Tag: shareholder proposals
Fifth Circuit dismisses NCPPR appeal of Corp Fin’s Rule 14a-8 no-action relief
You might recall that, in 2023, the National Center for Public Policy Research submitted a shareholder proposal to The Kroger Co., which operates supermarkets, regarding the omission of consideration of “viewpoint” and “ideology” from its equal employment opportunity policy. Kroger sought to exclude the proposal as “ordinary business” under Rule 14a-8(i)(7), and Corp Fin concurred. After Corp Fin and the SEC refused reconsideration of the decision, NCPPR petitioned the Fifth Circuit for review. The SEC moved to dismiss the appeal. But after the NCPPR filed its appeal, Kroger filed its proxy materials with the SEC and included the NCPPR proposal in the proxy materials to be submitted for a shareholder vote. The proposal received less than two percent of the vote. Now, a three-judge panel of the Fifth Circuit has issued its opinion, dismissing the case for lack of jurisdiction; Judge Edith Jones dissented.
A few interesting items from the CCR proxy disclosure conference
Here are a few interesting snippets regarding shareholder proposals and Item 1.05 Form 8-K from this week’s 2024 Proxy Disclosure & 21st Annual Executive Compensation Conferences from CCR Corp. On the panels, the watchword of the day seemed to be consistency—given that some topics are increasingly required to be discussed in more than one SEC filing, location or context (e.g., cyber disclosures in the proxy and 10-K), the panelists urged the audience to make sure that the disclosures were consistent with each other and that the discussions of policies, charters and procedures were consistent with company’s conduct.
SEC’s Investor Advisory Committee discusses tracing in §11 litigation and shareholder proposals—will they recommend SEC action?
Last week, at the SEC’s Investor Advisory Committee meeting, the Committee discussed two topics described as “pain points” for investors: tracing in §11 litigation and shareholder proposals. In the discussion of §11 and tracing issues, the presenting panel made a strong pitch for SEC intervention to facilitate tracing and restore §11 liability following Slack Technologies v. Pirani. The panel advocated that the Committee make recommendations to the SEC to solve this problem. With regard to shareholder proposals, the Committee considered whether the current regulatory framework appropriately protected investors’ ability to submit shareholder proposals or did it result in an overload of shareholder proposals? Was Exxon v. Arjuna a reflection of exasperation experienced by many companies? No clear consensus view emerged other than the desire for a balanced approach and a stable set of rules. Recommendations from SEC advisory committees often hold some sway with the staff and the commissioners, so it’s worth paying attention to the outcome here.
Exxon persists in battle against Arjuna
When we last checked in on the ExxonMobil litigation against Arjuna Capital, LLC and Follow This—in which Exxon sought a declaratory judgment that it may exclude the two defendants’ proposal from its 2024 annual meeting proxy statement—the Federal District Court for the Northern District of Texas had just dismissed the case against Follow This, an association organized in the Netherlands, for lack of personal jurisdiction, but allowed the case against Arjuna to proceed on the basis of both subject matter and personal jurisdiction. (For background on this case, see this PubCo post.) The two proponents had contended that, because Arjuna and Follow This had withdrawn their proposal and promised not to refile, there was no live case or controversy. As a result, they asserted, Exxon’s claim was moot, and the Court had no subject matter jurisdiction. However, the court held that Exxon had the “winning argument,” citing precedent that “a defendant’s voluntary cessation of a challenged practice does not deprive a federal court of its power to determine the legality of the practice.” According to the court, the “voluntary-cessation doctrine requires more than platitudes to render a case moot;…to moot Exxon’s claim, Defendants must show that it is ‘absolutely clear’ the relevant conduct ‘could not reasonably be expected to recur.’” After the decision was rendered, Arjuna submitted a letter to Exxon in which Arjuna “unconditionally and irrevocably covenants to refrain henceforth from submitting any proposal for consideration by Exxon shareholders relating to GHG or climate change.” End of story? Not quite.
Exxon court challenge to Arjuna shareholder proposal survives dismissal [updated]
You may recall that, in January, ExxonMobil filed a lawsuit against Arjuna Capital, LLC and Follow This, the two proponents of a climate-related shareholder proposal submitted to Exxon, seeking a declaratory judgment that it may exclude their proposal from its 2024 annual meeting proxy statement. Then, the two proponents notified Exxon that they had withdrawn their proposal. End of story? Hardly. In a status update filed in February, Exxon explained that it would not withdraw the complaint because it believed that there was still a critical live controversy for the Court to resolve. Arjuna and Follow This both moved to dismiss the case for lack of personal and subject matter jurisdiction. The Federal District Court for the Northern District of Texas has just issued its opinion: the Court dismissed the case against Follow This, an association organized in the Netherlands, for lack of personal jurisdiction, but the case against Arjuna survives on the basis of both subject matter and personal jurisdiction. Arjuna has now responded by letter. However, this conflict isn’t just about Exxon and two small activist shareholders. It has taken on much larger proportions: some business groups have joined with Exxon to bemoan the “hijacking” by special interest groups of Rule 14a-8 to “advance their preferred social policies” and “inundate public corporations with proposals designed to push ideological agendas.” Others have questioned whether, under the First Amendment, the SEC, through Rule 14a-8, has the right to compel companies to use their proxy statements to speak about contentious political issues. On the other side, some investors lament Exxon’s “aggressive tactics” that threaten to “diminish the role—and the rights—of every investor.” Stay tuned on this one.
Does shareholder primacy mean just maximizing profits—and what does Exxon have to do with it?
As you know, the shareholder primacy theory is widely attributed to the Chicago school of economists, beginning in the 1970s, with economist Milton Friedman famously arguing that the only “social responsibility of business is to increase its profits.” Subsequently, two other economists published a paper characterizing shareholders as “‘principals’ who hired executives and board members as ‘agents.’ In other words, when you are an executive or corporate director, you work for the shareholders.” The idea, in effect, is that, as owners, shareholders may legitimately require that the company conduct its business in accordance with their desires. Of course, this idea has been subject to criticism by many as improperly ignoring the interests of other stakeholders, such as employees, customers and the community—so-called “stakeholder capitalism.” Under Friedman’s version of shareholder primacy, the desire of shareholders has long been presumed to be to maximize value and increase profits. But is it? The author of this article in Fortune makes the argument that the ongoing Exxon litigation against Arjuna and Follow This, two proponents of a climate-related shareholder proposal, throws into sharp relief a schism that has formed among adherents to the idea of shareholder primacy. The question posed is “what do shareholders really want, and are companies ever allowed to ignore them? Arjuna and Follow This own Exxon stock and are trying to dictate how the energy giant behaves. However, they are demanding more than dividends: They want Exxon to commit to more ambitious emissions reductions, and to some, that’s just as bad as companies admitting an obligation to workers or the community.” Does shareholder primacy necessarily mean just maximizing profits?
Temperature drops on Exxon litigation over shareholder climate proposal—or does it?
You remember that, in January, ExxonMobil filed a lawsuit against Arjuna Capital, LLC and Follow This, two proponents of a climate-related shareholder proposal submitted to Exxon, seeking a declaratory judgment that it may exclude their proposal from its 2024 annual meeting proxy statement? On February 1, Exxon filed a notice of withdrawal of its request for an expedited briefing schedule for its summary judgment motion in the case. Why? Because the two proponents had notified Exxon that they had withdrawn their proposal. End of story? Not necessarily. Exxon told Reuters that it would not withdraw the complaint, maintaining that there were still critical issues for the Court. And in a Court filing yesterday, Exxon explained why it believed that there was still a live controversy for the Court to resolve. How the Court responds remains to be seen. But regardless of what the Court decides, the withdrawal of the proposal in response to the litigation may well encourage other companies, similarly faced with unwelcome proposals, to bypass the SEC’s standard shareholder proposal process and follow the go straight-to-court strategy.
Exxon employs “direct-to-court” strategy for shareholder proposal. Will others do the same?
Back in 2014, a few companies, facing shareholder proposals from the prolific shareholder-proposal activist, John Chevedden, and his associates, adopted a “direct-to-court” strategy, bypassing the standard SEC no-action process for exclusion of shareholder proposals. In each of these cases, the court handed a victory of sorts to Mr. Chevedden, refusing to issue declaratory judgments that the companies could exclude his proposals. (At the end of the day, one proposal was defeated, one succeeded and one was ultimately permitted to be excluded by the SEC. See this PubCo post, and these News Briefs of 3/18/14, 3/13/14 and 3/3/14.) Now, ten years later, ExxonMobil has picked up the baton, having just filed a complaint against Arjuna Capital, LLC and Follow This, the two proponents of a climate-related shareholder proposal, seeking a declaratory judgment that it may exclude their proposal from its 2024 annual meeting proxy statement. In summary, the proposal asks Exxon to accelerate the reduction of GHG emissions in the medium term and to disclose new plans, targets and timetables for these reductions. Will Exxon meet the same fate as the companies in 2014? Perhaps more significantly, Exxon took this action in part because it viewed the SEC’s shareholder proposal process as a “flawed” system “that does not serve investors’ interests and has become ripe for abuse by activists with minimal shares and no interest in growing long-term shareholder value.” If Exxon is successful in its litigation, will more companies, likewise faced with environmental or social proposals and perhaps perceiving themselves beset by the same flawed process, follow suit (so to speak) and sidestep the SEC?
New Corp Fin intake system for no-action requests related to shareholder proposals
Corp Fin has announced a new intake system for requests from companies for no-action positions from the staff regarding companies’ intentions to exclude shareholder proposals under Rule 14a-8. In the announcement, Corp Fin indicates that Rule 14a-8 submissions and related correspondence must now be submitted using Corp Fin’s online shareholder proposal form, available at https://www.sec.gov/forms/shareholder-proposal, and that emailed materials will no longer be accepted. The announcement—and the form itself—emphasize that staff responses to these requests are only “informal, non-binding staff views” regarding exclusion of shareholder proposals.
Alliance Advisors wraps up the 2023 proxy season
Alliance Advisors, a proxy solicitation and corporate advisory firm, has posted its 2023 Proxy Season Review, an analysis of trends from the 2023 proxy season. Its principal message: ESG proposals saw sagging results again this year, “continuing a downward trend” from 2021. Although the number of shareholder proposals submitted to U.S. public companies was substantial (958 as of June 30, 2023, compared with 987 for all of 2022), Alliance Advisors reports that there was a dramatic decline from last year in “average support across all categories of shareholder proposals,” and “the number of majority votes plunged from 80 in 2022 to 28 in the first half of 2023.” More specifically, according to Alliance, average support on governance proposals fell to 29.9% in 2023 from 37.4% in 2022 and 38.4% in 2021, and there was a bit of a roller-coaster effect on compensation-related proposals, where average support declined to 23.7% in 2023 from 31.4% in 2022 but increased from 21% in 2021. Most pronounced was the change in average support for environmental and social (E&S) proposals, which declined to 18.3% in 2023 from 27.3% in 2022 and 37.2% in 2021. Will it turn out that 2021 was the “high-water mark” for shareholder proposals on ESG? The report explores trends in shareholder proposals and examines what may account for the flagging voting results.
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