SEC’s Exxon ‘no action’ ruling prevents ‘can of worms being opened’

First attempt to exclude climate proposals using 2020 rule update fails.

Securities and Exchange Commission, SEC, Building in Washington DC. The SEC regulates stocks and bonds and related financial activities.

The US Securities and Exchange Commission (SEC) has rejected an attempt by oil major Exxon to exclude two climate proposals by evoking, for the first time, a recent rule change around multiple submissions – a decision that those involved say will prevent a “can of worms from being opened”. 

In 2020, the SEC amended Rule 14a-8(c) to state that “each person” could directly or indirectly submit just one proposal at each firm – previously the one-proposal limit applied to “each shareholder”. 

The new wording was designed to ensure that an entity such as an investment adviser could not rely on the securities of more than one shareholder to file multiple proposals at one company. Such an adviser would be regarded as a “person” under the rule.  

Using this revision, Exxon claimed that two shareholder proposals it was hit with this year had been indirectly submitted by As You Sow, on the grounds that one of the filers was the non-profit’s CEO, Andrew Behar, and the other was its unpaid board member and treasurer, Anna Marie Lyles.  

In a letter to the filers and As You Sow’s president Danielle Fugere, who represented both proponents in the proposals, Exxon said it believed the duo are in “control relationships” with the non-profit and that, therefore, their proposals are essentially As You Sow’s.  

Under the rules, As You Sow is allowed to act as a representative on multiple proposals at a company on behalf of proponents. It is permitted to help draft and file proposals and even represent filers in meetings with the companies. 

Exxon’s “no action” request – filed on 13 January – seemingly attempts to bring As You Sow as the common representative on three proposals under the “one person” designation. 

In the back and forth that followed, Exxon implied that Lyles sought to hide her links with As You Sow. The firm’s lawyers stated in a follow-up that there “was no direct reference to AYS’s [As You Sow] involvement in the submission in the text of the second proposal”. 

They also highlighted that Lyles used a “variation” of the name she is known by in her role at As You Sow, Annarie Lyles.  

“As the company ultimately discovered through its own detective work, the second proponent is a board member of AYS and holds the board position of treasurer – a position of immense responsibility over AYS’s finances,” Exxon’s lawyers wrote.  

Responding to Exxon’s claims, Lyles stated that the company “appear to offhandedly assert that which they don’t know, and, based on these false assumptions, surmise that I am an ‘employee’ of As You Sow and under their ‘control’”.

Lyles, a managing director at private venture capital firm Bio-Gist Ventures, told the SEC that Exxon made no attempt to contact her about her relationship with As You Sow.

“They apparently googled my name, saw that I served on the board of a non-profit organisation, decided that I was employed and controlled by the non-profit and was therefore submitting a proposal on its behalf, and sought no-action with the SEC.”   

She describes Exxon’s claims as “baffling”. 

With regard to the proposal filed by As You Sow’s CEO Behar, Exxon argued that the pronouns used in a podcast from June 2022 demonstrated how “interchangeable” his actions are with that of As You Sow’s. 

“[T]he first proponent uses the word ‘we’ when talking about AYS, illustrating that he considered his actions related to shareholder proposal submissions to be on behalf of, or interchangeable with, those of AYS,” the firm said. 

Defending the filers, Sanford Lewis, an attorney at US-based legal adviser Strategic Counsel, said it should not be a surprise that Behar used “we” in relation to As You Sow’s work generally. “That does not mean that every action Behar takes – whether it is brushing his teeth at night or filing shareholder proposals with stock that he personally owns – is attributable to As You Sow.” 

In his rebuttal to Exxon, Lewis urged the SEC to “adopt a bright line rule” when it comes to Rule 14a-8(c), which focuses on simply whether an organisation itself has filed more than one proposal at a company. 

“To do otherwise would involve the staff in time-consuming and complicated analyses of indicia of control relationships, related or not-related job duties, and acceptable or prohibited relationships,” he wrote. 

On 24 March, the SEC denied Exxon’s attempt, opining that in its view “neither proponent submitted more than one of the proposals, directly or indirectly, to the company”. 

As You Sow’s Fugere told Responsible Investor that she believed the financial watchdog took the “rational approach”. 

She said that, while it was not unexpected that a company would test the rule, the tone taken by Exxon had surprised her. “We haven’t had a company make statements that we were somehow hiding our shareholder’s names or that we were being underhanded, devious or clever.” 

Had the SEC ruled in Exxon’s favour it would have “opened up a can of worms”, Fugere added.  

Lewis agreed, telling RI: “The kinds of arguments being advanced by Exxon try to probe the motivations of a filer, assess who is in control and generally question everybody’s relationships with everybody else. If these types of arguments are allowed when it comes to representatives, it would create a witch-hunt dynamic for the ‘no action’ process.”