The Activist Investor Blog
The Activist Investor Blog
Proxy Access Bylaw Amendment or Shareholder Resolution?
This subject may seem a little arcane. It actually concerns a critical decision that an investor wishing to achieve proxy access must make.
Very simply, should a shareholder propose a specific bylaw amendment, or a resolution?
We think a bylaw amendment makes more sense in many situations, even though all of the action so far this year has revolved around resolutions. It depends, though, on a number of company-specific factors, including the voting rule for approving bylaw amendments.
How they differ
Shareholder resolutions merely indicates investor sentiment about proxy access. A resolution on proxy access thus suggests how strongly investors want proxy access. The BoD has no obligation to provide proxy access no matter how strongly investors support the resolution.
A bylaw amendment doesn’t require the BoD to do anything. If shareholders approve a proxy access amendment, then the company must allow shareholders to have access to the proxy materials.
Resolutions also typically are easier for shareholders to approve than amendments. Typically, a resolution is “approved” if a majority of the shareholders voting at the annual meeting support it. In contrast, the vote needed to approve a bylaw amendment varies by companies, but typically requires at least a majority of the shares outstanding, and frequently requires a supermajority, anywhere from 60% to 80% of shares outstanding.
Resolutions and amendments do have some things in common, mostly pertaining to the requirements and process for submitting them to shareholder vote. The SEC regulates these as it does other shareholder proposals, so any investor that has owned $2,000 of shares for a year can propose it. The SEC also allows companies to limit the shareholder proposal to 500 words, which makes it more difficult to propose a complete bylaw amendment.
Preparing the proposal
Resolutions require somewhat less work than an amendment. A resolution merely suggests to the BoD what investors think it should do. It could read as simply as “provide proxy access”, although a shareholder should prescribe more guidance, such as how many shares an investors needs in order to have access to the proxy materials. The resolutions even lend themselves to a standard format.
Amendments require the shareholder to study the current bylaws, of course, since the shareholder proposes specific changes that it necessarily tailors to the company’s governance. Amendments, then, also require the shareholder to propose a complete set of specific proxy access rules, including:
❖which shareholders and groups of shareholders can use proxy access:
-minimum number of shares
-minimum holding period
❖limits on the number of directors:
-shareholders can nominate through proxy access at a given annual meeting
-shareholders can elect through proxy access
Fitting a complete amendment, with a supporting statement, into the 500-word limit that the SEC allows companies to impose on shareholder proposals, can also make it difficult to propose an amendment compared to a resolution.
Amendments make sense
Despite the apparent difficulties, investors should consider seriously bylaw amendments rather than shareholder resolutions. BoDs can ignore resolutions too easily - they have no downside, other than the threat of future opposition from proxy advisors such as ISS and Glass Lewis.
Amendments do have a tougher vote threshold, too. But, seeing as “winning” a simple majority of voting shares for a resolution represents mostly an empty victory, we’d prefer to truly win compulsory change that matters to investors. A bylaw amendment does that.
Tuesday, December 6, 2011