What appears at first glance to be a proxy access case, that would give shareholders the right to nominate board director candidates, has turned out to be a proxy contest in disguise.
Proxy access has been the focus of leading investors such as New York City Comptroller Scott Stringer, with his “Boardroom Accountability Project” that has had success, most recently at ExxonMobil.
Earlier this month hedge fund GAMCO Asset Management made use of what was being seen as the first ever use of a proxy access bylaw, at National Fuel Gas, the New York-listed integrated energy company. It was a “history making moment in corporate governance” in the words of CorpGov.net’s James McRitchie.
GAMCO is trying to get Lance Bakrow, a former Goldman Sachs partner and energy executive, onto the company’s board.
Then, on the Friday after Thanksgiving, National Fuel Gas, issued an’8-K’ filing saying that it would not accept GAMCO’s proxy access director nomination because it fell foul of the company’s new bylaw.
Under the bylaw, shareholders must make certain representations and warranties. These include: “that an Eligible Stockholder: (i) acquired the Proxy Access Request Required Shares in the ordinary course of business and not with the intent to change or influence control of the Corporation, and does not presently have such intent….”
Of course, it could be argued that to change or influence control of a company is the whole point of proxy access.I haven’t read many bylaw changes very closely but ones that undermine the actual intent of any proxy access nomination would seem to be ones where the shareholders need to file an amendment proposal.
Of course, companies can change their bylaws to incorporate proxy access and can draft that change in any way they want, but if it goes against the intent of a shareholder vote, then it should be apt for challenge. So I did a very little digging and found that ExxonMobil’s bylaw contains the same language and need for such representations.
By the sound of it GAMCO did make these representations but National Fuel Gas is of the opinion that “these representations are not correct”.
My first question was: how do you prove that? Fortunately, the issue of “intent to change or influence control” is defined very closely. It means where a shareholder has the intent of effecting a sale of most of the company’s assets or where there is a contested director election. In fact, acquiring shares for this intent means that an investor must file a ‘13D’ with the SEC recording the purchase, rather than a ‘13G’. GAMCO filed 13Ds.
The thing here, of course, is that this is not any shareholder, it is a hedge fund; and one that has already engaged frequently with the company on the need for it to split up. Indeed, in the shareholder nomination paper it continued to advocate this position.
In other words, this is not proxy access at all, it is a proxy contest dressed up to resemble proxy access.