Lockheed Martin joins list of companies preemptively adopting proxy access

October 7, 2016

A RAF Lockheed Martin F-35B fighter jet taxis along a runway after landing at the Royal International Air Tattoo at FairfordAerospace and defense company Lockheed Martin Corp. has granted shareholders proxy access, joining a recent slew of companies that have preemptively addressed the controversial investor rights issue instead of waiting for a shareholder proposal.

The Bethesda, Maryland-based company said in a Sept. 22 securities filing that its board voted to amend Lockheed’s bylaws to implement proxy access.

The amended bylaws allow shareholders that meet certain thresholds to directly nominate directors using the company’s proxy materials instead of having to issue their own often costly proxy materials.

Investors push for proxy access

Institutional investor groups and shareholders tout proxy access as a way to ensure that investors can nominate corporate board members who are independent from management interests.

Accordingly, shareholder proposals to obtain proxy access rights have exploded over the past two years, led in part by New York City Comptroller Scott Stringer. In 2014 Stringer launched an ongoing campaign to obtain proxy access at over 100 corporations where the city’s pension funds are invested.

Initially, many companies resisted the proxy access wave, arguing that successful shareholder campaigns could deliver company boards into the hands of short-term investors who are unconcerned with long-term growth. McDonald’s Corp., Hasbro Inc. and Kohl’s Corp. all challenged proxy access proposals in 2015 but ultimately adopted them to appease investors who overwhelmingly backed the measures.

However, a growing number of corporations are skipping contentious investor battles and implementing proxy access amendments to preempt shareholder proposals, end existing shareholder proposals or avoid negative scrutiny from proxy advisers.

Lockheed’s bylaw amendment plays into this shareholder-friendly trend. In September alone, American Express Co., Halliburton Co., United Rentals Inc., and Consol Energy Inc. also joined Lockheed by granting investors proxy access.

Terms of proxy access bylaw

Lockheed’s amendment grants proxy access to a single shareholder or a group of 20 or fewer shareholders who have owned at least 3 percent of the company’s outstanding common stock for at least three years.

Qualifying shareholders may nominate two candidates or up to 20 percent of the board, whichever is greater, according to Lockheed’s Form 8-K filing.

This structure is the same one that American Express, Halliburton, Consol Energy and United Rentals passed and is consistent with terms deemed acceptable by Institutional Shareholder Services, according to the proxy adviser’s “frequently asked questions” document released in December 2015.

Starbucks Corp. also adopted an identical structure when it amended its bylaws to grant proxy access, according to the coffee purveyor’s Sept. 16 Form 8-K. Unlike Lockheed and American Express, Starbucks passed its amendment after a majority of shareholders voted for proxy access at the company’s 2016 annual meeting.

Lockheed Martin Corp. Form 8-K, 2016 WL 05210804 (Sept. 22, 2016).