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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 …

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.

Updated Model Proxy Access Proposal

March 23, 2012 in Standards

Two weeks after SEC lawyers granted six corporations approval to exclude “proxy access” proposals from their proxy materials, USPX members are already submitting an updated version of that same proposal to other corporations. Updated language addresses the flimsy pretexts for the lawyers’ decision, as well as implementing improvements to the proposal language that shareowners have recommended.

The original proposals were based on a USPX model proxy access proposal released on November 10, 2011. Today, the USPX announces an update to that model proposal, which shareowners can submit to corporations. Shareowner Kenneth Steiner received an advance copy of the update, and he has already submitted proposals based on the new language to Medtronics (MDT) and Forest Labs (FRX).

The purpose of the model proposal is to facilitate board nominations, not only by the largest institutional shareowners, but by all shareowners, including individual investors. The updated model proposal has two alternative versions. Version A is a direct evolution of the original model. Version B is based on a customization of the model, developed by shareowners Jim McRitchie and Glyn Holton for submission to Dell Corporation (DELL).

By limiting the number of proxy access nominations to less than a majority of board seats, the second version provides a strong safeguard against proxy access being used to pursue a change in control at a corporation. While Version A also seeks to avoid change in control issues, it does so primarily by prohibiting coordination of nominating groups, not by restricting the total number of shareowner nominees.

A 16 page release document presents the text of both versions followed by instructions for submission, background information and the history of proxy access. A section provides a detailed explanation of Version A. A shorter section follows that to explain how Version B differs from Version A.

Shareowners are encouraged to submit a version of the model proposal to corporations they think would benefit from it. We also encourage shareowners to experiment with modifications and/or to submit entirely different proxy access proposals of their own design and to let us know of those modifications or different proposals.

We welcome feedback, which can be posted directly on this page (log-in as a USPX member to do so) or send an e-mail at

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!

New Website Transforms USPX Members’ Experience.

November 1, 2011 in General

Members of the USPX are celebrating the launch of our brand new website. It offers a host of social networking tools that will allow members to network, create their own blogs, form groups, engage in discussion forums and more. It looks similar to the old website, but under the hood, everything has changed. The goal is to enable members to self-organize around issues. Stated another way, the website will decentralize decision making within our organization. It is going to put members in charge.

No one is celebrating more than founding member and head of information technology Kevin Weber. He has devoted many nights and weekends to this project, not just implementing it, but planning and advocating for it. His goal has been more than technology. He wants to grow the movement.

Plans to hold a June meeting were made on a ski trip earlier in the year. Maggie and Kevin Weber offered to host.

In June, he and his wife Maggie hosted a planning meeting at their home in the outer suburbs of Boston. Long-term members traveled from across the country to attend. They were concerned that, despite our many successes, we were not developing new leaders—and this was limiting our growth.

Much of our work requires expertise in corporate and financial regulation. We have had success educating new members in these, but a bigger challenge has been transitioning those new members—as they learned from working on projects—into leaders who could launch and lead their own projects. Contributing to this was the fact that decision making tended to take place through phone calls or e-mails, which limited participation. We needed to find ways to open up communication.

At the June meeting, Kevin demonstrated new social networking software he had been testing and proposed that he incorporate it into a new website. The software was open-source with an active developer community. It offered functionality that would grow with future releases of the software. Members at the meeting loved the demonstration and encouraged Kevin to incorporate the software into the new website.

The new website offers a host of social networking tools that will allow members to network, create their own blogs, form groups, engage in discussion forums and more.

It took twelve weeks and hours of hard work. By September 6, Kevin had a functioning site ready for testing. We invited a handful of members to try the website for a few weeks and provide feedback. They identified bugs and proposed enhancements. They also started using the site, creating blogs and networking. Jim McRitchie used the site to launch a project drafting a model proxy access proposal that members will submit to corporations in November. Attuned to the times, he described the project as: Proxy Access for the 99%. All website functionality was operational during testing, and once we were satisfied that security was working, we took down the “under construction” sign. Visitors who stumbled on the site started signing up as members.

Today, with the official launch, we are e-mailing all remaining members log-in credentials so they can start using the site. Whether you are an existing member or a first-time visitor, we encourage you to get on the site, start using it, and join the celebration. We have put up a seven-page tutorial explaining the website’s social networking functionality that starts here. It also communicates a spirit for how you want to use the functionality to network and self organize. In a couple weeks we will post another tutorial describing how to use the website to plan, launch and lead projects. We encourage everyone to stop thinking of yourselves as members and start thinking of yourselves as leaders. The website provides the tools. Now is your chance to make it happen.

Over the weekend, America’s northeast coast was hit by a freak October snowstorm. The area was blanketed with heavy wet snow that snapped trees and brought down power lines. Millions of people were left without power. Kevin was among them. On Sunday, he left his darkened home and boarded a flight for California. For his day job, he works as an IT consultant, currently immersed in a client project out there. His hands are pretty full, but he is celebrating.

Broadridge: Should the Federal Trade Commission Intervene?

December 15, 2010 in General

One of Michael Lantz's "Man Controlling Trade" statues, which are displayed outside the Federal Trade Commission in Washington, D.C.

Broadridge Financial Solutions (BR) essentially monopolizes the proxy processing business in North America, providing such services to 90% of public corporations and mutual funds in the region. Monopolies aren’t necessarily bad. Some products and services are most efficiently delivered by a single provider. But good monopolies are regulated monopolies, and Broadridge isn’t regulated. Whenever the SEC updates rules governing the proxy process, they usually have to ask Broadridge how things are actually done. It’s kind of pathetic.

By choosing how to do things, Broadridge makes de facto rules. A perfect example is Voting Instruction Form (VIFs). These look and feel like proxy cards, but they are not. Broadridge mails out VIFs with shareowners’ proxy materials in lieu of proxy cards. The way Broadridge explains it, shareowners fill out VIFs to indicate how they want their proxies voted, which is not the same thing as filling out a proxy. Got that? The practical significance of VIFs is that they allow corporations to circumvent the SEC’s rules governing the content and layout of proxy cards. A proxy card is essentially a ballot, so those rules are important for ensuring fair corporate elections. The rules apply to proxy cards, but VIFs aren’t proxy cards. In May 2009, the USPX joined Jim McRitchie in filing a request for rulemaking with the SEC. This asked the Commission to address abuses related to VIFs. To date, the Commission has not acted on the request.

No legislation ever created VIFs. We are not aware that the SEC promulgated their use. As far as anyone can tell, Broadridge quietly created them. Whenever the SEC found out, they didn’t stop the practice. De facto, Broadridge makes the rules.

VIFs are identified with 12-digit control numbers. Broadridge issues and manages the control numbers. And they are using those control numbers to offer a host of on-line products. Want to submit your VIF online? Go to Broadridge’s website, and enter your control number. Want to attend a virtual annual meeting? Go to a Broadridge website, and enter your control number. Broadridge is poised to monopolize such on-line services for the simple reason they own the control numbers, and would-be competitors don’t. In 2011, Broadridge plans to release phone apps that will allow people to submit VIFs on the go. You will just tap on a Broadridge icon and type in your control number.

Shareowners’ response to Broadridge’s digital services have mostly been negative. has attracted millions of users, and it is convenient. As with all things Broadridge, transparency is an issue. You can’t know if your votes actually make it into the totals. Worse, shareowners noticed that items left unvoted were being automatically filled in as votes according to management recommendations. That little feature was what motivated McRitchie’s request for rulemaking.

The USPX has reported on the various ways Broadridge’s virtual annual meeting service disenfranchises. See in particular reports on Symantec’s virtual meeting in September and Broadridge’s own virtual annual meeting last month.

Perhaps the biggest flop among Broadridge’s forays into the digital realm has been their Investor Network, which allows corporations to pay Broadridge between $20,000 and $50,000 a year to host an on-line forum for their shareowners. In January 2008, the SEC adopted a new Rule 14a-17 and amended Rule 14a-2 to

… facilitate the use of electronic shareholder forums by public companies and their shareholders.

With the Investor Network, Broadridge tried to capitalize on this opportunity. Their CEO, Richard Daly, likes to boast that, on their forums,

… we can know with complete confidence that the person whose post you are reading or with whom you are communicating is an actual investor.

I am not sure why that is important, as shareowner forums would benefit from the participation of journalists, regulators, employees or shareowner activists. But Broadridge controls the control numbers, so they can guarantee it.

Few corporations have adopted the Investor Network, and those who have generally did so to augment a Broadridge-hosted virtual annual meeting. Shareowners have mostly given the service a pass. With the initiative floundering, Broadridge is shifting to a “Plan B.” Dominic Jones of IR Web Report broke the news that Daly is personally lobbying the SEC commissioners to mandate that all public corporations offer shareowner forums. Daly anticipated this course two years ago in an August 2008 conference call:

The activity here is really going to be driven by, is the SEC going to deem that this is something that shareholders need to have the right to. And if that was the case, then I can’t imagine it getting done any other way than through the plumbing we have in place, and again that’s a chasm between us and any one else, no one else is close to connecting every investor to every public company.

As things already stand, anyone can implement a shareowners forum. There is no need to force corporations to do so. There is no reason to mandate that such forums offer features that only Broadridge is poised to provide. That would only postpone the day when shareowner forums actually take off.

If Daly persuades the SEC to mandate his monopolistic vision, it will be time for shareowners to petition the Federal Trade Commission for some antitrust enforcement. It may already be time.