Proxy access, permitting shareholders to nominate directors and have that nomination included in the public company proxy statement itself, remains a volatile issue. You may recall that the SEC’s original regulation to provide shareholder access had two prongs: the first was a set formula by which corporations were required to afford proxy access for director election to shareholders holding 3% or more of the shares of a company, and a second procedure by which companies could themselves “privately order” (custom craft) a proxy access rule just for their own company. The Courts struck down the first part of the SEC regulation, leaving the field open only for private ordering.
Pursuant to private ordering, activist shareholders sometimes have proposed by-law amendments to permit shareholder nominations for directorships. However, a provision of the SEC regulation permits a company to exclude such shareholder proposals if the company itself has proposed a similar rule. As might be expected, company-proposed rules are less generous in affording shareholder access to the proxy mechanism.
In the recently rendered Whole Foods “no-action” letter, the SEC endorsed the company’s rejection of a shareholder proxy access proposal because the company itself had its own pending proposal, even though the company proposal was far more restrictive in allowing shareholder access (it required 9% of the shares held for at least three years, to put forward a proposal, and did not permit aggregation of shareholdings by different shareholders; the SEC required only a cut-back to a 5% threshold).
Although it was suggested that many other companies are flocking to this approach in order to deny the proxy mechanism to shareholders in most instances, discussion continues as to whether suggesting restrictive corporate initiatives, leading to rejection of more liberal shareholder initiatives, should be sustained where (allegedly) companies are pushing the envelope and consequently, de facto, are denying shareholder access to the proxy mechanism.