By Andrew Ackerman And Joann S. Lublin
WASHINGTON--U.S. securities regulators declared a temporary
cease-fire in a continuing battle over whether companies can
exclude shareholder ballots that conflict with management's own
proposals.
The Securities and Exchange Commission on Friday disclosed it
was reversing a controversial December decision in which agency
staff agreed Whole Foods Market Inc. could exclude a nonbinding
shareholder proposal that would make it easier for investors to
nominate directors at the high-end grocer. Whole Foods said it
should be allowed to exclude the proposal because it was offering a
similar corporate-governance change.
The SEC said going forward it would take "no views" on whether
companies could leave such proposals out of their proxy materials.
Instead, it plans to review a rule that has allowed firms to
exclude measures if management plans to offer similar changes to
its governing documents. The reversal will affect all companies,
not just Whole Foods.
The SEC's December decision allowing Whole Foods to ignore the
shareholder proposal prompted more than 20 companies to seek
permission to exclude similar corporate governance proposals.
In a statement, SEC Chairman Mary Jo White said she directed
staff to review the issue "due to questions that have arisen about
the proper scope and application of" the rule.
Under current SEC rules, a qualifying shareholder can seek to
require a company to publish certain proposals in the company's
proxy statements. Companies can ignore shareholder proposals if
they fit a set of roughly a dozen exclusions, including if they
"conflict" with a proposal the firm is including in its proxy at
the same time.
Companies also can ask SEC staff for a green light to exclude
specific proposals, or go to court to block proposals they don't
like. Some attorneys said the SEC's move could lead more companies
to litigate rather than risk a possible SEC enforcement case for
excluding proposals.
In December, the SEC said Whole Foods could exclude a proposal
filed by James McRitchie, an activist investor who runs corporate
governance website CorpGov.net, that would have allowed
shareholders owning at least 3% of the company's stock for three
years to nominate their own directors.
Initially the company countered with a proposal of its own that
would have allowed an investor who owned at least 9% of the company
for five years to nominate directors, even though no single
investor owns that much of the company's stock. It subsequently
lowered that threshold to 5%, though investor advocates warned that
bar was still too high.
A spokeswoman for Whole Foods said the company is "reviewing"
the SEC's move but offered no further comment. Mr. McRitchie said
the SEC's move was "a victory for shareholders."
Friday's decision comes amid a growing frustration by some
public companies that the SEC has abdicated its traditional role as
referee separating frivolous shareholder proposals from legitimate
ones. Many companies are gearing up for annual meetings this
spring, a period when most companies hold meetings and vote on
proxy resolutions.
Resolutions like Mr. McRitchie's come more than three years
after a federal court shot down an effort by the SEC to impose
so-called proxy access on U.S. firms, leaving shareholders to push
the issue company by company. Mr. McRitchie's "proxy access"
proposal mirrors the court-scuttled SEC rule, which would have
allowed an investor or group of investors owning at least 3% of a
company's stock for at least three years to win the right to
nominate.
Similar proposals have gained wider investor support recently.
Seventeen such measures reached a vote during annual meetings last
year, winning an average of 33.9% of shares cast, said
Institutional Shareholder Services, the biggest U.S. proxy-advisory
firm. And six received a majority of votes during 2014 annual
meetings.
By contrast, the 13 proxy access proposals voted on during 2013
garnered an average of 32.5% support--with three landing majority
endorsement, ISS added. So far, shareholders have submitted 87 such
resolutions for 2015 annual meetings, according to ISS.
Among companies with investor resolutions on proxy access headed
to a vote this year are Monsanto Co. and CSP Inc., ISS data
show.
New York City Comptroller Scott Stringer, who this fall began an
initiative to ease the ability of shareholders to nominate
directors at 75 companies, welcomed the SEC's review. He said it
was necessary because companies have begun to "game" the proxy
process by offering their own resolutions that aren't as strong as
what shareholders are agitating for.
The success of investors like Mr. McRitchie will depend on their
ability to win over larger institutional investors, many of which
have policies that support proxy access. Vanguard Group Inc., which
oversees about $3 trillion in assets, is in the process of updating
its voting guidelines to support giving shareholders that have
owned 5% of a company's shares for three years the right to
nominate board members, according to a person familiar with the
matter.
Liz Hoffman contributed to this article.
Write to Andrew Ackerman at andrew.ackerman@wsj.com
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