The Council of Institutional Investors (CII), the US body which represents pension funds, endowments and foundations with combined assets of more than $3trn (€2.5trn), has written to the Securities and Exchange Commission (SEC) asking the agency to review how it responds to ‘proxy access’ proposals from both shareholders and companies.
At the heart of the issue is the right of shareholders to nominate board candidates (known in the jargon as ‘proxy access’).
The CII has written to Keith Higgins, the Director of the SEC’s Division of Corporate Finance (and copied to all SEC Commissioners including Chair Mary Jo White), highlighting what it terms an “interpretive trouble spot” that has enabled companies to submit their own proposals on proxy access, which has had the effect of derailing shareholders’ attempts to influence company boards.
It was a method used by retailer Whole Foods Market, on which the SEC ruled in early December last year. The CII says it means there are “unreasonably high barriers” for shareholders to get over, in terms of the duration and size of their shareholdings, to make director nominations.
The approach has since been adopted by other companies. Just last week, Responsible Investor reported that two companies, Marathon and Cabot Oil & Gas had used the approach to head off New York Comptroller Scott Stringer’s Boardroom Accountability Project.
Now, it has emerged that 16 companies in total are using the approach, including household names like Citigroup, Domino’s Pizza and eBay (full list below), according to the CorporateCounsel blog. One, Chipotle, has set a threshold of 8% ownership for five years. All set an ownership threshold of at least 5%, unrealistic for most institutional investors in listed companies.
The SEC is “forcing shareholders into a dilemma” – meaning an “explosive start” to the 2015 annual voting season, the CII says.It notes that many observers have characterised Whole Foods’ behavior as “gamesmanship” and that the whole issue makes shareholders’ decision-making on proxy access “unnecessarily fraught”.
“A huge loss for shareholders, companies and the markets”
“CII views this as a huge loss for shareholders, companies and the markets,” the letter – signed by Executive Director Ann Yerger – states. While saying it is confident the SEC didn’t intend this state of affairs, the Washington-based investor body wants the agency to “revisit its approach to allow a more nuanced kind of inquiry”.
Yerger has also written to Whole Foods itself, telling Chairman John Elstrott the CII was “deeply disappointed” by its move.
Whole Foods’s original proposal stipulated a shareholder needed to hold a 9% stake for five years before being able to nominate a director, seen as not viable by the CII. The company later changed the threshold (to 5% for five years), but the CII said this was still an “unreasonably high bar”. Yerger asked the company to be more “respectful” to its shareholders.
Companies seeking SEC ‘no-action’ relief on proxy access (source: TheCorporateCounsel.net)
3. Arch Coal
4. Cabot Oil & Gas
7. Domino’s Pizza
11. Marathon Oil
12. Noble Energy
13. Peabody Energy
14. SBA Communications
15. Whole Foods
16. YUM! Brands