From here on out, I guess you can count on seeing your directors described as “lap dogs” in some shareholder proposals or, more accurately, nascent or possible lap dogs. (That helps, doesn’t it?) That’s because, in three separate shareholder proposals submitted to The Boeing Company by three beneficial owners (all working through John Chevedden), the SEC refused to allow the company to exclude portions of the supporting statements that suggested that some of the company’s directors might be “lap dogs.”
The first proposal, submitted by Mr. Chevedden on his own behalf, requests an amendment to the company’s bylaws to allow holders of 10% of the shares to call a special meeting. The second proposal, submitted by James McRitchie/Myra Young, naming Mr. Chevedden as proxy, requested that the board adopt a bylaw requiring shareholder approval of an increase in the number of board members if the board were expanded beyond its current size. The third proposal, submitted by David Watt, likewise naming Mr. Chevedden as proxy, requested that the board adopt a policy and amend relevant documents to provide for an independent board chair.
I haven’t done a study, but I don’t recall a recent instance of three Chevedden group proposals to one company at the same time. Is this now a thing? Perhaps the proponents were fortified by the staff’s recent SLB on shareholder proposals, which reaffirmed the availability of Rule 14a-8 for “proposals by proxy.” (See this PubCo post.) While they are all separate beneficial owners, in light of the repeated epithet, there’s obviously some coordination. But is it enough to warrant exclusion on the basis of violation of the “one proposal” rule? The company—gauging the odds of success?—did not even attempt to exclude any of the proposals—on any basis.
Two of the supporting statements suggested that the long tenure on the board of the company’s lead director “can make him a lap dog Lead Director.” The other supporting statement, referring to the company’s two CEO directors, observed that “CEO directors can tend to be lap dog directors for a fellow CEO.”
While the company did not object to including any of the proposals, it did object to the reference to some of its directors as “lap dogs,” characterizing the term as a “baseless character attack” that, quoting a note to Rule 14a-9, “directly or indirectly impugn[s] character, integrity or personal reputation.” In addition, the company maintained that the SEC staff has “consistently permitted the exclusion of statements suggesting or implying that directors or members of management were not faithfully exercising their fiduciary obligations or were otherwise disregarding the interests of shareholders.” With regard to the particular directors, the company contended that the term “lap dog,” defined by Webster’s as “servile dependent or follower,” implied, “with no factual basis whatsoever,” that the directors lacked “independence and reflexively follow the dictates of others.” Accordingly, the company contended that the term was prohibited under Rules 14a-8(i)(3) and 14a-9 and requested that the staff take a no-action position allowing the company to omit the offending phrases.
The staff disagreed, indicating that it was “unable to conclude that the portions of the Proposal you reference impugn character, integrity or personal reputation, without factual foundation, in violation of rule 14a-9,” and did not allow exclusion of the requested portions of the supporting statements.
Now, to be clear, the proposals didn’t actually accuse the directors of being “lap dogs” at precisely this moment. Rather, they were artfully worded to imply that, in light of tenure concerns, the lead director was a likely candidate for canine status or, similarly, crafted to malign the entire category of directors that are also CEOs, implying, without expressly charging, that these lap-dog traits may well apply to the company’s CEO directors. Obviously, the proponents could have made the same point more decorously, without resorting to invective. (A sign of the times perhaps?) Although it’s rarely clear exactly why the staff concluded as it did, in these instances, the careful crafting of these statements may have been sufficient to persuade the staff to refuse to permit exclusion of the term.