The ‘proxy access’ campaign led by New York Comptroller Scott Stringer to combat “zombie” corporate board members is facing an obstacle as rival proposals are being put forward by some of the companies he is targeting – including Marathon Oil and Cabot Oil & Gas.
Proxy access gives shareholders the right to nominate board candidates if they hold a certain percentage of company stock for a set time period. The idea is that it ends the practice of US companies automatically installing their own board candidates – even in instances when they are not supported by a majority of shareholders. Stringer calls such directors “zombies.”
Stringer, who oversees $160bn (€135bn) in assets from five New York City pension funds, took on the zombies last fall. He filed proxy access proposals at the 75 companies, including 33 from the fossil fuel industry under the ‘Boardroom Accountability Project’ banner.
The proposals, which were backed by several big US pension funds like CalPERS, would give one shareholder or a group of them that has owned at least 3% of company stock for three years the right to nominate one-quarter of the board.
Stringer’s ‘3%/three-year’ threshold was deliberately selected to ensure that a small group of institutional investors could gain proxy access.
However, in early December, US food retailer Whole Foods got permission from the Securities and Exchange Commission (SEC) to throw out a proxy access proposal similar to Stringer’s. Whole Foods did this by including its own, albeit much stricter (9% stockholding threshold), proxy access proposal along with one from Jim McRitchie, a shareholder activist from California.
Answering a no-action request from Whole Foods, the SEC agreed with the company that since the inclusion of McRitchie’s proposal along with its own “would present alternative and conflicting decisions for stockholders,” it could omit it from its annual meeting agenda.The legal basis for the SEC’s decision, which could set a worrying precedent for Stringer’s campaign, is Rule 14a-8(i)(9).
Now Marathon Oil and Cabot seem to have taken a page from the Whole Foods playbook, filing their own no-action requests with the SEC. They are seeking permission from the US regulator to exclude the Stringer proposals – on the grounds that they clash with their own.
The proposals from Marathon and Cabot are less stringent than Whole Foods’ in that they have set a stockholding threshold of 5% for the right to appoint board members. In Marathon’s case, shareholders need to have owned its stock for five consecutive years and in Cabot’s case for three. The SEC has yet to rule on their no-action requests.
There was no comment from Stringer’s office, but according to the New York Times, Marathon and Cabot are among 10 US companies that have asked the SEC for permission to exclude Stringer’s proxy access proposals. In reaction to the companies’ actions, the paper quoted Stringer as saying: “Boards that propose higher thresholds (i.e. above 3%) are fabricating the illusion of accountability and access in order to manipulate the no-action process and disenfranchise shareowners.”
Ann Yerger, Executive Director of the Council of Institutional Investors (CII), which represents investors like the NYC Comptroller, also said that while the SEC’s decision in the Whole Foods case was, legally speaking, correct, “we believe [the SEC’s] staff’s interpretation of the exclusion should apply only to those very narrow circumstances when two competing proposals raise clear implementation problems.”
See Paul Hodgson’s take on proxy access here (written before the latest developments).