Hermes Equity Ownership Services (EOS), the engagement specialist ultimately owned by the BT Pension Scheme, has withdrawn a board oversight proposal at Wal-Mart amid a technicality over its ownership of shares in the US retail giant.
Hermes’ proposal would have given shareholders the right to nominate candidates to Wal-Mart’s board (known as “proxy access”).
Dismayed by what it said was Wal-Mart’s refusal to address its concerns about corruption at its Mexican unit, Hermes informed the company by e-mail that it had filed a shareholder proposal for proxy access.
“We believe we should raise our concerns to all shareholders and suggest that they have greater powers concerning the nomination and election of (board) directors,” it wrote in an e-mail dated December 18.
To fulfil the requirement for shareholder proposals, Hermes had its custodian Citigroup confirm that it owned more than $2,000 (€1,449) worth of Wal-Mart stock for more than one year prior to the date of the proposal.
Indeed, through a separate custodial relationship with UK insurer Legal & General (L&G), Hermes owns more than 130,000 Wal-Mart shares with a market value of just under $10m. Hermes’ ties to L&G were made clear in a separate letter sent by the insurer to Wal-Mart on December 16.
However, as the Citigroup statement did not identify Hermes as the owner of the shares but instead L&G,Wal-Mart asked the Securities and Exchange Commission (SEC) for permission to exclude Hermes’ proposal from its AGM agenda. It argued that it had no proof of Hermes’ share ownership but only that of L&G.
Responding to Wal-Mart’s ‘no-action’ request to the SEC, Hermes’ lawyer Cornish Hitchcock denied there was a lack of proof of ownership.
“Hermes has and votes the shares; it uses Legal & General for custodial responsibilities, which in turn subcontracted responsibility to Citigroup,” wrote Hitchcock on February 19. Thus Wal-Mart could easily “connect the dots” based on the documentation sent to it by Hermes, Legal & General and Citigroup.
Citing a previous case involving US tech firm Apple, Hermes also noted that the SEC allowed a “real party in interest” (in this case Hermes) to use an agent to submit a proposal, “provided that the real party in interest can establish ownership.”
Yet one month later, Hermes’ lawyers told the SEC that its client had withdrawn the Wal-Mart proposal. A Hermes EOS spokesperson said: “We are currently engaged with Wal-mart in a positive dialogue on a number of issues, including board oversight.
“It is our belief that the best way to develop this engagement productively is through the withdrawal of our shareholder proposal.”
Wal-Mart’s annual general meeting (AGM) will be held in early June.