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By Yin Wilczek
Nov. 20 — The number of shareholder proposals regarding proxy access and cybersecurity likely will see big jumps in the 2015proxy season, an attorney said Nov. 18.
“Looking ahead to 2015, we're expecting a fairly significant increase in the number of proxy access proposals submitted,” said David Rivard, an associate at McGuireWoods LLP's Richmond, Va., office.
Proxy access proposals seek to allow certain shareholders to include their director nominees on the company's ballot. Rivard, speaking at a compliance webcast sponsored by his firm, cited a recent initiative announced by New York City Comptroller Scott Stringer as one reason for the anticipated increase.
Stringer, on behalf of the $160 billion New York City Pension Funds, Nov. 6 said he submitted proxy access proposals to 75 companies requesting bylaws to give shareholders who meet the threshold of owning 3 percent of the company for three or more years the right to list their director candidates on the company's ballot.
Rivard said it is likely that the funds' proposals will garner shareholder support because of their ownership threshold. The attorney noted that of the 13 proxy access proposals submitted in 2014, nine utilizing the 3 percent/three-year threshold averaged 54 percent of the votes cast (ranging from 44 percent to 69 percent). Of that nine, five received majority support, he said.
Rivard also described as an “interesting development” the approach taken by Whole Foods Market Inc. in response to a proxyaccess resolution submitted by James McRitchie.
The company—similar to what was done by a number of others in response to special meeting proposals—decided to offer up its own proxy access proposal with more stringent ownership thresholds, Rivard noted. Whole Foods then applied to the Securities and Exchange Commission staff for no-action relief, arguing that it could exclude McRitchie's proposal because it conflicted with the proposal the company intended to submit in its 2015 proxy materials.
Rivard said the SEC staff has yet to respond to Whole Foods' no-action request. However, should the staff allow the relief, “it will be interesting to see how many other companies take a similar approach,” he said.
Meanwhile, Rivard said a “relatively low number” of cybersecurity proposals were submitted for the 2014 season. However, given the amount of attention the topic has received thus far, “it seems likely that a much higher number of these proposals will be submitted to a much broader group of companies in the coming year,” he said.
Rivard added that in the 2014 season, companies received cybersecurity proposals asking for reports on their efforts to protect consumer information and to manage data security risks. In the next season, “we also expect proposals” requesting reports on companies' responses to government requests for customer information, he said.
In other predictions, Rivard suggested that proposals on board diversity will receive more attention in 2015. This year, board diversity resolutions averaged 29 percent of shareholder vote, which “was the highest average level of support received by a social policy proposal” in 2014, he said.
Rivard also noted that commenters expect that board diversity proposals in 2015 will shift from calling for a commitment to gender diversity to requesting a progress report on gender diversity efforts.
As happened this season, 2015 will see a large number of proposals on political contributions and lobbying activities, Rivard said.
The attorney noted that political contribution proposals were the top resolution submitted in 2014: of the 900 resolutions filed in theseason, 126 proposals concerned political activities. Although the resolutions averaged only 28 percent support, five did receive over 40 percent of the votes cast, and three received majority support, he said.
Rivard added that many of the 2015 proposals likely will focus on companies' affiliation with the American Legislative Exchange Council. Companies also are seeing a new variation seeking the adoption of anti-discrimination policies protecting employees' right toengage in various political and civic activities, he said.
Costco Wholesale Corp. and Walt Disney Co.—two companies that received employee-discrimination proposals from the National Center for Public Policy Research—have filed for no-action relief from the SEC staff. The staff Nov. 14 told Costco it could exclude the resolution because it pertained to the company's ordinary business operations.
In other trends, Rivard said that several groups are expected to continue their majority-vote letter writing and proposal campaigns, with an increased focus on small to mid-cap companies. He noted that in the past, many of these proposals were resolved prior to a vote, “so companies that receive one of these should certainly consider initiating a dialogue with the proponents.”
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Stringer's release and details of the initiative are available at http://comptroller.nyc.gov/newsroom/comptroller-stringer-nyc-pension-funds-launch-national-campaign-to-give-shareowners-a-true-voice-in-how-corporate-boards-are-elected/.
Whole Foods' no-action request is available at http://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2014/jamesmcritchie102314-14a8-incoming.pdf.
Walt Disney Co.'s no-action request is available at http://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2014/nationalcenter102114-14a8-incoming.pdf.
The SEC staff response to Costco Wholesale Corp.'s no-action request is available at http://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2014/nationalcenter111414-14a8.pdf.
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