The SEC's Division of Corporation Finance has ruled against a "no action" petition by foods group Hain Celestial to bar from its proxy statement a shareholder proposal calling for the company to reincorporate to North Dakota.
So far, investors have filed North Dakota reincorporation proposals at Hain (which likely will hold a second 2008 annual meeting later this year), Oshkosh, and Whole Foods Markets. Hain is a Delaware-incorporated firm, while Oshkosh and Whole Foods are incorporated in Wisconsin and Texas, respectively.
The resolution, which proponents plan to file at more companies later this year, seeks to capitalize on July 2007 legislation requiring companies subject to the North Dakota Publicly Traded Corporations Act to provide for an advisory vote on pay, majority voting in director elections, and other shareholder-friendly measures. The law also mandates separation of the chairman and CEO positions, annual board elections, and the right of 5 percent shareholders owning stock for two years or more to nominate corporate directors, as well as another half-dozen or so measures to empower investors.
The proposal may fare well based on support given to other recent proposals to reincorporate to another jurisdiction for governance reasons. The United Brotherhood of Carpenters filed proposals at Ohio-based companies' 2007 annual meetings calling for their reincorporation to Delaware. At the time, Ohio law required companies to use a plurality voting standard in director elections, and the proposals eventually prompted state lawmakers to amend the law to allow for a majority vote standard in director elections. The proposal went to a vote at FirstEnergy, DPL, and Convergys, according to RiskMetrics records, where it received 34.9, 32.6, and 59.5 percent support, respectively.
Melville, New York-based Hain had sought to exclude the North Dakota reincorporation proposal on procedural grounds, arguing the proponent had failed to correctly satisfy minimum ownership requirements under SEC Rule 14a-8(b). Hain said a letter from the proponent's introducing broker-dealer confirming ownership failed to cure inadequacies in a proof-of-ownership letter initially provided by the filer's custodian. In rejecting the petition, however, SEC attorneys said that a written statement from an "introducing broker-dealer constitutes a written statement from the 'record' holder of securities," as required under federal proxy rules.
Late last year, proposals filed at Coca-Cola, Verizon Communications, and dozens of other corporations were omitted due to inadequate information provided by proponents' custodian banks. "Relying on a custodian has been problematic," activist investor John Chevedden told RiskMetrics. "We view the clarification offered in the Hain letter to be a success."
"There's been a tendency of late for companies to crack down on eligibility requirements," Cornish Hitchcock, an attorney for the Amalgamated Bank's LongView funds, noted in March after RiskMetrics analyzed omission data for the 2008 annual meeting season. The analysis found that roughly 30 percent of this year's resolutions had been omitted for failure to meet eligibility requirements, compared with 26 percent in 2007. According to Hitchcock, individual shareholders, retiree associations, and church groups have in particular seen an uptick in companies challenging their proposals on procedural grounds.