In advance of 2015 annual meetings, Marathon Oil and Cabot Oil are seeking the Securities and Exchange Commission’s imprimatur for plans to exclude proxy access proposals submitted on behalf of New York City’s pension funds.
The two companies cite a recent decision to grant no-action relief, a decision not to pursue enforcement action, to Whole Foods when it sought to substitute a more company-friendly access proposal for one submitted by an activist investor. Other companies are expected to also use that no-action letter as the basis for their own requests in the weeks ahead.
In November, New York City Comptroller Scott Stringer, on behalf of the city's $160 billion pension funds, filed 75 proxy access shareowner proposals requesting bylaws that give shareowners who meet a threshold of owning three percent of a company for three or more years the right to list their director candidates, representing up to 25 percent of the board, on a company’s ballot. Among the companies targeted were Marathon Oil, Cabot Oil, Exxon, eBay, Chipotle, Electronic Arts, Staples, Hasbro, and Duke Energy. A full list of companies can be found here.
In a separate matter, in December, the SEC’s Division of Corporation Finance granted Whole Foods a no-action letter in response to a proposal by activist investor Jim McRitchie. He sought to give proxy access to any group of shareholders that collectively owns at least 3 percent of the company’s shares continuously for at least three years, allowing them to place nominees on the ballot for up to 20 percent of the board. Whole Foods countered with a proposal of its own: amending its bylaws to limit access to individual, not aggregated, shareholders who maintain a 9 percent ownership for at least five years.
The SEC sided with Whole Foods in its claim that McRitchie’s proposal “directly conflicts” with its own and would “present alternative and conflicting decisions for the stockholders and would create the potential for inconsistent and ambiguous results.” McRitchie is appealing the decision.
The Whole Foods victory may signal that the SEC is willing to take a broader, business-friendly view what constitutes a substantially similar company proposal, shifting away from the widely accepted “three-and-three” threshold of 3 percent ownership by a shareholder for at least three years. Marathon and Cabot are the first companies to put that assumption to the test.
Cabot’s no-action request informs the SEC that its Board of Directors intends to seek shareholder approval of amendments to company bylaws to permit any shareholder, or group of shareholders, collectively owning 5 percent or more of common stock for three years to nominate candidates for shareholders would be permitted to nominate 20 percent of the board, rounding down to the nearest whole number of Board seats. Using the SEC’s Rule 14a-8(i)(9) as a basis, and bolstering its case with a direct comparison to the Whole Food’s proposal, Marathon seeks to have the New York City Comptroller’s proposal excluded from 2015 proxy materials because it “directly conflicts with one of the company’s own.”
Marathon Oil takes the same approach with its request for no-action relief. The company’s counter-proposal would permit any shareholder (but not a group of shareholders) continuously owning 5 percent or more of common stock for at least five years to nominate director candidates. Shareholders would be permitted to nominate the greater of one director or 10 percent of the board, rounding down to the nearest whole number of seats.