Take Action: Sixty Years of ShareOwner Rights at Risk

Your right to file a proxy without being hauled into court or having your proposal ignored is at risk.  I urge readers to raise the profile of the SEC’s failure to act by sending e-mails to the Office of Chief Counsel at shareholderproposals@sec.gov and the Chairman at chairmanoffice@sec.gov. I also recommend you fill out the complaint form at https://tts.sec.gov/oiea/QuestionsAndComments.html, since this will go to the Division of Enforcement, the office that could take action.

As I said in a recent post (Texas Secession Led by Apache, KRB and Kinetic Concepts), Lewis Gilbert was instrumental in winning a formal SEC rule in 1943 that shareowner proposals be included in the proxy. After many challenges, the SEC’s powers were finally sustained in the 1947 case, SEC vTransamerica, when judge John J. Biggs Jr. ruled, “a corporation is run for the benefit of its stockholders and not for that of its managers.”

It took until 1988 for a shareowner proposal by Richard Foley to finally get a majority vote. Rights, which have taken many decades to win could be gone very quickly if we simply do nothing to defend them. The SEC’s rules are not self-enforcing but depend on shareowner vigilance. “All that is necessary for evil to triumph is for good men to do nothing.” While we aren’t sure who said it first, Edmund Burke or Leo Tolstoy, we all know it to be true. Here’s the e-mail I sent:

Dear Chairman Mary Schapiro and Mr. Greg Belliston:

I understand Apache and Kinetic Concepts informed the SEC they would exclude shareowner proposals from Mr. John Chevedden and further that they are going doing so without the SEC issuing letters indicating it would take no-action on such an omission. In fact, Kinetic’s request for a no-action letter was actually denied. These companies have not met the burden of 14a-8(g). They have not demonstrated they are entitled to exclude these proposals. In fact the SEC said as much in letters issued to Hain Celestial, Union Pacific, Devon Energy, Prudential, News Corp and Kinetic Concepts.

I believe taking action against Apache and Kinetic Concepts should be a high priority for the SEC. Otherwise, a growing number of companies will simply believe they can ignore shareowner resolutions, which form an important cornerstone of corporate governance.

Attached is the April 5 letter from Kinetic Concepts putting the SEC on notice that it will mail its proxy without Mr. Chevedden’s proposal on April 15th, despite the previous refusal of the SEC to grant their no-action request.  Apache has already done so. I understand the SEC has a lot of high priority action items but if the SEC doesn’t go after these companies we could see a flood of copycats, with shareowner rights that have been in place since 1947 placed at risk.

I’m surprised the SEC hasn’t at least posted Kinetic’s letter at http://www.sec.gov/divisions/corpfin/cf-noaction/14a-8-incoming.shtml but I guess the letter isn’t a no-action request. Instead, it is a notification of Kinetic’s intent to test the SEC’s willingness to follow-up on staff’s decision not to grant a no-action letter. Does such a decision by SEC staff mean anything or is the SEC too busy to really take shareowner proposals seriously?

Both companies are relying on an flawed court decision from a suit brought against Mr. Chevedden by KBR. Even a quick glance at page 6 (2011-04-04 KBR Chevedden Docket 24 – Memorandum and Order http://corpgov.net/wp-content/uploads/2011/04/2011-04-04-KBR-Chevedden-Docket-24-Memorandum-and-Order.pdf) reveals the judge didn’t base her decision on what is required in order to show evidence of ownership for a 14a-8 proposal. Instead, she bases her decision on evidence of ownership requirements adopted in 14a-11, the provisions for placing shareowner director nominees on the proxy. Aside from being on a completely different subject, these rules are not even in effect, but as you know have been stayed.

I urge the SEC to take action immediately or we will all be facing a very messy situation.

Thank you for your consideration.

Your own e-mail and paste to the Division of Enforcement complaint form could be very simple:

I understand Apache and Kinetic Concepts informed the SEC they would exclude shareowner proposals from John Chevedden and further they will do so without the SEC issuing letters indicating it would take no action on such an omission. In fact, the SEC rejected such a request from Kinetic Concepts on March 21. These companies have not met the burden of 14a-8(g). They have not demonstrated they are entitled to exclude these proposals. In fact, the SEC said as much in letters issued to Hain Celestial, Union Pacific, Devon Energy, Prudential, News Corp. and Kinetic Concepts.

I believe taking action against Apache and Kinetic Concepts should be a high priority for the SEC. Otherwise, a growing number of companies will simply believe they can ignore shareowner resolutions, which form an important cornerstone of corporate governance.

For you historians, more information on CorpGov.net by searching cloud tag Apache. Also, there was this great post yesterday from Ted Allen of RiskMetrics, Will the SEC Stop the ‘Texas Secession’? Allen notes, “Corporation Finance staff planned to issue a legal bulletin on proof of ownership before the 2011 proxy season, but reportedly was unable to obtain a consensus among the five commissioners.”

Ted Allen concludes his post with a precautionary note: new guidance from the SEC may not prevent some companies from bypassing the no-action process. “Even if the staff puts out something black and white in a bulletin, companies may continue to delete the proposals and basically dare the commission to take action,” said J. Robert Brown, a securities law professor at the University of Denver.

Brown is right. Only vigilance by shareowners, like the brief e-mails I’m requesting from you today, will help shape SEC priorities so that shareowner proposals don’t become a thing of the past.

Alyce Lomax with the Motley Fool (A Shareholder Battles Rage On, 4/13/2011) writes on these legal challenges and other issues, concluding:

Whatever good might come of this situation, investors should still think twice about buying into any company willing to sue its own investors to keep them from presenting their concerns for a shareholder vote. Management-centric businesses that relegate all other stakeholders to second-class status won’t do your portfolio any favors in the long run, and likely don’t deserve your investing dollars at all. Heck, if they work so hard to shut down shareholder dissent, perhaps they shouldn’t have gone public in the first place.

Shareholders incensed by corporate crackdowns on their rights have many ways to issue a resounding “no.” Vote against outsized executive compensation, sell your stake, or screen out such offenders when searching for stock ideas. Whatever action you take, your rights are always worth fighting for — especially when corporations actively try to make that fight less fair.

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  1. CorpGov.net » Go Directly to Federal Court, Do Not Pass the SEC, Prepare to Spend Thousands - April 15, 2011

    [...] See Take Action: Sixty Years of ShareOwner Rights at Risk, Texas Secession Led by Apache, KRB and Kinetic Concepts, Apache: Too Big For SEC Rules?, and Will the SEC Enforce Rule 14a-8?. [...]

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