Citigroup, Shareholder Reach Compromise On Proxy Access; More Pacts to Come

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By Yin Wilczek

Feb. 26 — Citigroup Inc. said it will support a shareholder proposal in which stockholders holding 3 percent of company stock for three years may list their director candidates on the company's ballot.

The access proposal—submitted by activist James McRitchie—also would allow shareholders to nominate up to 20 percent of the board.

Citigroup spokesman Mark Costiglio said the proposal will be put to a vote at the company's annual shareholder meeting, slated for April 28.

“Citi has always worked to stay at the forefront of good governance and we value robust engagement with our shareholders,” the company said in a statement.

Citigroup's move towards proxy access was forged in a compromise between the company and McRitchie following the suspension of no-action relief by the Securities and Exchange Commission under the “directly conflicts” provision.

It also may be the first of other similar announcements. A source from the New York City Comptroller's office told Bloomberg BNA that the office anticipates agreements “in the coming weeks.”

GE's Announcement 

Earlier in February, General Electric Co. announced that it amended its bylaws to allow proxy access with the 3 percent/three-year eligibility thresholds.

Commentators observed that GE's move, together with a new policy stance by Institutional Shareholder Services Inc., will increase the momentum on proxy access and shape the scope of its adoption by companies.

Business representatives have warned that this could result in a one-size-fits-all approach to the matter.

Citigroup had applied to the SEC for no-action relief on McRitchie's proposal in December, saying it intended to exclude the resolution under 1934 Securities Exchange Act Rule 14a-8(i)(9) because it planned to seek shareholder approval of its own resolution.

Citigroup's resolution would have imposed a 5 percent/five-year eligibility threshold, and shareholders would only be able to nominate one director candidate.

However, the SEC suspended no-action relief under Rule 14a-8(i)(9) in mid-January following investor protests that numerous companies were trying to use the provision to sidestep shareholder access proposals with eligibility requirements they considered too lax. The provision allows a company to omit from its proxy materials shareholder proposals that directly conflict with management resolutions.

`No View.'

The SEC Feb. 2 sent Citigroup a letter saying that in line with its announcement, it expressed “no view” as to whether the company could exclude McRitchie's proposal.

Following that, McRitchie said he and Citigroup hammered out an agreement in which he revised the language of his proposal to limit the percentage of shareholder director nominees to 20 percent of the board. In addition, McRitchie agreed to limit the number of proxy access shareholder participants to 20.

McRitchie told BBNA that he was “delighted” with Citigroup's move to “get ahead of the pack” with respect to proxy access.

“I expect others will soon follow and that within a few years, the 3 percent held for three years to nominate 25 percent of the board will be a ubiquitous standard,” McRitchie said. “I also anticipate most will place no limit on the number of parties participating in nominating groups.”

New York City Comptroller Scott Stringer also commended Citigroup and GE for recognizing that “meaningful proxy access” rapidly is becoming “inevitable.”

“By getting out in front, these boards instill investor confidence,” Stringer said. “Those companies that oppose real access are merely reinforcing the case for why shareowners need a genuine voice in director elections.”

In the fall, Stringer submitted proxy access proposals to 75 companies, including Freeport-McMoRan Inc., Abercrombie & Fitch Co., Apache Corp. and Avon Products Inc.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Kristyn Hyland at khyland@bna.com

The SEC's no-action letter is available at http://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2015/mcritchieyoung020215-14a8.pdf.

A list of companies that received Stringer's proposal is available at http://comptroller.nyc.gov/wp-content/uploads/2014/11/Board-Room-Accountability-2015-Company-List.pdf.