Tracking Shareholder Proposals And No-Action Letters: Part III

February 24, 2014

Reuters ImageAs 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 third in a series of posts examining the ragged edge of shareholder proposal-land:  No-action letter requests to the SEC.

No-Action Letter Tracker: January 31, 2014:

2013-2014 Season (as of 1/31/14) 2012-2013 Season (as of 1/31/13) 2011-2012 Season (as of 1/31/12)
1. Registrants Submitting the Most No-Action Requests
Dominion Resources 10 General Electric 11 General Electric 10
JPMorgan Chase 10 Dominion Resources 8 ExxonMobil 8
Verizon 9 First Energy 7 AT&T / Deere / JPMorgan 6
General Electric 8 AT&T / B of A / Comcast 6
2. Proponents Most Frequently Cited in No-Action Letters
J. Chevedden & collaborators 69 J. Chevedden & collaborators 52 J Chevedden 31
Qube Inv. Mgmt 18 Unified Bro. of Carpenters 12 W & K Steiner 24
Nat’l Center for Public Policy 10 AFL-CIO 9 United Bro. Carpenters 14
Investor Voice 9 AFSCME / NY Retirement 7 NY State Retirement 10
3. Number of Letters by Proponent Type
Activist Funds 50 Labor Organizations 42 Labor Organizations 43
Labor Organizations 19 Activist Funds 25 Activist Funds 24
Religious Organizations 16 Pension Funds 25 Pension Funds 22
Pension Funds 9 Religious Organizations 17 Religious Organizations 18
4. Most Common Proposal Subjects
Executive Compensation 35 Executive Compensation 57 Environmental Matters 35
Simple Majority Voting 33 Environmental Matters 39 Shareholder Proxy Access 28
Environmental Matters 29 Political Contributions 30 Executive Compensation 25
Independent Board Chair 22 Simple Majority Voting 23 Auditor Independence 17
5. Totals
No-Action Requests 274 No-Action Requests 264 No-Action Requests 251
Number of Registrants 139 Number of Registrants 146 Number of Registrants 154
Number of Proponents 99 Number of Proponents 124 Number of Proponents 106



Resolved Letters

100 letters resolved: 21 withdrawn, 79 received an SEC ruling.

Ruling breakdown:

SEC concurred with registrant (proposal is OUT): 50 – 63%

SEC was unable to concur with registrant (proposal is IN): 29 – 37%


Most-cited grounds for excluding proposals:

Proponent failed to prove share ownership: 18 – 36%

Proposal applies to ordinary business operations: 7 – 14%

Proposal conflicts with a management proposal: 6 – 12%




The last couple of proxy seasons have seen some unusual letters arriving at the Division of Corporation Finance. Motivated primarily by the rise of super-proponent John Chevedden, registrants have been inspired to new heights of imaginative lawyering.

“This is not a request for a no-action letter,” National Fuel Gas informed the SEC in a 2012 letter better described as “heads-up,” rather than no-action, “[T]he Company is contemporaneously initiating a lawsuit … seeking a judicial declaration that the Company does not have to include the Proposal in its 2013 proxy materials” (Nat’l Fuel Gas Co., 2012 WL 5296166 (S.E.C. No-Action Letter Oct. 24, 2012)). National Fuel Gas didn’t concoct the idea of telling the SEC rather than asking:15 years before, Nortek Inc. – after indicating it “would, of course, take into consideration the views of the Division [of Corporation Finance]-” told the SEC it intended to exclude a certain shareholder proposal whether Corporate Finance liked it nor not (Nortek, Inc., 1996 WL 741753 (S.E.C. No-Action Letter Dec. 30, 1996)). NFG’s innovation was topping its letter to the SEC with a federal lawsuit – an appeal to a higher authority rather than mere civil disobedience. Since then, three other companies have used the same strategy (Waste Connections, Inc., 2013 WL 416308 (S.E.C. No-Action Letter Jan. 30, 2013), Chipotie (sic) Mexican Grill, Inc., 2014 WL 70518 (S.E.C. No-Action Letter Jan. 2, 2014), Omnicom Grp. Inc., 2014 WL 262999 (S.E.C. No-Action Letter Jan. 20, 2014))

These first lawsuits were only partially successful in that they kept shareholder proposals out, but dribbled to inconclusive ends. NFG’s suit petered out after proponents withdrew their proposal (National Fuel Gas Co. v. Mass. Pension Rsrvs et al, 1:12-CV-01028 (W.D. Mass. 2012)), and Waste Connections received summary judgment as a matter of law when proponents failed to submit a motion in opposition (Waste Connections, Inc. v. Chevedden et al, 4:13-CV-00176 (S.D. Tex. 2013)). Apache Corp. v. Chevedden, the most extensively litigated case, turned on a narrow technical issue created by conflicting no-action letters (Apache Corp. v. Chevedden, 669 F.Supp.2d 723 (S.D. Tex. 2010). After the Apache ruling, the SEC issued Staff Legal Bulletin 14F conforming SEC guidance with the holding (Staff Legal Bulletin No. 14F, 2011 WL 4957509, Oct. 18, 2011).

Enter Apple. Last month, in an 81-page no-action request, the famously innovative technology company synthesized two no-action work-arounds into one coherent attack. Apple asked that Corp Fin exercise its power under 17 CFR s. 202.1(d) to recommend that the full Commission reconsider a no-action request, which had been decided in proponent’s favor on December 17, in light of the summary judgment in Waste Connections. Requests for Commission review under s. 202.1 of “novel or highly complex” issues are a common last-ditch effort for disappointed parties.  Last year there were ten such requests, all made by proponents, and all rejected by the SEC. Apple argued that the Waste Connections ruling cast doubt on the legality of the SEC’s longstanding practice of allowing shareholders to delegate their power to float proposals, or “proposals by proxy,” and thus created “significant uncertainty” for issuers. The SEC disagreed. “We have applied this standard to your request,” wrote Jonathan Ingram, Acting Corp Fin Chief Counsel, “and determined not to present your request to the Commission” (Apple Inc., 2013 WL 5720191 (S.E.C. no-Action Letter Jan. 8, 2014)).

It might be argued that by hanging its request for s. 202.1 review on an unopposed summary judgment ruling, Apple jumped the gun, but the company has a point. It seems inevitable that, at some point, the SEC must address the rise of heads-up letters and associated judicial intervention in the shareholder proposal process.

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