPENDING

Citizens United v. Fed’l Elec. Comm’n, 558 U.S. 310, 365 (2010):

“[T]he Government may not suppress political speech on the basis of the speaker's corporate identity. No sufficient governmental interest justifies limits on the political speech of nonprofit or for-profit corporations.”

S. 3369 DISCLOSE Act

“A bill to amend the Federal Election Campaign Act of 1971 to provide for additional disclosure requirements for corporations, labor organizations, Super PACs and other entities, and for other purposes.”

126 Political Issue Proposals2013 (as of Sept. 1)

66.5% Voted On

24% Withdrawn

9.5% Omitted


Center for Political AccountabilityModel Shareholder Resolution

Political Disclosure and Oversight Resolution 2013________________________________________

Resolved, that the shareholders of COMPANY (“Company”) hereby request that the Company provide a report, updated semi-annually, disclosing the Company’s: 1. Policies and procedures for making, with corporate funds or assets,

contributions and expenditures (direct or indirect) to (a) participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, or (b) influence the general public, or any

segment thereof, with respect to an election or referendum. 2. Monetary and non-monetary contributions and expenditures (direct and

indirect) used in the manner described in section 1 above, including: a. The identity of the recipient as well as the amount paid to each; and b. The title(s) of the person(s) in the Company responsible for decision-

making. The report shall be presented to the board of directors or relevant board committee and posted on the Company’s website.


Generally vote FOR proposals requesting greater disclosure of a company’s political contributions and trade association spending policies and activities. . .

March 15, 2013 Response of the Office of Chief Counsel Division of Corporation Finance Re: Exxon Mobil Corporation Incoming letter dated January 22, 2013

The proposal requests that the board study the feasibility of adopting a policy prohibiting the use of treasury funds for direct and indirect political contributions.

We are unable to concur in your view that ExxonMobil may exclude the proposal under rule 14a-8(i)(3). We are unable to conclude that the proposal is so inherently vague or indefinite that neither the shareholders voting on the proposal, nor the company in implementing the proposal, would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires. Accordingly, we do not believe that ExxonMobil may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(3). . . .Sincerely, Kate Beukenkamp


Generally vote AGAINST proposals barring the company from making political contributions. Businesses are affected by legislation at the federal, state, and local level; barring political contributions can put the company at a competitive disadvantage.


66.5% Voted On

24% Withdrawn

9.5% Omitted

On average, received 24.3% votes in favor.



66.5% Voted On

24% Withdrawn

9.5% Omitted


One proposal received majority support in 2013.


Proxy Statement of CF Industries Holdings, Inc.

PROPOSAL TO ISSUE REPORT ON POLITICAL USE OF CORPORATE ASSETS

Resolved, that the shareholders of CF Industries Holdings ("Company") hereby request that the Company provide a report, updated semiannually, disclosing the Company's:

1.Policies and procedures for making, with corporate funds or assets, contributions and expenditures (direct or indirect) to (a) participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, or (b) influence the general public, or any segment thereof, with respect to an election or referendum. 2.Monetary and non-monetary contributions and expenditures (direct and indirect) used in the manner described in section 1 above, including: a.The identity of the recipient as well as the amount paid to each; and b.The title(s) of the person(s) in the Company responsible decision-making.

The report shall be presented to the board of directors or relevant board committee and posted on the Company's website. . . . The Board unanimously recommends a vote AGAINST this proposal.

Votes For Votes Against Abstentions Broker

Non-Votes

Stockholder proposal 25,079,125 12,943,718 5,730,689 3,402,226

Form 8-K, filed 5-16-13

Proxy Statement of CF Industries Holdings, Inc.

PROPOSAL TO ISSUE REPORT ON POLITICAL USE OF CORPORATE ASSETS

Resolved, that the shareholders of CF Industries Holdings ("Company") hereby request that the Company provide a report, updated semiannually, disclosing the Company's:

1.Policies and procedures for making, with corporate funds or assets, contributions and expenditures (direct or indirect) to (a) participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, or (b) influence the general public, or any segment thereof, with respect to an election or referendum. 2.Monetary and non-monetary contributions and expenditures (direct and indirect) used in the manner described in section 1 above, including: a.The identity of the recipient as well as the amount paid to each; and b.The title(s) of the person(s) in the Company responsible decision-making.

The report shall be presented to the board of directors or relevant board committee and posted on the Company's website. . . . The Board unanimously recommends a vote AGAINST this proposal.

• Almost 70 percent of companies in the top echelons of the S&P 500 are now disclosing political spending made directly to candidates, parties and committees.

• Almost one out of every two companies in the top echelons of the S&P 500 has opened up about payments made to trade associations.

Center for Political Accountability, The 2013 CPA-Zicklin Index of Corporate

Political Accountability and Disclosure


HYDRAULIC FRACTURING

Comment Period Closed on August 23, 2013

1,348,450 Comments Received

DEPARTMENT OF THE INTERIORBureau of Land Management

Supplemental Notice of Proposed Rulemaking and Request for Comment

43 C.F.R. Part 3160

• Public disclosure of chemicals used in hydraulic fracturing operations on Federal and Indian lands.

• Confirmation that wells used in fracturing operations meet appropriate construction standards.

• Requirement that operators put appropriate plans in place for managing flowback waters from fracturing operations.

Pioneer Natural Resources CompanyPROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

STOCKHOLDER PROPOSAL RELATING TO HYDRAULIC FRACTURING

RESOLVED: Shareholders request that Pioneer Natural Resources Company issue a report to

shareholders, using quantitative and qualitative measures to describe how the Company manages the

environmental and social challenges and opportunities associated with well stimulation that employs

hydraulic fracturing. The report should be available by December 1, 2013, be prepared at reasonable

cost, and omit proprietary information.

. . .THE BOARD OPPOSES THIS STOCKHOLDER PROPOSAL AND UNANIMOUSLY RECOMMENDS

A VOTE AGAINST ITEM FOUR FOR THE FOLLOWING REASONS:

. . .

Recommendation

In light of the Company’s well-developed risk management systems and its strong public commitment to

stakeholder engagement and public disclosure, the Board opposes this stockholder proposal and unanimously

recommends that stockholders vote AGAINST the approval of the stockholder proposal.


Generally vote FOR proposals requesting greater disclosure of a company’s (natural gas) hydraulic fracturing operations, including measures the company has taken to manage and mitigate the potential community and environmental impacts of those operations . . .

Pioneer Natural Resources CompanyPROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

STOCKHOLDER PROPOSAL RELATING TO HYDRAULIC FRACTURING

RESOLVED: Shareholders request that Pioneer Natural Resources Company issue a report to

shareholders, using quantitative and qualitative measures to describe how the Company manages the

environmental and social challenges and opportunities associated with well stimulation that employs

hydraulic fracturing. The report should be available by December 1, 2013, be prepared at reasonable

cost, and omit proprietary information.

. . .THE BOARD OPPOSES THIS STOCKHOLDER PROPOSAL AND UNANIMOUSLY

RECOMMENDS A VOTE AGAINST ITEM FOUR FOR THE FOLLOWING REASONS:

. . .

Recommendation

In light of the Company’s well-developed risk management systems and its strong public commitment to

stakeholder engagement and public disclosure, the Board opposes this stockholder proposal and unanimously

recommends that stockholders vote AGAINST the approval of the stockholder proposal.

For 38,715,582

Against 54,045,769

Abstain 21,392,109

Broker non-votes

8,348,884 Form 8-K, filed 5-28-13


BOARD DIVERSITY

24 Board Diversity Proposals 2013 (as of Sept. 1)

13% Voted On

83% Withdrawn

4% Omitted



Generally vote FOR requests for reports on the company’s efforts to diversify the board . . .

Vote CASE-BY-CASE on proposals asking the company to increase the gender and racial minority representation on its board . . .


13% Voted On

83% Withdrawn

4% Omitted




13% Voted On

83% Withdrawn

4% Omitted



One proposal received majority support in 2013.

URBAN OUTFITTERS, INC. Proxy Statement

PROPOSAL 6. SHAREHOLDER PROPOSAL REGARDING BOARD NOMINEE REQUIREMENTS . . .BE IT RESOLVED: That the Board of Directors consistent with their fiduciary duties: 1. Take every reasonable step to ensure that women and minority candidates are in the pool from which Board nominees are chosen; 2. Publicly commit itself to a policy of board inclusiveness to ensure that: • Women and minority candidates are routinely sought as part of every Board search the company undertakes; • The Board strives to obtain diverse candidates by expanding director searches to include

nominees from both corporate positions beyond the executive suite and non-traditional environments such [as] government, academia, and non-profit organizations; and • Board composition is reviewed periodically to ensure that the Board reflects the knowledge, experience, skills, and diversity required for the Board to fulfill its duties. 3. To report to shareholders, at reasonable expense and omitting proprietary information, its efforts to encourage diversified representation on the Board. . . .THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” PROPOSAL 6.

URBAN OUTFITTERS, INC. Proxy Statement

PROPOSAL 6. SHAREHOLDER PROPOSAL REGARDING BOARD NOMINEE REQUIREMENTS . . .BE IT RESOLVED: That the Board of Directors consistent with their fiduciary duties: 1. Take every reasonable step to ensure that women and minority candidates are in the pool from which Board nominees are chosen; 2. Publicly commit itself to a policy of board inclusiveness to ensure that: • Women and minority candidates are routinely sought as part of every Board search the company undertakes; • The Board strives to obtain diverse candidates by expanding director searches to include

nominees from both corporate positions beyond the executive suite and non-traditional environments such [as] government, academia, and non-profit organizations; and • Board composition is reviewed periodically to ensure that the Board reflects the knowledge, experience, skills, and diversity required for the Board to fulfill its duties. 3. To report to shareholders, at reasonable expense and omitting proprietary information, its efforts to encourage diversified representation on the Board. . . .THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” PROPOSAL 6.

For Against Abstain Broker Non-Vote35,366,830 91,388,851 4,919,858 2,849,019 Form 8-K, filed 5-31-13

Institutional Investors note Progress as Eight Companies appoint Women to their Boards

Investors Working with Thirty Percent Coalition Continue Shareholder Advocacy Initiatives on Board Diversity

Boston, MA – September 18, 2013 – While commending the appointment of women to the boards of directors at eight companies, QEP Resources, Inc., Noble Energy, Inc., Quanta Services Inc., Riverbed Technology, Inc., Crane Co., LPL Financial Holdings, Inc. American Financial Group, Inc. and NetApp, Inc., investors working with the Thirty Percent Coalition continue to pursue companies in the S&P 500 and Russell 1000 with no women on their boards of directors.


DISCRIMINATION BASED ON SEXUAL ORIENTATION OR

GENDER IDENTITY

S 815 Employment Non-Discrimination Act of 2013 (ENDA)

113th CONGRESS1st Session

[Report No. 113-105]

To prohibit employment discrimination on the basis of sexual orientation or gender identity.

IN THE SENATE OF THE UNITED STATES


Generally vote FOR proposals seeking to amend a company’s EEO statement or diversity policies to prohibit discrimination based on sexual orientation and/or gender identity, unless the change would result in excessive costs for the company.

Company Sexual Orientation Non-Discrimination Proposal Vote Results in 2013

AGL Resources 41%

American Financial 36.8%

Crosstex Energy 15.6%

ExxonMobil 19.8%

Leggett & Platt 43.8%

Teco Energy 23.7%

Universal Forest Products 49.1%


Universal Forest Products, Inc. Proxy Statement

PROPOSAL TO AMEND OUR EQUAL EMPLOYMEN OPPORTUNITY POLICY

Resolved: The Shareholders request that Universal Forest Products amend its written equal employment opportunity policy to explicitly prohibit discrimination based on sexual orientation and gender identity and to substantially implement the policy.

. . . The Board of Directors recommends a vote AGAINST this proposal for the following reasons:

. . . For that reason, our Board believes that the adoption of the proposal is unnecessary and not in the best interest of our Company’s shareholders.


NET NEUTRALITY

Feb. 10, 2012


CORPORATIONS

CONGRESS


3rd Annual Business Law Symposium“Shareholder Rights: An Idea Whose Time Has Come”

Using Shareholder Proposals to Fill Regulatory Gaps

Wendy Gerwick CoutureAssociate Professor

University of Idaho College of [email protected]

Using Shareholder Proposals to Fill Regulatory Gaps

Technology

Transcript of Using Shareholder Proposals to Fill Regulatory Gaps