The SEC has granted Whole Foods no action relief to exclude a proxy access proposal submitted under Rule 14a-8. The proponent’s proposal sought a non-binding shareholder resolution to request that the Whole Food’s Board of Directors (the “Board”) amend the company’s governing documents to implement proxy access for director nominations. Under the proponent’s proposal, any shareholder or group of shareholders that collectively hold at least 3% of the Whole Food’s shares continuously for three years would be permitted to nominate candidates for election to the Board, and the company would be required to list such nominees with the Board’s nominees in the company’s proxy statement. Under the proponent’s proposal, shareholders would be permitted to nominate up to 20% of the company’s Board, or not less than two nominees if the Board size is reduced.
However, the Whole Foods Board had determined to submit a proposal to shareholders at the 2015 annual meeting with respect to proxy access for director nominations. Specifically, the Board intends to seek shareholder approval of amendments to the company’s Amended and Restated Bylaws to permit any shareholder (but not a group of shareholders) owning 9% or more of the company’s common stock for five years to nominate candidates for election to the Board and require the company to list such nominees with the Board’s nominees in the company’s proxy statement.
Whole Foods successfully argued the proponent’s proposal may properly be excluded from the 2015 proxy materials pursuant to Rule 14a-8(i)(9) because the proponent’s proposal directly conflicts with a proposal to be submitted by Whole Foods in its 2015 proxy materials. Under existing SEC precedent, a company may exclude a shareholder sponsored proposal where it seeks to address a similar right or matter as is covered by a company-sponsored proposal even if the terms of the two proposals are different or conflicting (e.g., the ownership percentage threshold of the shareholder-sponsored proposal is different from the ownership percentage threshold included in the company-sponsored proposal).
For now, we will celebrate with issuers the Whole Foods’ victory. That may be short lived for a number of reasons. ISS may now or in the future recommend against the company proposal or its directors for adopting the company proposal. In addition, shareholder proposals could be submitted in future years under the theory that the new proposal has not been substantially implemented. There could be back lash from institutional investors, like the New York City pension funds. Or the SEC could amend Rule 14a-8 to provide for a different result.
In fact, shareholder proponent James McRitchie stated “Of course, I can come back next year and submit another proxy access proposal but they can easily counter with a simple modification of their bylaws, once adopted – a single shareholder holding 8.95% for five years.” He also said “The SEC’s decision doesn’t mean the end of proxy access. I’m sure New York City Comptroller Scott M. Stringer and others will continue to submit proposals on a company by company basis, as will I.”