This week, after a midweek post in the New York Times‘ business newsletter DealBook that noted our shareholder proposal on diversity, equity and inclusion at Merck, editor-at-large Andrew Ross Sorkin (pictured above) engaged NLPC’s Corporate Integrity Project director Paul Chesser for a short interview about shareholder activism, which was featured in the Friday edition of the digest.
An excerpt:
“The left was way ahead of us using these levers,” Chesser said, noting that liberal activist shareholders have made similar challenges for years. Conservative activists, he said, had not engaged in proxy contests, partly because of their belief in free markets.
That changed when they began to believe that the free market was being hijacked by left-leaning politics. “We’re providing a counterbalance,” Chesser told DealBook.
Things really took a turn for conservatives in 2020, Chesser said, citing the widespread corporate response to the protests after George Floyd’s murder that year. Watching companies “throwing all sorts of money at B.L.M. after the riots in 2020” was a revelation, he said, referring to the Black Lives Matter movement….
Chesser says the proposals still hold sway, even if they often lose. “It is meaningful to them for some reason,” he said of the targeted companies. If it wasn’t, he said, “why do they fight it?”
What do we mean by “fight it?”
Within the machinery and rules of submitting, negotiating, verifying, and publishing proposals in a company’s proxy statement, is a procedure called a “no-action” appeal. In such an action, a company notifies the Securities and Exchange Commission that they have received a shareholder proposal from a proponent (like NLPC), and then cite (usually multiple) federal rules to explain why they believe the proposal is in violation and that they plan to omit the proposal from their proxy statement for those reasons. They then ask the SEC’s referees to confirm that they will take “no action” of enforcement against the company, to make it publish the proposal. If the company gets agreement from the SEC, they then leave the proposal out.
Corporations use “no-action” vigorously. They hate proposals at annual meetings because they hold companies’ executives and board of directors accountable. Proponents get to speak for a few minutes and it always runs counter to the PR narratives the companies want to present to shareholders, without being tarnished by what a proponent has to say.
Corporate lawyers scour every nook and cranny of the SEC’s rules on proposals and seek to exclude on even the remotest, insignificant technicality they can. They do this at great expense, mainly by retaining outside mega-law firms, even though more than 99 percent of shareholder proposals fail to win a majority of votes. Besides, the proposal vote outcome isn’t binding, so even if they pass, companies aren’t required by law to take action.
Yet companies “fight it” tooth-and-nail to keep proposals and proponents out of their proxy statements and annual meetings. In the corporate world, accountability in public view is a terrible thing for elitist executives and directors.
Below are some examples of where NLPC battled with companies over their “no-action” requests before the SEC:
Bank of America (NLPC lost).
Exxon (NLPC lost).
Coca-Cola (NLPC prevailed).
McDonald’s (NLPC prevailed).
