On Friday, SEC officials said they expect to rule on the 11 no-action requests by companies to omit shareholder proxy access proposals "in the near future,” likely within the next two weeks. 

The requests to exclude proxy access proposals are among the highest-profile no-action petitions that are pending before the staff of the SEC’s Corporation Finance Division. When there are new (or relatively new) shareholder resolutions that face similar no-action challenges, the SEC staff typically will try to issue those rulings at around the same time. 

Companies have raised a variety of arguments this year to exclude proxy access proposals. For instance, Bank of America is seeking to exclude a proposal filed by retail investor activist Ken Steiner. His non-binding resolution, which is based on the U.S. Proxy Exchange's (USPX) model resolution, would permit board nominees from an investor group that holds a 1 percent stake for two years, or a group of 100 shareholders who each hold at least a $2,000 stake in the company for one year. The company argues that Steiner’s  proposal improperly constitutes multiple resolutions, is impermissibly vague and indefinite, would be beyond the company's power to implement, and relates to the bank's ordinary business operations. Textron, Sprint Nextel, Goldman Sachs, Chiquita Brands, and MEMC Electronic Materials also are trying to exclude USPX-inspired proposals. 

Staples and Western Union are seeking to exclude binding proposals filed by Norges Bank Investment Management that would allow board nominations from investor groups that hold at least a 1 percent stake for one year. Staples asserts that the Norges’ resolution would conflict with its bylaws, while Western Union objects to the proposal’s reference to a non-working Web site. Charles Schwab and Wells Fargo have asked the SEC for permission to revise the Norges proposals to omit the Web site reference, but aren’t seeking to exclude them.  

KSW, a small-cap firm, is trying to omit a proposal (2 percent stake for one year) filed by the Furlong Fund, based on the company’s adoption of an access bylaw with a 5 percent threshold.  

Regardless of the no-action rulings, proxy access likely will be on the ballot at several companies this year. Princeton National Bancorp and Ferro Corp. have not sought to exclude USPX resolutions, proponents said. The Furlong Fund has filed a proxy access bylaw proposal at Microwave Filter Co., where the fund is waging a proxy fight at the company's March 28 meeting.

Also during the annual “SEC Speaks” conference on Friday, SEC officials said the overall volume of no-action requests is about the same as it was last year. So far, the SEC had received 284 exclusion requests, as compared to 285 at this time in 2011. The staff has resolved most of the no-action petitions to omit proposals filed for spring 2012 annual meetings; less than 100 requests still are pending, agency officials said.  
 

Now that Western Union has proposed to adopt proxy access, will other U.S. companies do the same? 

Western Union, in a no-action request filed with the Securities and Exchange Commission, has said it plans to offer a management bylaw proposal at its next annual meeting that would allow investor groups who hold a 5 percent stake for three years to nominate board candidates. The company is seeking permission to exclude a binding resolution filed by Norges Bank Investment Management that would set a lower threshold for proxy access (a 1 percent stake for one year.) The ownership difference is significant, given that Western Union has a market cap of about $11.9 billion.

The Colorado-based payment services firm argues that the Norges resolution should be excluded under SEC Rule 14a-8(i)(9) because it would conflict with the planned management proposal. The SEC staff has not weighed in yet on competing access measures, but the staff has allowed dozens of companies to exclude shareholder-filed special meeting proposals (that generally call for a minimum 10 percent stake) by offering management proposals with higher ownership (such as 25 or 40 percent) thresholds.

In early January, KSW Inc., a small-cap firm, adopted a proxy access bylaw (5 percent for one year) in response to a binding shareholder proposal from the Furlong Fund that requests a 2 percent stake for one year. The company is seeking SEC approval to omit the fund's proposal and asserts that it has "substantially implemented" the resolution.

If Western Union investors approve the management-sponsored access proposal, the company would be the largest U.S. issuer so far to put proxy access in place. Just a handful of other firms, such as Comverse Technology and American Railcar Industries, now have access provisions. However, governance observers don't expect that many other companies will follow suit right away, and instead will wait to see how the SEC decides the various no-action requests by companies to omit shareholder access resolutions and whether many institutional investors decide to support the proposals that make it on the ballot this year. 

"It is difficult to tell whether [the] Western Union approach will be adopted by other companies," Steve Quinlivan, a lawyer with the law firm of Leonard, Street and Deinard, said in a blog posting. "Whether or not the SEC permits exclusion, it is a viable counter force to overly broad proposals submitted by shareholder activists in current and future years."

The ownership thresholds sought by Western Union and KSW are higher than the 3 percent stake required by the SEC's marketwide access rule, Rule 14a-11, which also called for a three-year holding period. That rule was struck down by a federal appeals court in July after a legal challenge by two business groups, who argued that the SEC should allow "private ordering" to work by allowing shareholders to seek company-specific access provisions.

Speaking at a recent legal conference, Delaware Chancery Judge J. Travis Laster urged companies to take advantage of private ordering and adopt their own access provisions. 

"You asked for it, you got it, you better use it," Laster said, according to a BNA article cited by The Race to the Bottom blog. "If not, institutional investors will lobby Congress for the return of a federal rule. In a Democratic administration, you're going to get something more detailed that won't have the same type of outcome that Rule 14a-11 faced."

J. Robert Brown, a securities law professor at the University of Denver who supports proxy access, praised Laster's "common sense" view. "To the extent companies implement access provisions in a private ordering context, it will take pressure off the need for a Commission or congressional alternative, one that will likely be categorical and mandatory. Yet this advice notwithstanding, the pattern so far has been for management to resist access rights," Brown wrote in a blog posting. "The result has been greater SEC and congressional involvement in the area.”

For a full list of 2012 proxy access proposals, please visit the ISS Proxy Season Resource Center. 
 

“Private ordering” continues to prompt change. A second U.S. company, Western Union, has proposed to adopt proxy access in response to a shareholder proposal.

In a no-action request submitted to the SEC, Western Union said it plans to offer a management bylaw proposal at its next annual meeting that would allow investor groups who hold a 5 percent stake for three years to nominate board candidates to appear on the management proxy statement. The company is seeking permission to exclude a binding resolution filed by Norges Bank Investment Management that would set a lower threshold for proxy access (a 1 percent stake for one year). Western Union, a Colorado-based payment services firm, has a market cap of $11.8 billion.  

The company argues that the Norges resolution should be excluded under SEC Rule 14a-8(i)(9) because it would conflict with the planned management proposal. The SEC staff has not yet weighed in on competing access proposals, but the staff has allowed dozens of companies to exclude shareholder special meeting proposals (that generally call for a 10 percent stake) by offering management proposals with higher ownership (such as 25 or 40 percent) thresholds. 

Earlier this month, KSW, a small-cap firm, adopted a proxy access bylaw (5 percent for one year) in response to a shareholder proposal from the Furlong Fund that requests a 2 percent stake for one year. The company is seeking SEC approval to omit the fund’s proposal and asserts that it has “substantially implemented” the resolution.
 

The Furlong Fund, which has launched a proxy fight at a micro-cap firm, plans to put a proxy access proposal on the ballot. The fund, which is managed by financial analyst Daniel Rudewicz, is calling for investors to own at least a 15 percent stake for one month to be eligible to nominate candidates for up to one third of the board.

The company is Microwave Filter Co., which has a $2.3 million market cap. The Furlong Fund announced its plans in a filing and press release on Friday. The fund is seeking two seats on the company's nine-member board.

The binding proposal is 17th access resolution that has been announced by investors for the 2012 proxy season, according to ISS data. The proposal, which has the highest ownership threshold but the shortest holding period of any resolutions so far, is the fifth "private ordering" variation on proxy access in 2012.

For a full list of 2012 proxy access proposals, please visit the ISS Proxy Season Resource Center.

Textron has filed a no-action request with the SEC to omit a shareholder proposal that seeks a proxy access bylaw.  

So far, investors have publicly announced the filing of 16 proxy access proposals for 2012 U.S. company meetings, and this no-action request appears to be the first that has been submitted to the SEC’s Corporation Finance Division to exclude an access resolution this season. While the SEC has lifted a ban on shareholder access proposals in Rule 14a-8, companies still can raise other substantive and procedural arguments to keep resolutions off their proxy statements.   

Textron is seeking to exclude a non-binding access proposal filed by retail activist Ken Steiner. His filing, which is based on language prepared by the U.S. Proxy Exchange, calls for a 1 percent ownership threshold for at least two years. Steiner’s proposal also would allow access nominees from groups of 100 or more investors who each hold at least $2,000 in company stock for one year. Steiner and his allies have filed similar resolutions at six other issuers.

In its Dec. 23 no-action petition, Textron makes four arguments against Steiner’s proposal. The company asserts that his resolution improperly constitutes multiple proposals, is “impermissibly vague and misleading,” is beyond the company’s power to implement, and relates to the firm’s ordinary business operations. Most of the company’s arguments relate to its assertion that the proposal is seeking to prescribe how the company defines a “change in control.” According to Textron, this part of the proposal doesn’t relate to shareholder rights but has implications for how the company deals with third parties such as lenders, and how directors and officers act in their personal capacity. 

Meanwhile, Wells Fargo & Co. has asked the SEC for permission to revise a binding access proposal filed by Norges Bank Investment Management, which would allow shareholders who own at least a 1 percent stake for one year to nominate board candidates. In its Dec. 28 request, Wells Fargo states that the resolution is “false and misleading” because it directs investors to find more information on a Web page that doesn’t work. Wells Fargo isn't trying to omit the entire Norges' proposal; it just wants to delete the Web page reference if the page isn't operational. (Editor's note: An earlier version of this blog posting incorrectly reported that the company was seeking to omit this resolution.)  

The SEC staff likely will rule on these requests in late January or February prior to the filing deadlines for the companies’ proxy statements.

Public pension funds from California, Connecticut, North Carolina, Illinois, and New York City have filed a proxy access proposal at Nabors Industries. The proposal, which is based on SEC Rule 14a-11, asks the Bermuda-based oil drilling contractor to adopt a bylaw to permit shareholders who have held a 3 percent stake for at least three years to nominate candidates for up to a quarter of the company's board seats.

"Nabors has a long history of poor governance, including a board that has consistently been unresponsive to shareholder concerns," Janet Cowell, state treasurer of North Carolina, one of the resolution's proponents, said in a press release.

Nabors, which has its operational headquarters in Houston, has faced significant investor dissent in recent years. At its 2011 annual meeting in June, Nabors received more than 57 percent opposition during its say-on-pay vote. Nabors is one of 41 U.S.-listed companies that have reported failed pay votes this year, according to ISS data. In addition, a director received majority opposition this year after the company failed to adopt a majority-supported board declassification proposal in 2010. (The company since has said that it will put a declassification proposal on the ballot in 2012.)

Overall, investors have filed 15 proxy access proposals for the 2012 proxy season, according to ISS data. Among the recent filings was a lower-threshold (a 1 percent stake for two years) resolution filed by shareholder activist John Chevedden at Chiquita Brands International. That resolution is based on the U.S. Proxy Exchange's model proposal, which also would permit nominees from groups of 100 investors who each own a $2,000 stake for at least one year.

ISS Governance Exchange members can learn more about these proposals and see a full list of 2012 access resolutions by clicking here. To learn more about the benefits of joining Governance Exchange, please click here.

Hewlett-Packard, which has experienced continued CEO turnover and failed to get majority support for its pay practices at its last shareholder meeting, now faces a proxy access proposal filed by the Amalgamated Bank, a labor-affiliated investor.

In addition, shareholder activist Jim McRitchie said he has submitted a low-threshold access proposal at Goldman Sachs. Overall, investors have publicly announced 13 access resolutions for the 2012 U.S. proxy season. 

Amalgamated Bank’s non-binding proposal at HP asks the technology giant’s board to adopt a bylaw that is similar to the SEC’s marketwide access rule, Rule 14a-11, which was struck down by a federal appeals court in July. The shareholder resolution seeks an access bylaw that would require investors to hold a 3 percent stake continuously for three years, with a 25 percent limit on the number of board seats that investors could nominate candidates for.

The HP resolution was filed in October, and the company did not ask the SEC staff for permission to omit the proposal before the no-action deadline, said Cornish Hitchcock, a lawyer for Amalgamated Bank.

It appears that this proposal should fare well at HP. In 2007, a similar access resolution at the technology company received 43 percent support. HP traditionally holds its annual meeting in March, so the company likely will be the first test of the popularity of proxy access in 2012.

The HP proposal is the third “private ordering” variation on proxy access so far for the 2012 season. McRitchie’s filing at Goldman Sachs is based on a model resolution drafted by the U.S. Proxy Exchange, which calls for a 1 percent threshold for two years; that proposal also would allow access nominees from groups of 100 or more investors who each hold at least $2,000 in company stock for one year. 

ISS Governance Exchange members can learn more about these proposals and see a full list of 2012 access resolutions by clicking here. To learn more about the benefits of joining Governance Exchange, please click here.

Norges Bank Investment Management (NBIM), which manages Norway's $550 billion pension fund, has filed proxy access proposals at Wells Fargo, Charles Schwab, Western Union, Staples, Pioneer Natural Resources, and CME Group.

Overall, investors have publicly announced the submission of 11 proxy access resolutions for the 2012 proxy season, which is rather surprising, given that many governance observers had expected just a handful of resolutions.

The NBIM proposals, which were filed on Nov. 22, all call for a minimum stake of 1 percent for at least one year, with a 25 percent cap on the percentage of board seats that investors could nominate candidates for. At the time of filing, NBIM held stakes of 0.6 percent to 1.1 percent in these companies, valued at a total $1.4 billion.

“Board members must be held accountable,” Anne Kvam, global head of ownership policy at NBIM, said in a press release on Tuesday. “When they fail to meet our expectations, we as shareholders should be able to propose alternatives without incurring prohibitively high costs.”

The NBIM proposals seek more permissive access standards than contained in the SEC's universal access rule, Rule 14a-11, which would have required investor groups to hold a 3 percent stake for at least three years, and imposed a 25 percent cap on the board seats that could be contested by access nominees. That rule was overturned by a federal appeals court in July and the SEC appears unlikely to try to revive that rule in the coming year.

Retail activist Ken Steiner has filed low-threshold proxy access resolutions at three more companies--Bank of America, Sprint Nextel, and Ferro Corp. Steiner submitted the Sprint and Ferro proposals on Monday, and the Bank of America resolution on Wednesday, according to the U.S. Proxy Exchange (USPX), an advocacy group for retail investors.

So far, Steiner has filed five non-binding access resolutions for the 2012 proxy season; the other two targets are Textron and MEMC Electronic Materials. His filings are based are based on a model proposal that USPX members have drafted as a more permissive alternative to the SEC's universal access rule (Rule 14a-11), which would have required investor groups to hold a 3 percent stake for at least three years, and imposed a 25 percent cap on the board seats that could be contested by access nominees. That rule was overturned by a federal appeals court in July and the SEC appears unlikely to try to revive that rule in the coming year. While some institutional investors have expressed support for Rule 14a-11’s thresholds, the USPX and other retail activists have argued that those hurdles would be too high and would bar small shareowners from nominating board candidates.

The USPX model proposal urges a company's board to adopt a proxy access bylaw that would permit director nominees from: any party of one or more shareowners that has held continuously, for two years, 1 percent of the company’s securities eligible to vote for the election of directors, and/or any party of shareowners of whom 100 or more satisfy SEC Rule 14a-8(b) eligibility requirements (i.e., those who hold at least a $2,000 stake for one year). Any such party may make one nomination or, if greater, a number of nominations equal to 12 percent of the current number of board members, rounding down.

In the supporting statement for his access proposal at Bank of America, Steiner cites the company's large losses during the second and third quarters of 2011 and the bank's recent retreat on its controversial plan to collect additional fees from debit card holders. At Sprint, he mentions executive pay concerns and the telecommunications company's 40 percent share decline in the year ending Nov. 23. His Ferro proposal criticizes the chemical company's pay practices, the absence of a "clawback" policy, and its 67 percent share decline in the year ending Nov. 23.  

Earlier this week, the Council of Institutional Investors, which represents public, labor, and corporate pension funds, released a statement on proxy access proposals. While the statement didn't specifically mention the USPX-inspired resolutions, the group did "encourage Council members and other long-term shareowners to consider using this new tool in a focused and consistent manner that enhances the U.S. corporate governance model and contributes to the health and long-term value of public companies."

"More specifically, the Council believes that shareowner proposals to specify the procedures for proxy access should include language requiring a nominator or nominating group to have beneficially owned a meaningful percentage of the company’s voting stock continuously for a meaningful period of time, especially if those resolutions call for lower ownership thresholds than in Rule 14a-11," the institutional investor group said.  

It appears likely that the targets of Steiner's proposals will seek SEC permission to keep them off their proxy statements. While the SEC has repealed a 2007 rule that allowed companies to exclude all access-related shareholder proposals, issuers still can raise other substantive objections (such as impermissibly vague or misleading, or contrary to state or federal law), or seek to challenge a proponent's evidence of ownership. The director of SEC's Corporation Finance Division has said she plans to personally review the staff rulings on these no-action requests. 
 

Retail shareholder activist Ken Steiner has filed a low-threshold proxy access proposal at Textron, according to the U.S. Proxy Exchange (USPX), a group that represents retail investors. 

Steiner filed his latest proposal on Nov. 15 after submitting a similar resolution at MEMC Electronic Materials on Nov. 11, said Glyn Holton, USPX’s executive director. The proposals are the first 2012 access resolutions to be made public and suggest that U.S. companies may see more proposals on this topic next season than many governance observers have expected.  

Steiner's resolutions are based on a model proposal that USPX members have drafted as a more permissive alternative to the SEC's universal access rule (Rule 14a-11), which would have required investor groups to hold a 3 percent stake for at least three years, and imposed a 25 percent cap on the board seats that could be contested by access nominees. That rule was overturned by a federal appeals court in July and the SEC appears unlikely to try to revive that rule in the next year. While some institutional investors have expressed support for Rule 14a-11’s thresholds, the USPX and other retail activists have argued that those hurdles would be too high and would bar small shareowners from nominating board candidates.

The USPX model proposal urges a company's board to adopt a proxy access bylaw that would permit director nominees from: any party of one or more shareowners that has held continuously, for two years, 1 percent of the company’s securities eligible to vote for the election of directors, and/or any party of shareowners of whom 100 or more satisfy SEC Rule 14a-8(b) eligibility requirements (i.e., those who hold at least a $2,000 stake for one year). Any such party may make one nomination or, if greater, a number of nominations equal to 12 percent of the current number of board members, rounding down.

In his Textron resolution, Steiner points to pay concerns, such as cash-based long-term compensation, which does “nothing to tie executive performance with long-term shareholder equity value,” and a potential $39 million exit payout to the CEO, Steiner said, according to Holton.

Holton said USPX members plan to file at least four proposals. It also appears likely that labor investors or public pension funds will submit a handful of resolutions, but those proposals likely will be based on the standards in Rule 14a-11. 

All of these proxy access proposals likely will face corporate no-action challenges. While the SEC has repealed a 2007 rule that allowed companies to exclude all access-related shareholder proposals, issuers still can raise other substantive objections (such as impermissibly vague or misleading, or contrary to state or federal law), or seek to challenge a proponent’s evidence of ownership.  

Many U.S. institutional investors still are formulating their voting policies on 2012 proxy access resolutions. While many institutions have expressed support in the past for the concept of proxy access, it remains to be seen how many non-activist institutions actually will vote for shareholder proposals on this topic, especially if those resolutions call for lower ownership thresholds than in Rule 14a-11.