NFG Rebuffs Gamco Board Nominee in First-Ever Use of Proxy Access

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By Michael Greene

Nov. 25 — National Fuel Gas Co. (NFG) has rejected Gamco Asset Management Inc.'s board nominee, saying the shareholder isn’t eligible to use the company’s proxy access director-nomination process.

Gamco, which owns a 7.8 percent stake in NFG, earlier this month became the first investor ever to use proxy access when it nominated Lance Bakrow to the nine-member board of the Williamsville, N.Y.-based natural gas company. Bakrow is a former Goldman Sachs partner who co-founded Greenwich Energy Solutions.

NFG, in a Nov. 23 letter filed with the Securities and Exchange Commission, said its board concluded that Gamco’s notice didn’t comply with the company’s bylaws because the investor acquired its shares with the intent to change or influence the company and “continues to have the intent.”

Proxy access is a mechanism that allows shareholders to nominate their board candidates on corporate ballots. NFG in March adopted a bylaw that allows shareholders who have held at least 3 percent of its shares for three years or longer to nominate up to 20 percent of the board.

NFG Director of Corporate Communications Karen Merkel told Bloomberg BNA in an e-mail that the company doesn’t plan on including Bakrow in the proxy materials for its 2017 annual meeting. The company’s proxy access procedures “are limited for use by an investor who wants to nominate a board candidate but has not advocated and is not advocating to change or influence control of the Company,” she said. “GAMCO’s historical and current intent to change or influence control of the Company disqualifies them from submitting a candidate under the By-Laws.”

In 2015, NFG shareholders rejected a Gamco-backed proposal for the company to spin off its utility business.

A Gamco representative wasn’t immediately available for comment.

Strategic Use of Bylaws

The NFG developments show that companies, not surprisingly, will adhere to the terms of their proxy access bylaws, Yafit Cohn, an associate based in Simpson Thacher & Bartlett LLP’s New York office, told Bloomberg BNA.

Cohn, who comments frequently on corporate governance matters, said it is common in corporate proxy access provisions to preclude shareholders that have shown an intention to influence control of the company. Activist investors that have disclosed plans or proposals involving “an extraordinary corporate transaction, a sale or transfer of a material amount of assets of the issuer or one of its subsidiaries, or otherwise” likely will be barred by the provisions from using proxy access as a tool to achieve their goals, she said.

Corporate governance attorneys previously told Bloomberg BNA that the Gamco proxy access nomination was being closely watched.

While about 300 companies have adopted proxy access bylaws since 2015, shareholder and corporate representatives have said the mechanism is unlikely to be frequently used. It also remains unclear whether the mechanism will prove effective in shareholders’ bid to gain board seats.

To contact the reporter on this story: Michael Greene in Washington at mGreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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