The WSJ reported on Friday afternoon that proxy advisory firm Glass Lewis may recommend against company nominees for director when the company excludes a shareholder proposal for proxy access on the basis of a conflicting management proposal, where that management proposal represents a “diluted alternative” for proxy access or otherwise materially varies from the shareholder proposal and management does not provide a “sufficient rationale” for its action. According to a statement from Glass Lewis to the WSJ, “Glass Lewis will evaluate the reasonableness and rationale of a company’s response to a proxy access shareholder proposal, including when the company submits an alternative access proposal and excludes the shareholder proposal, based on the differences in the terms of the proposals as well as analysis of the company, its governance, performance, board independence and responsiveness to shareholders.” While Glass Lewis’s statement appears to refer specifically to proxy access proposals, it seems likely that it will take the same line with regard to exclusions by companies of shareholder proposals on other topics using the same “conflicting proposal” approach.
This announcement comes on the heels of SEC Chair Mary Jo White’s Statement a week ago advising that the staff is reviewing the proper scope and application of the “conflicting proposal” rule, Rule 14a-8(i)(9), which allows a company to exclude a shareholder proposal where the company plans to submit to a vote of shareholders its own conflicting proposal on the same topic. At the same time, Corp Fin announced that, in light of that review, it would not express its views on the application of Rule 14a-8(i)(9) during the current proxy season (For a more extensive discussion of this turn of events, see this post.) A significant number of companies had already submitted (or were planning to submit) letters to the SEC staff this season, requesting that the staff permit exclusion of shareholder proposals for proxy access (and other matters) on exactly that basis, and at least one, Whole Foods, had received the staff’s concurrence (since withdrawn) to exclude a proxy access shareholder proposal. The SEC’s announcements left companies scrambling for new strategies to address the onslaught of proxy access proposals this season. Although there is no requirement that companies obtain a favorable no-action position from the SEC in advance of omitting a shareholder proposal in reliance on the exclusion, the SEC’s position leaves companies desiring to exclude a shareholder proposal on the basis of a conflicting proposal essentially on their own. This statement from Glass Lewis may well deter some from adopting that course of action.
With Glass Lewis having now made its views known, can ISS be far behind? The WSJ notes that, as of Friday, it “was unclear if Institutional Shareholder Services Inc., another large proxy advisory firm, would recommend similar dissents. A spokesman declined to comment Friday.”