You are browsing the archive for General.

Proxy Access: A New Version for 2013

October 16, 2012 in General

Update: This is a revised version of an earlier post this month. I’ve deleted that post because I don’t want anyone to mistakenly use the prior draft language. I’m hoping this language is a little tighter but always welcome reader suggestions.

Last month I hoped ISS would reconsider their analysis of our proxy access proposal at H&R Block (HRB-ProxyAccessProposal pdf), submitted by Kenneth Steiner. ISS had said our proposals “could undermine the efforts of larger, long-term shareholders whose interests might better reflect those of the broader shareholder base.” However, as I wrote in my September 10th post,

their logic appears flawed. Larger, longer-term shareowners would gain rights, not lose them, under the proposal… without Steiner’s proposal those larger, long-term shareholder have no right to proxy access. Additionally, the proposal does allow those larger, long-term shareowners to nominate 2 members of the board — the same number ISS appears eager to endorse. The smaller shareowners provided for in Option B can’t undermine larger, long-term shareholders, since they would file under Option A.

Nonetheless, they recommended against the proposal and it failed. We spent much of last spring trying to work proxy proposals though the SEC “no-action” process. It looks like it may take fall revisions to obtain endorsements from ISS and Glass Lewis. This post proposes a revised proxy access template, which would still create the possibility for retail shareowners to participate in proxy access nominations but also attempts to address concerns raise by proxy advisors and large institutional investors. Read the rest of this entry →

SEC’s IAC Seeks Input for Agenda

September 19, 2012 in General

The Dodd-Frank Act established the Investor Advisory Committee (IAC) to advise the Securities and Exchange Commission on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The IAC met for the first time on June 12, 2012 and the next full committee meeting is scheduled for September 28, 2012. Additional information on the committee.

At its inaugural meeting, the IAC agreed to create the following Subcommittees to carry out its responsibilities.

  • Market Structure
  • Financial Literacy
  • Retail Investor Issues
  • Investor as Owner

I’ll be primarily focusing on the Investor as Owner subcommittee. That subcommittee is charged with deliberating, considering and making recommendations on issues that directly impact investors as owners of the companies in which they invest. These topics range from corporate governance and “proxy plumbing” issues to matters of greater transparency and disclosure.

All committees seek public input and suggestions on these and other topics as the subcommittees begin to put their work plans and agendas together. IAC recommendations to the SEC, both short and longer term will be based on the priorities established by the subcommittees. Comments to date.

The subcommittees would appreciate receiving constructive comments. Those submitted by September 21, 2012 may be used to help set the agenda for the September 28, 2012 meeting. Send your comments to If this iteration of the IAC is anything like the last one, it will provide investors with a real opportunity to make a difference… if we can provide them with carefully conceived recommendations. Below are some of my initial thoughts, which I hope to tighten up and expand upon by the end of the week.

Members of the new Investor Advisory Committee

  • Chairman Joseph Dear, Chief Investment Officer, California Public Employees’ Retirement System
  • Vice Chairman, Craig Goettsch, Director of Investor Education and Consumer Outreach, Iowa Insurance Division
  • Secretary, J. Robert Brown, Jr., Law Professor, University of Denver
  • Darcy Bradbury, Managing Director and Director of External Affairs, D.E. Shaw & Co., L.P.
  • Eugene Duffy, Partner and Principal, Paradigm Asset Management Co. LLC
  • Roger Ganser, Chairman of the Board of Directors of BetterInvesting
  • James Glassman, Executive Director, George W. Bush Institute
  • Joseph Grundfest, William A. Franke Professor of Law and Business, Stanford Law School
  • Mellody Hobson, President and Director of Ariel Investments, LLC
  • Stephen Holmes, General Partner and Chief Operating Officer, InterWest Partners
  • Adam Kanzer, Managing Director and General Counsel of Domini Social Investments and Chief Legal Officer of the Domini Funds
  • Roy Katzovicz, Partner, Investment Team Member and Chief Legal Officer, Pershing Square Capital Management, L.P.
  • Barbara Roper, Director of Investor Protection, Consumer Federation of America
  • Kurt Schacht, Managing Director, CFA Institute
  • Alan Schnitzer, Vice Chairman and Chief Legal Officer, The Travelers Companies, Inc.
  • Jean Setzfand, Director of Financial Security for the AARP
  • Anne Sheehan, Director of Corporate Governance, California State Teachers’ Retirement System
  • Damon Silvers, Associate General Counsel for the AFL-CIO
  • Mark Tresnowski, Managing Director and General Counsel, Madison Dearborn Partners, LLC
  • Steven Wallman, Founder and Chief Executive Officer, Foliofn, Inc.
  • Ann Yerger, Executive Director, Council of Institutional Investors

Concentrate Efforts on Retail Investors

The IAC would do well to recommend leveling the playing field between retail and institutional investors and between investors of all types and corporate management. Retail investors are more likely to return to the market if the scales aren’t so often tipped against them. It appears there may be agreement by Committee members to first concentrate their efforts on retail investors. Commissioner Luis A. Aguilar in his remarks to Committee members, noted:

According to a recent survey, only 15% of Americans trust the stock market. Investors continued to withdraw cash from U.S. equity funds in 2011, continuing a trend that has seen a total outflow of a half a trillion dollars from domestic equity funds since 2006. Some of this shift may be a natural result of the aging population of baby boomers. But research suggests there may also be a decline in the willingness of even younger investors to invest in the stock market.

SEC Chairman Mary L. Schapiro’s remarks noted the work of the Committee will be supplemented by the addition of the SEC’s new Office of the Investor Advocate,  also established by the Dodd-Frank Act and indicated they are in the process of receiving applications for the new Investor Advocate, “who will lead that office and by statute work with you as a member of this Committee.” She reminded members the Dodd-Frank Act stated the purpose of the Committee is to advise and consult with the Commission on

  • Regulatory priorities;
  • Issues relating to the regulation of securities products, trading strategies, fee structures and the effectiveness of disclosure;
  • Initiatives to protect investor interest; and
  • Initiatives to promote

According to New SEC Investor Advisory Committee to Put Retail Investors First (, 6/12/2012) Committee member James Glassman, executive director of the George W. Bush Institute, told newly appointed Committee Chairman Joe Dear that he wanted to be “assured” that the committee’s agenda would focus on retail investors. “Yes,” Dear replied. Barbara Roper, director of investor protection for the Consumer Federation of America, told AdvisorOne that most committee members expressed a desire to focus on the needs of retail investors-

there is no issue of higher importance for retail investors than how we regulate the intermediaries [such as the advisors and broker-dealers] they rely on.

The Importance of Retail Investors 
Too many, including those at the SEC, view individual investors as irrelevant, uninformed and incompetent, not to be trusted with tools like proxy access. Institutional investors will look out for our interests.

Many have written about inherent conflicts of interests faced by institutional investors. One recent example is Simon Wong’s How Conflicts of Interest Thwart Institutional Investor Stewardship. Funds hope to run 401(k) plans for companies, so don’t want to be seen as biting the hand that feeds them. All funds are under pressure to keep expenses down. Active monitoring and engagement costs money and creates a collective action problem because the benefits of engagement go to all, not just those who expend resources. Although we would like to work closely with institutional investors, individual investors can’t rely on them to speak on our behalf, since we have different interests.

One example of the dismissive atmosphere is the treatment of retail investors submitting proxy proposals. As you can see from the table below from John Laide at, individuals submit a substantial proportion of such proposals. Yet, when the SEC convenes its post-season roundtable to review how the process can be improved, it typically does not invite retail investors

Top Sponsors of Shareholder Proxy Proposals
2011 2010
Proponent Type Rank # Proposals Rank # Proposals
Individuals 1 358 1 494
Religious Groups 2 194 2 223
Labor Unions 3 130 3 161
Public Pension Funds 4 96 4 116
Investment Advisers 5 68 5 76
Other Stake Holders/Activist Groups 6 59 6 60
Other Institutions 7 26 7 21
Hedge Fund Companies 8 3 8 11
Most at the SEC will say the individual retail investor is key but let’s see them put it to practice. Where to begin?
The IAC should recommend the Commission to include representatives of retail investors in roundtable and other events typically attended by institutional investors. Since the cost of attending such meeting may be burdensome, the Commission should endeavor to facilitate participation through electronic means when possible.  
Additional recommendations discussed below are aimed at helping to reduce the unnecessary paperwork burden around shareowner proposals, get the SEC to apply the rules governing proxies to voter information forms, eliminate blank votes going to management and creating a framework that will encourage open systems of client directed voting.

Broker Letters

The process to obtain proof of ownership from retail investors should be less onerous. What real problem did Staff Legal Bulletin No. 14F (CF) address?  Many retail shareowner proposal proponents viewed this SLB as a complicated labor intensive answer seeking a problem. Had introducing brokers provided false evidence of ownership letters for retail investors holding shares in street name?

I have never heard of any brokerage providing a letter saying one of their clients owned shares when he or she did not. If such cases exist, why aren’t these incidents brought to the attention of prosecutors for criminal violation? Wouldn’t that be a much simpler process unless such practices are rampant? If such practices are rampant, where is the evidence?

SLB 14F(CF) sets up a process whereby proponents may be required to obtain a letter from a clearing bank verifying their broker or bank held specified shares, even though the proponent may have no relationship with such a bank and the bank has no legal obligation to provide a letter.

The IAC should ask staff for examples of fraudulent broker letters. If there were no fraudulent letters, the IAC should recommend that a letter from the proponent’s broker or bank is sufficient and their is no need to get a letter from the clearing bank. 

SEC rules require that proponents affirm their intention to continue holding at least the minimum amount of shares necessary to submit a proposal through the date of the annual meeting. Companies typically do not seek reconfirmation of share ownership once the proposal has gone through no-action review. In some sense, they are trusting that shareowners haven’t sold their shares during the several months between submission and the annual meeting. However, when it comes to a day or two around the submission, companies typically play “gotcha.” See page 6 of Council of Institutional Investors guide, Everything you wanted to know about Filing a Shareholder Proposal but were afraid to ask.

To prove ownership, a proponent needs to get a letter from a bank or broker confirming that he or she owned the requisite number of shares on the date the proposal was sent to the company. Ideally, the broker letter should be submitted along with the shareowner proposal.

This can get tricky. As a practical matter, however, the broker may prepare the broker letter a day or two in advance of the date the proponent submits it. Thus, when it is sent in, it will have a different date than the date of the letter. The company may argue that the submission is insufficient because the broker letter is dated November 15, whereas the submission is dated November 17 and it is conceivable that all of the proponent’s (shares) were sold on November 16.

The IAC should recommend to the Commission that two or three days between the submission date of a proposal and the date of a letter evidencing ownership is imaterial. Let’s stop playing games. 

Voter Information Forms 

Retail investors should be entitled to the same protections as shareowners holding actual proxies. Retail investors typically hold their shares in “street name” and receive voter instruction forms (VIFs) from Broadridge, rather than actual proxies. Broadridge claims (in correspondence and conversations) the rules that apply to proxies don’t apply to VIFs.

If VIFs go out to about 1/3 of the total number of shareowners and the rules don’t apply to them, then the SEC appears to sanction the treatment of retail shareowners as second class citizens, in comparison to those who receive actual proxies.  (I don’t know the actual proportion going out as VIFs, but 1/3 seems like a reasonable guess.) SEC Rule 14a-4(a)(3) states the proxy

shall identify clearly and impartially each separate matter intended to be acted upon, whether or not related to or conditioned on the approval of other matters, and whether proposed by the registrant or by security holders.

Broadridge claims the rules for proxies don’t apply to voter information forms (VIFs), since they are not legal proxies. It may be helpful here to provide an example. John Chevedden submitted a proposal to Altera, asking them to end supermajority voting requirements. His resolved language read as follows:

Shareholders request that our board take the steps necessary so that each shareholder voting requirement in our charter and bylaws, that calls for a greater than simple majority vote, be changed to a majority of the votes cast for and against the proposal in compliance with applicable laws. This includes each 80% supermajority provision in our charter and bylaws.

Broadridge identified the item to be voted on the VIF, which most retail shareowners got, as follows:


In an April 1, 2010, letter to the SEC and Altera, Chevedden complained that voting would not be accurate with such a description of his resolution. On April 2nd, I posted an article entitled Abusive Practices Continue as VIFs Tilt Voting in Favor of Management and urged readers to bring this abusive practice to the attention of the former SEC Investor Advisory Committee through use of their online comment form. On April 9, 2010 Broadridge had acknowledged the error and “corrected” ballot language so that it read as follows:


I was told by a Broadridge representative that they “try” to summarize the issues but if that can’t be done easily, they put a general statement on the VIF, referring the shareowner to the proxy materials, such as that used at Altera.  It is difficult for me to understand why Broadridge claimed to not be able to summarize this proposal as “end supermajority voting requirements,” or something similar. It certainly was not a unique or hard to understand proposal. Many, many such proposals had gone before.

This “corrected” ballot language certainly does not meet the requirements of SEC Rule 14a-4(a)(3). I asked the SEC for clarification on whether or not proxy rules apply to VIFs but received no response. If the SEC is trying to set up a system of rules that will persuade retail investors to come back into the market, why does it allow VIFs to obfuscate the issues?

See also, Investors Against Genocide Fighting American Funds, Broadridge and Vague SEC Requirements: More Problems Solved Using Direct Registration and Ross Kerber’s piece for Reuters on zombie voting (Top U.S. proxy vote site favors boards, critics say, 5/29/2012) that might be addressed if VIFs have to meet the same standards as proxies.

The IAC should ask staff for a legal opinion discussing what legal requirements apply to VIFs and how, if at all, do they differ from those that apply to proxies. The IAC should recommended changes necessary so the same protections are afforded to retail investors as are afforded to shareowners with direct registration.  

Blank Votes 

If the SEC ever gets around to determining their rules do apply to VIFs, that may take care of the issue of the including a “clear and impartial” description, required by Rule 14a-4(a)(3) and as discussed above. Additionally, such a finding might also somewhat address another issue — votes left blank that turn, almost magically, into votes for management. At least more voters would be alerted to the fact that blank votes will be counted as votes in favor of the position taken by the company’s soliciting committee because warnings would then have to be in bold-type, instead of in micro-type footnotes, as Broadridge now uses.

However, I would argue that Rule 14a-4(b)(1) still needs to be changed. See my post on the HLS Forum at Don’t Let Companies Change Shareholders’ Blank Votes and my petition to the SEC 4-583. Just as the SEC finally agreed to abolish the practice of “broker voting” in most instances because a non-vote isn’t necessarily intended to be a vote for management, the SEC should also amend 14a-4(b)(1) so that blank votes are counted as blank votes, not as votes in favor of the position taken by the company’s soliciting committee.

The IAC should try to level the playing field by recommending the Commission take action on my rulemaking petition to eliminate blank votes from automatically going to management.

Client Directed Voting

Historically, most retail shareowners toss their proxies. During the first year under the “notice and access” method for Internet delivery of proxy materials, I understand that less than 6% voted. This contrasts with almost all institutional investors voting, since they have a fiduciary duty to do so.

“Client directed voting” (CDV), a term coined by Stephen Norman, is seen by many as a solution for getting more retail shareowners to vote, ensuring companies get a quorum, and helping management recapture a good portion of the broker-votes cast in their favor that evaporated with recent reforms. I viewed Norman’s initial proposal as an extension of the “Vote with the Board’s Recommendations” button seen on VIFs.  An open form of CDV could create much more thoughtful and robust corporate elections.

The key issue in any open CDV system is to let shareowners control where their electronic ballots are delivered. Just as there is no question shareowners can control where hardcopy ballots are delivered, there should be no question they can direct where their electronic ballots are delivered. This simple requirement would insure third-party content providers, like the late effort at, an opportunity to compete and improve the quality of voting advice.

Additional elements for a more effective CDV system include:

  • A wide range of voting opinion sources that will eventually cover all issues;
  • Open access for any new opinion sources to publish their opinions;
  • Open access for shareowners to choose any opinion source for our standing instructions on voting;
  • Sufficient funding for professional voting opinion sources that compete for funding allocated by retail shareowner vote (or by beneficial owners of funds that may choose to “pass through” their votes).

Under an open system for of CDV, feeds would offer the ability for retail shareowners to essentially build a “voting policy,” just as institutional voters are now able to do. That model will increase participation and voting quality. We shouldn’t ask shareowners to affirm every single pre-filled ballot. That could be a deal breaker for people with stock in many different companies who would rather spend their time on other activities.

Third-party CDV systems, like the former Moxy Vote, could allow investors to create hierarchies of voting instructions. (Vote like X. If X hasn’t voted the item, vote per Y. If Y hasn’t voted, vote per Z, etc. Eventually, these systems could become very complex. Vote like X on issue A; vote like Y on issue B, also specifying defaults if either X or Y don’t have votes recorded.) See Client Directed Voting Q&A on the site.

If brokers are required to deliver proxies as directed by their clients, another whole model could emerge around “proxy assignments.” Proxies assigned to organizations or individuals, for example, could give annual meetings a new meaning. See Investor Suffrage Movement by Glyn A. Holton.

The IAC should ask staff what rulemaking changes would be needed to create an open and robust form of client directed voting and should then recommend such changes to the Commission.

Proxy Advisors Obstruct Proxy Access

August 9, 2012 in General

The good news is that, on the second round of submissions of the USPX model proxy access proposal, the SEC rejected all no-action requests. We now have votes coming up in the next couple months at Forest Labs ($FRX), Medtronic ($MDT) and H&R Block ($HRB). All three were submtted by individual shareowner Kenneth Steiner.

The bad news is that the proxy advisory firms ISS and Glass Lewis are now standing in the way. Jim McRitchie, John Chevedden and Glyn Holton have been doing outreach to the proxy advisors and institutional investors … but we pretty much have to get support from influential ISS, or we won’t receive majority votes.

A couple weeks ago, USPX members finalized a slide presentation on the USPX Model Proxy Access Proposal. We forwarded it to ISS, and they agreed to have a conference call. It was a cordial conversation. We walked them through the careful logic behind the model proposal, as described in the release document. They listened and asked questions … and several times made a disturbing protest to the effect that some of their clients disagreed with our position that proxy access should be open to smaller investors, including individual shareowners. They didn’t exactly explain why those clients disagreed. All that mattered was that … they disagreed.

Through back channels, we later heard:

ISS is not recommending a yes vote. They said their clients are expressing support for a higher threshold of stock ownership than ISS expected. Plus their clients wanted more change in control safeguards.

ISS has come out against our proposal at Forest Labs and Medtronics. They haven’t yet taken a position on the H&R Block proposal, which is slightly different from the other two. it blocks takeover attempts by capping the number of shareowner nominees at 48% of the board—precisely the sort of change in control safeguard ISS found lacking in the other two proposals. We will wait and see what they decide.

The response from Glass Lewis has been even worse: they refused to even speak to us. Proxy access is the biggest issue in shareowner proposals this year, and our model proposal has been submitted to more companies than all other proxy access proposals combined, and they wouldn’t even speak to us …

Two Ways To Get Involved Today

August 9, 2012 in General

(Note: All links in this article are internal … You have to be logged into the USPX website for them to work.)

If you have been a member of the USPX for a while and haven’t found an opportunity to get involved, two wonderful opportunities have just opened up. One requires considerable experience in shareowner activism, but the second requires no experience whatsoever. Both afford excellent opportunities to contribute to individual shareowner activism and to get to know other members:

  1. We just launched a Nuts ’n Bolts members group. Members are going to use new wiki functionality to collaboratively draft several “how-to” articles on individual shareowner activism. We are just starting to flesh out the topics list in the new group’s forum, but topics will include “How to assign a proxy”, “How to directly register your shares”, “How to submit a Rule 14a-8 proposal”, etc. Completed articles will be made publicly available on the USPX website. To participate, you will need practical experience with one or more of the topics covered.
  2. In the recently-formed USPX Governance Group, a forum discussion “Please review and comment on USPX bylaws ” has been launched where members can review and propose improvements to our primary governance document: the USPX bylaws. This discussion and review was proposed at last month’s annual members meeting. Our board has formed a committee to review all members’ feedback and report back to the board in two months with recommended changes to the bylaws. The bylaws were uploaded as an attachment to the first post to the discussion topic. You can download them and post your thoughts directly to the forum. No experience is needed to participate in this discussion, just a desire to ensure our organization has insightful, forward-looking governance.

If neither of these opportunities is your cup of tea, there will be more coming up in the next few months. At the annual meeting, members identified a number of exciting initiatives to pursue. Check out the minutes from that meeting for a peak at what is to come …. 

Thank you for being involved.

Proxy Access Moves Forward: Forest Labs, Medtronic & H&R Block

August 1, 2012 in General

The cartoon at left accompanied an article entitled Where are the funds? (Pensions & Investments, 3/5/2012). P&I lamented, “instead of sitting on the sidelines, activist investors should take advantage of the opportunity to file access proposals… proxy access proponents must be adventurous.” Working through the USPX, individual shareowners are using the key; adventure is on the way.

Individual shareowner Ken Steiner has three proxy access proposals—all based on the updated USPX model proxy access proposal—coming up for votes at  Forest Labs ($FRX) on August 15th, Medtronic  ($MDT) on August 23rd and at H&R Block ($HRB), whose proxy materials have not yet been released. All three proposals survived no-action challenges at the SEC. Read the rest of this entry →

New USPX Governance Group Open to All Members

July 19, 2012 in General

At last week’s annual members meeting, attendees expressed interest in becoming more involved with the actual governance of the USPX. Accordingly, Chairman Vin Cirulli has launched a new USPX Governance Group that, after login, can be accessed at Community > Groups. Here is the group description:

Open to all members, this is a public forum on governance of the USPX. Here you might discuss our bylaws, pose questions to the board, or plan the next annual members meeting.

Some attendees at the 2012 annual members meeting: Steve Nieman, Jim McRitchie, Vincent Cirulli, Glyn Holton and John Chevedden.

From the group’s home page, select FORUM, and you will see I have posted two documents to get a discussion started. The first is the USPX Bylaws. Attendees at the annual meeting expressed an interest in reviewing the bylaws and proposing improvements. Please do so and post your comments directly in the same forum. The board will review comments and implement amendments, as they see fit.

The second document is minutes from the annual members meeting. These include fourteen initiatives members discussed and approved at the meeting. Please look these over and see if there are any you would like to be involved in. Please e-mail me and let me know.



Panning for Gold at the USPX Annual Members Meeting

July 17, 2012 in General

Left to right: Vin Cirulli, Jim McRitchie, Jack Ucciferri, Glyn Holton, John Chevedden, Steve Nieman.

Over July 13-15, USPX members descended on California’s gold country for our Second Annual Members Meeting. We rented a house near Placerville for the weekend. Friday afternoon was mostly socializing. Saturday was the business portion of the meeting. Sunday, we had fun exploring historical sites in the area. Vin Cirulli and Glyn Holton both got lessons in panning for gold. Thanks to the Park Service seeding the instruction area with small gold shavings, they both found some!

Members identified a number of initiatives for the next few months, including:

  • Write a history of individual shareowner activism. Individual shareowners have been doing this since the 1930s—long before anyone else. With an authoritative history to point to, maybe the media will start taking individual shareowners seriously, and stop calling us gadflies!
  • John Chevedden plans his next move.

    Develop a “Nuts & Bolts” section of the website to provide instruction in tasks such as submitting Rule 14a-8 proposals, corresponding via EDGAR and conducting an exempt solicitation.

  • Compile a “Top 10″ list of the challenges facing American Capitalism. One example might be the fact that the vast majority of corporations run uncontested board elections year after year. Another might be the near-monopoly Broadridge wields over the proxy system. The challenge of this project will be distinguishing symptoms from underlying causes.
  • Reach out to proxy advisors to promote the USPX Model Proxy Access proposal, which will be coming up for votes at Forest Labs ($FRX) and Medtronic ($MDT) soon.

We also plan a number of smaller tasks, such as updating the USPX bylaws, drafting recommendations for members interested in launching groups on the USPX website, and asking field agents to snap pictures of themselves at the meetings they attend.

Steve Nieman patches in Richard Foley via cell phone.

Hats off to Jim McRitchie for hosting this year’s meeting. He arranged the house rental, planned meals and generally kept things running smoothly.

Jim McRitchie arrived in a Prius sporting this license plate.










Last years meeting was on the east coast, so it was nice to host this one on the west coast. For now, our plan is to alternate the meeting location each year between east and west coast, to make it easy for members close to either coast to attend at least every other year.

Vin Cirulli panning for gold.

Thanks to all who participated. We have plenty of work to do on the initiatives we identified. Looking forward to seeing everyone again next year.

We met in the foothills of the Sierra Nevadas. Changed Vision of ShareOwners

July 12, 2012 in General

As co-founder Mark Schlegel announced Tuesday, will be closing down its proxy voting platform at the end of the month. See also Ross Kerber’s report for Reuters at Shareholder website closing, cites complex voting rules, 7/11/2012 and Mark Latham’s Sad News: @MoxyVote Is Closing #Corpgov. On the surface, it seems like a real tragedy. I’m sure Mark, Doug Gates, Brian Sloyer, Jeff Marshall, Alison Slezak and others on staff made many sacrifices to keep their dream alive, as did Larry Eiben and others at TFS Capital, which sponsored Moxy Vote. Read the rest of this entry →

2012 Proxy Access Efforts

July 10, 2012 in General

As Glyn Holton reported last week, the SEC denied no-action requests from Forest Labs ($FRX) and Medtronic ($MDT). (SEC Delivers For Shareowners On Proxy Access, 6/29/2012) Therefore, shareowners will get an opportunity to vote in favor of proxy access at upcoming shareowner meetings. Read the rest of this entry →

Upgrades to the USPX Website

June 29, 2012 in General

In case you are thinking the USPX website doesn’t look as polished as it once did, you are right. We are in the process of implementing new functionality. Some of this has proved incompatible with features on the home page. For now, we have implemented a more minimalist homepage while we sort things out. 

The new functionality is exciting. One feature that has already gone live is automated e-mail updates for groups. Here is how it works: If you are a member of any groups on the USPX website, you will receive automated e-mail updates whenever anyone posts to those groups. These updates will help members remain engaged with their groups.

Instead of receiving all e-mails for a group, you can elect to receive weekly summary e-mails, daily digests or no e-mails. To change this setting for one of your groups, log into the USPX website, go to the group, and select “email options.” If you get a blank screen when you attempt to enter the groups section, this is a bug, but it means your membership has expired. Select “My Membership” in the upper right corner of your screen (only appears if you have already logged in) and renew your membership. Then you will be able to enter the Groups section of the site.

Should you want to turn off all e-mails for all your groups, there should be a link at the bottom of all e-mails allowing you to do so.

We will be implementing even more functionality after this, starting with member wikis. And, of course, we will be coming up with an improved home page.

SEC Delivers for Shareowners on Proxy Access

June 29, 2012 in General

USPX members’ efforts to advance proxy access got a boost today from SEC staff. Two companies, Forest Labs ($FRX) and Medtronic ($MDT), had sought no-action letters from Commission staff to allow them to exclude from their proxy materials the USPX model proxy access proposal. Both requests have been denied. 

These decisions come on the heals of much criticized no-action decisions by SEC staff that allowed six companies to exclude an earlier version of the USPX model proposal (see Pushback From SEC Staff, March 9, 2012). In response to those decisions, USPX members immediately redrafted the USPX model proposal and resubmitted it to Forest Labs, Medtronic and H&R Block ($HRB). Commission staff have not yet made a decision on an H&R Block no-action request.

All three of the most recent proposal submissions were made by shareowner Kenneth Steiner with help from John Chevedden. Various members of the USPX have also pitched in. In particular, Glyn Holton, Jim McRitchie and Dan Rudewicz helped organize responses to the three most recent no-action requests.

We now have a version of the USPX model proxy access proposal that we know can pass muster with the SEC. But we still have plenty of work ahead of us. Proxy access doesn’t become real until shareowners approve it at a company’s annual meeting, and even then, the board has discretion over whether or not to actually implement it (because the USPX model proposal is precatory). Our immediate next steps are to reach out to proxy advisory services and encourage them to support the USPX model proposal in their voting recommendations.

Pushback From SEC Staff

March 9, 2012 in General

“Stunning”, “arbitrary”, “unjustifiied” … “questionable”: these are some of the words individual shareowners are using to describe the SEC handling of six corporations’ requests to be allowed to exclude the USPX model proxy access proposal from their 2012 proxy materials.[1] This week, the Commission’s staff approved every one of those requests.

Corporate executives routinely solicit SEC staff no-action letters indicating staff will recommend no enforcement action should a company exclude a proposal from its proxy materials. Grounds for excluding proposals are spelled out in Rule 14a-8(i)(9) and include cases where proposals might violate state law, address personal grievances, relate to routine business decisions, etc. Corporations’ in-house counsel often draft no-action requests. If executives really want to block a proposal, they spend shareowner money on outside law firms to write the requests. In response to the USPX model proxy access proposal, executives went all-out, hiring outside law firms to draft lengthy no-action requests floating numerous possible reasons for exclusion.

The high-priced law firm Gibson Dunn wrote an October 23, 2011 no-action request for Textron (TXT) proposing that the USPX model proposal, which shareowner Kenneth Steiner had submitted to the company, might be excluded because it dealt “with matters relating to the Company’s ordinary business”; was actually multiple proposals posing as one; was “impermissibly vague and indefinite so as to be inherently misleading”; and was “beyond the Company’s power to implement.” The letter goes on for 19 pages, not including 18 pages of exhibits. Gibson Dunn recycled essentially the same letter for another client, Bank of America (BAC). The law firm Stinson Morrison Hecker wrote a staggering 27 page letter for their client, Sprint (S), arguing that the USPX model proposal would violate Kansas law, was “impermissibly vague and indefinite so as to be inherently misleading”; was beyond the Company’s power to implement; and dealt “with matters relating to the Company’s ordinary business.”

Law firms take a “throw things at the wall and see what sticks” approach to the no-action process. No argument seems too far fetched. The corporations are footing the legal bills, and, who knows, Commission staff only have to accept one contrived argument for a proposal to be excluded—might as well offer them plenty to choose from. With corporations recycling each others’ arguments, it turns out that Commission staff only had to accept two arguments in order to allow exclusion of every single contested submission of the USPX model proxy access proposal.

The first of those arguments—among those raised by Textron, Bank of America and Goldman Sachs (GS)—was that the USPX model proxy access proposal was actually two proposals disguised as one! The proposal’s item 6 provided a common-sense safeguard against executives exploiting proxy access as a means of enriching themselves:

Any election resulting in a majority of board seats being filled by individuals nominated by the board and/or by parties nominating under these provisions shall be considered to not be a change in control by the Company, its board and officers.

In the past, the Commission allowed shareowners to submit as many proposals to a corporation as they liked. In 1976, they limited shareowners to two proposals a year, which they further reduced to one a year in 1983. Common sense would suggest that a single proposal would be whatever a shareowner submitted for a single up or down vote, but it has been many decades since anyone accused the SEC of having common sense. No. The Commission’s lawyer-bureaucrats set themselves the task of deciphering shareowner proposals to see if, in their opinion, they address multiple issues. Rarely is this clear, so decisions tend to be … nuanced. Commission staff didn’t have to decide against shareowners on this one, but they did. It doesn’t mean anything—just lawyers mentally masturbating—but the consequences are real. Shareowners of Textron, Bank of America and Goldman Sachs almost had a chance to vote on proxy access this year, but Commission staff decided otherwise.

The second argument Commission staff accepted—among those advanced by Sprint, MEMC Electronic Materials (WFR) and Chiquita (CQB)—was that, because the proposal cited the Commission’s own Rule 14a-8, it was impermissibly vague or misleading. Specifically, Commission staff noted that the USPX model proxy access proposal asked that companies’ proxy materials

… include the director nominees of shareholders who satisfy the “SEC Rule 14a-8(b) eligibility requirements.” The proposal, however, does not describe the specific eligibility requirements. In our view, the specific eligibility requirements represent a central aspect of the proposal. While we recognize that some shareholders voting on the proposal may be familiar with the eligibility requirements of rule 14a-8(b), many other shareholders may not be familiar with the requirements and would not be able to determine the requirements based on the language of the proposal. As such, neither shareholders nor [the Company] would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires.

The SEC’s own Rule 14a-8(b) is easily accessible with a web search. It explains in a half page of plain English what the eligibility requirements are, so how does Commission staff conclude that “neither shareholders nor [the Company] would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires”???

The SEC is a giant revolving door for lawyers. Almost the entire senior staff is lawyers who work at the Commission for a few years and can then look around for high-paying jobs at law firms. Recently, one such departure was Greg Belliston, who left the Commission for—where else!—Gibson Dunn.

In commenting on Commission staff’s treatment of the USPX model proposal, the Blog offers shareowners some comfort:

As is usually the case with the type of exclusions that we see here … the proponents will no doubt get smarter next year and try to correct the language which led to exclusion this year, so the landscape might be quite different in 2013.

Actually, shareowners won’t be waiting for 2013. USPX members are already redrafting the USPX model proxy access proposal. Expect new submissions in the next few weeks.

Footnotes    (↵ returns to text)
  1. Shareowner David Monier submitted a proxy access proposal based on the USPX language to the Princeton National Bancorp, Inc (PNBC). The bank did not challenge the proposal, so it will appear in their proxy materials. Jim McRitchie submitted a proposal based in part on the USPX language to Dell, which has requested an SEC no -action letter. Based on their other responses, we expect Commission staff will grant that request.

It’s Working!!!

January 19, 2012 in General

Eleven weeks ago, we launched the new USPX social networking website. The goal was to create an on-line community for our members to self-organize around issues. Guess what? It is working!!! Already, members Jim McRitchie, Steven Towns and myself have transfered exiting blogs to the USPX website. Members Krassimir Kostadinov, Marko Robinson and Daniel Rudewicz have launched new blogs.

We are at that time of year when most shareowner proposals for the spring have been submitted. Companies are responding with no-action requests to the SEC, and shareowner-proponents are submitting rebuttals. Just this week, I noticed how several members were simultaneously blogging about the process and what they were experiencing with their own proposals. What is more, they were reading each others’ blogs and responding. Nowhere else on the web will you find an active discussion between individual shareowners about their Rule 14a-8 proposals. We’re creating something new!

Just this morning, member John Chevedden copied me on an e-mail to member Steven Towns. Steven had just blogged about his success overcoming a no-action request against his proposal for GE. John had just overcome a no-action request made by GE against one of his proposals. Both no-action requests had been filed by a single law firm, Gibson Dunn, on GE’s behalf. John’s e-mail communicated that sense of comeraderie that comes from overcoming shared adversity. He proposed to Steven that they coordinate their efforts to find someone to attend the GE annual meeting to move both proposals for them.

When I read John’s e-mail, I knew the website was working!

Not all features of the website have been as successful as member blogs. For example, the website’s groups functionality is languishing. I think it will be more effective once we implement automated e-mails to notify group members of group activity.

Upgrades to the website are planned. Because we are an all-volunteer movement operating on a shoestring budget, those upgrades will take time. That doesn’t matter. Communities aren’t about the latest technology. They are about the enthusiasm and commitment of members. We have plenty of both!

Thank you bloggers. If any of you have questions about the blogging technology or would like help customizing the appearance of your blog, let me know. I will be glad to help. For everyone else, enjoy the blogs …. and think about launching you own. Join the conversation!

Reflections on 2011

December 26, 2011 in General

The United States Proxy Exchange (USPX) is a experiment premised on the notion that a grass roots movement—by individual shareowners, for individual shareowners and funded entirely by dues of individual shaeowners—can improve corporate governance and address financial abuse. It is too early to say for sure, but based on what we achieved in 2011, the experiment appears to be working. Accomplishments included:

  • We developed simple say-on-pay voting guidelines to help shaeowners make sense of executive compensation and cast productive say-on-pay votes.
  • We drafted a model proxy access proposal that shareowners have been submitting to corporations for shareowner votes in 2012.
  • We kept a focus on the threat of virtual-only shareowner meetings, attracting media attention, including a recent Wall Street Journal article.

All the while, our members expanded their own personal efforts: attending annual meetings, submitting shareowner proposals, blogging and otherwise advocating for shareowner rights. These individual efforts, more than any other, are the measure of our success. In 2011, supporting them was a primary focus.

In June, we held a meeting of long-time supporters, who made a commitment to decentralizing our movement. The idea was that, no matter how capable our leadership may be, we can accomplish more by providing members the tools to self-organize around issues. Central to this strategy was our new social-networking website, which went live in November. Already, five members are actively blogging on the site, with social networking tools promoting their posts and ensuring a ready audience.

Our membership continues to grow. More importantly, the sophistication and commitment of our members is exemplary. With the social networking tools of the new website at members’ disposal, we are poised to make a difference.

Still, we face enormous challenges. Wall Street and corporate interests have seemilgly limitless funds to spend on lawyers, lobbyists and other enablers. They set the agenda and we respond to it. All three branches of our government—legislative, executive and judicial—are largely beholden to them. Most shares in this country—and the voting rights that go with them—are held by institutional investors, the majority of whom are profoundly conflicted.

With executive compensation at astronomical levels, those institutional shareowners approved compensation packages at 98% of corporations in 2011 say-on-pay votes.[1] Prospects for proxy access appear similarly dismal for 2012. The 2010 Supreme Court decision in Citizens United v FEC ensures that the upcoming presidential and congressional elections will be awash in corporate spending.

The 2011 Occupy Wall Street movement has fizzled for now, but it has lessons. For a time, their message that the system is broken resonated with Americans. They allowed themselves to be painted as “left wing” (mostly, they were) and failed to articulate an agenda. Certainly, one can take decentralization too far. Occupiers were disturbingly unsophisticated, earnestly debating meaningless proposals to abolish corporate personhood or restore the gold standard.

The USPX—small, sophisticated, adamently non-partisan, and with a clear agenda—can succeed in ways Occupy Wall Street could not. We plan for the long term and understand that education is a precursor to reform. Shoulder-to-shoulder, we face an uncertain future. We don’t promise success. We do promise a good fight.

Footnotes    (↵ returns to text)
  1. James Barrall and Alice Chung, Say on Pay and Related Advisory Vote Proposals, Latham Watkins, September 12, 2011

Reform Proposals Delayed But Not Blocked by Apache and KBR.

December 1, 2011 in General

After two years or legal wrangling, the charade is up. A reform proposal Apache Corp. (APA) has tried to keep from a shareowner vote was resubmitted on Wednesday. It is a fairly benign proposal that, if passed, will ask the board to:

… take the steps necessary so that each shareholder voting requirement in our charter and bylaws that calls for a greater than simple majority vote be changed to require a majority of the votes cast for and against the proposal, or a simple majority in compliance with applicable laws.

This same proposal has been submitted to various corporations by a number of shareowners. It has won from 74% to 88% support at Weyerhaeuser, Alcoa, Waste Management, Goldman Sachs, FirstEnergy, McGraw-Hill and Macy’s. Supermajority voting requirements have been found to be one of six entrenching mechanisms that are negatively related to company performance.[1] The proposal is “precatory”—if passed, it merely asks the board to consider the reform. It does not compel them to implement it.

Apache appears to object not so much to the proposal itself as to the fact that a shareowner had the teremerity to submit it in the first place. That shareowner is John Chevedden, a champion of shareowners across the country who has submitted numerous reform-minded proposals to corporations, winning majority votes for many of them.

Apache’s CEO, Stephen Farris, argued in a 2007 comment letter to the SEC that precatory proposals should be banned. In 2009, when Chevedden first submitted this precatory proposal to Apache, Farris hired an expensive Houston lawyer, Geoffrey L. Harrison of law firm Susman Godfrey, to sue Chevedden in federal court. The law firm cobbled together a case based on an absurd reinterpretation of an SEC regulation related to how proposal proponents demonstrate that they own shares in a targeted corporation. The issues were highly technical, and Chevedden was defending himself. The USPX stepped in with a amicus curiae brief that sorted out the technicalities, laying bare how rediculous Apache’s claims were. The presiding judge, Lee Rosenthal, rejected those claims out of hand, but she found a contrived excuse to rule in Apache’s favor, so Apache could exclude Chevedden’s proposal from their proxy materials on that one occasion. (See Apache v. Chevedden, April 9, 2010)

Apache’s reinterpretation of the SEC regulation was rejected, but lawyers and other corporate enablers ignored that detail, treating the decision in Apache’s favor as an acceptance of that reinterpretation. That was the spin given in legal blogs and newsletters. How many people were going to wade through the technicalities of the lawsuit to discover that the blogs and newsletters were implying a falsehood? Based on the decision, Apache appeared intent on ignoring future proposals from Chevedden. That position was indefensible, but who was going to compel them to do otherwise?

It would be eighteen months before the SEC clarified its regulation. In the mean time, the same Houston lawyer, Harrison, brought another lawsuit against the same shareowner, Chevedden, before the same Houston judge, Rosenthal. This time, the client wasn’t Houston based Apache Corp. It was Houston based KBR Corp. (KBR). The issue was the same contrived reinterpretation of an SEC regulation, this time challenging a proposal Chevedden had submitted to KBR. (See KBR Bellies Up To The Bar, January 11, 2011)

Suspecting that Rosenthal was the sort of judge who made up her mind first and then bent the law to suit her decision, Chevedden approached the second lawsuit diferently. He challenged the judge’s authority, arguing that KBR had no grounds to sue Chevedden over SEC regulations. They should have sued the SEC! Chevedden found a lawyer who, while insisting on anonymity, informally helped Chevedden prepare this response. It was good law. The strategy was to ignore the Rosenthal court but to appeal whatever decision she made. District judges don’t like having their decisions appealed, especially if they will be overturned.

On April 4, 2011, Rosenthal made a preliminary ruling in KBR’s favor. Taking a swipe at Chevedden, she also required him to cover KBR’s legal costs. She had declined to do that in Apache v. Chevedden. Based on her preliminary ruling, KBR excluded Chevedden’s proposal from their proxy materials. But until Rosethal produced a final ruling, the case would remain open. Chevedden could not appeal and, of course, KBR could not collect their court costs. Months passed, and Rosenthal did not act. It started to appear that, having enabled KBR to exclude Chevedden’s proposal, she would avoid an appeal by simply never finishing the case. It has been eight months. Chevedden has petitioned the court for a final ruling. Rosenthal is silent.

On October 18, 2011, the SEC released Staff Legal Bulletin 14F to clarify the regulation at issue in the Apache and KBR lawsuits. This rejected much of Apache’s convoluted reinterpretation of the regulation, but not all of it. Throwing a bone to corporate interests, the SEC made it more dificult for shareowners to prove their ownership of shares for the purpose of submitting shareowner proposals. In many cases, proponents will have to obtain evidentiary letters from two different financial institutions. (See SEC Plays King Solomon: Divides Proposal-Baby In Half, October 19, 2011).

The good news is that Staff Legal Bulletin 14F supersedes Judge Rosenthal’s decisions. Under its provisions, Chevedden has resubmitted his Apache proposal. For good measure, he has also resubmitted his KBR proposal. What are Apache and KBR going to do now? The next move is theirs.

Footnotes    (↵ returns to text)
  1. Source: “What Matters in Corporate Governance?” by Lucien Bebchuk, Alma Cohen and Allen Ferrell, Harvard Law School, Discussion Paper No. 491 (September 2004, revised March 2005)