No-action Letter Requests to the SEC

February 7, 2014

5273As the 2013-2014 proxy season gets under way the team behind the new Business Law Center on WestlawNext is tracking shareholder proposals and no-action letters. This is the second in a series of posts examining the ragged edge of shareholder proposal-land:  no-action letter requests to the SEC.

No-Action Letter Tracker as of January 20, 2014:

2013-2014 Season (as of 1/20/14) 2012-2013 Season (as of 1/20/14)
1. Registrants Submitting the Most No-Action Requests
Dominion Resources 10 General Electric 11
JPMorgan Chase 10 Dominion Resources 8
Verizon 9 First Energy 7
General Electric 8 Verizon 7
2. Proponents Most Frequently Cited in No-Action Letters
J. Chevedden & collaborators 64 J. Chevedden & collaborators 50
Qube Investment Management 15 United Bro. of Carpenters 11
Investor Voice 8 NY State Retirement 10
Nat’l Center for Public Policy 8 AFL-CIO 9
3. Most Common Proposal Subjects
Executive Compensation 35 Executive Compensation 55
Environmental Matters 21 Environmental Matters 36
Independent Board Chair 21 Political Contributions 27
Political Contributions 18 Simple Majority Voting 21
Simple Majority Voting 18 Independent Board Chair 17
4. Totals
No-Action Requests 217 No-Action Requests 239
Number of Registrants 117 Number of Registrants 133
Number of Proponents 93 Number of Proponents 111


77 letters resolved: 16 withdrawn, 61 received an SEC ruling.

Ruling breakdown:

SEC concurred with registrant (proposal is OUT): 38 – 62%

SEC was unable to concur with registrant (proposal is IN): 23 – 38%

Primary grounds for excluding proposals:

Proponent failed to prove share ownership: 13 – 34%

Proposal applies to ordinary business operations: 7 – 18%

Proposal conflicts with a management proposal: 6 – 16%

Repeat Business

On January 14th, Spectra Energy got the bad news: it had failed to convince the SEC that a shareholder request for “reduction targets for methane emissions” amounted to an attempt to “micromanage the Company’s business” (Spectra Energy Corp, 2013 WL 6701973 (S.E.C. No-Action Letter Jan. 14, 2014). Though Spectra argued strongly that the proposal extended to matters “unrelated to environmental concerns and which fall squarely within the types of day-to-day ordinary business concerns,” the SEC was not persuaded.

“In our view,” wrote SEC Attorney-Adviser Sonia Bednarowski, the proposal, championed by Trillium Asset Management, LLC, “focuses primarily on the environmental impacts of Spectra Energy’s operations and does not seek to micromanage the company to such a degree that exclusion of the proposal would be appropriate.” Spectra, while adamant, also admitted, “the Staff has declined to concur in exclusion of other methane-related shareholder proposals.” Spectra’s gloomy attitude is no surprise – they, and Trillium, had been here before.

Last year Trillium sought to insert in Spectra’s proxy a more modest request for a “report … on how Spectra Energy is measuring, mitigating, and disclosing methane emissions” (Spectra Energy Corp., 2012 WL 6760049 (S.E.C. No-Action Letter Feb. 21, 2013). Spectra responded with a laundry list of objections: the proposal was materially false and misleading, had been substantially implemented, dealt with R&D decisions, and sought to involve shareholders in the company’s ordinary business operations. Trillium parried with an equally massive defense. After the dust settled, the SEC allowed the proposal in.

Other issuers heard from Trillium last year, as well. During the 2012-2013 proxy season, Range Resources and ONEOK Partners both included Trillium-sponsored methane emission proposals in their proxy materials, though neither resorted to asking for no-action relief. When Trillium’s three methane proposals were presented to shareholders, none received support from a majority of shares present.

The fate of Trillium’s methane emissions proposals is typical of shareholder proposals on environmental topics. According to data available from the Manhattan Institute’s Proxy Monitor database, of 24 shareholder proposals on climate change voted on between 2011 and 2013, none received more than 32 percent support. The average support level was just above 16 percent. Which begs the question, if everyone knows these proposals won’t be adopted, why do activist investors keep proposing them?

Jonas Kron, Trillium’s Director of Shareholder Advocacy, explained that while shareholder proposals “focus the mind” of management, they are only one facet of Trillium’s advocacy strategy. “There are no more silver bullets,” instead, strong minority support for a proposal, combined with competitors’ decisions, possible damage to reputation, and other factors, form the “silver buckshot” that convinces management to pursue, or abandon, a particular course of action. By way of example, Kron pointed to Trillium’s recently withdrawn proposal to Verizon for a report on government requests for customer data. Shortly after receiving the request, Verizon voluntarily produced such a report. The following day, AT&T announced it would, too.

So, if certain types of proposals are merely a bellwether of investor sentiment, further information to aid decision making, why do some companies fight, and fight again, to keep them out? Spectra Energy declined to comment for this post. Phil West of Spectra’s external communications department said the company preferred “to speak on this matter via our forthcoming proxy statement.”

(Thanks to Paul Clark and John Sutton who contributed significant efforts to generate the data outlined in this post)