The New York pension funds under City Comptroller Scott Stringer have been successful in an innovative legal bid to get a shareholder proposal on emissions targets onto the agenda of the annual meeting of aerospace components maker TransDigm.
It’s a development that could signal a new strategy that, in effect, bypasses parts of the Securities and Exchange Commission’s process around shareholder proposals.
The Funds’ proposal was submitted by Stringer to the Cleveland, Ohio-based company, on September 19 last year calling for the company to set time-bound, quantitative, company-wide goals for managing to greenhouse gas emissions (GHG) reduction targets, that take into account the objectives of the Paris Climate Agreement.
As is routine, Transdigm wrote to the SEC on November 9 to say that it intended to omit the proposal from its proxy materials. TransDigm also asked the SEC to issue a ‘no-action’ letter, that would state that the SEC’s Division of Corporation Finance would not recommend that the SEC take action against the company if the company does exclude the proposal. This is a typical course of events, where the SEC in effect arbitrates between companies and shareholders about whether a proposal can get onto the AGM ballot, the proxy.
In this case, TransDigm wanted the exclusion as it said the shareholder proposal related to the company’s ordinary business. Again, this is routine.
The Funds didn’t want to wait until the SEC made a decision.And right now, owing to the US government shutdown, it is not making any decisions at all – though that would have been difficult to predict when the New York funds filed a lawsuit on 5 December.
The SEC had not responded to the request at the time the lawsuit was filed at US District Court for the Southern District of New York, though the company is due to file its proxy in January or early February this year.
The funds, which have a combined stake of more than $22bn (€19bn) in the company, argued the omission would cause “irreparable” injury to them.
A stipulation filed on 17 January that settles the suit discloses that TransDigm wrote to the SEC on 28 December saying that it withdrew its no-action letter and would include the resolution, in effect capitulating to the demands in the suit, though each side was responsible for their own costs.
It’s an interesting development: removing the SEC from the whole process and letting a judge decide. But why? Because the SEC’s record on ordinary business exclusions has been problematic owing to recent staff bulletins and the New York Funds did not want to rely on its judgement? Because the Funds believed the courts would view their claim more favourably? Or perhaps it’s because they wanted to test a strategy that, if successful, can be used against companies attempting to exclude proposals if the SEC starts to make it harder for shareholders to file?