The Weirdest Events To Cross Our Desk During The Spring Meeting Season
Despite the relatively quiet season on the whole, we, and our Team of 50 Independent Inspectors of Election, experienced more weird and wacky events than ever before - and more events where corporate managers, and in many cases their outside counsel too, seemed way behind the curve. Here are a few of our traditional shareholder meeting horror stories:
Wildest and most horrible by far, for the lead plaintiff in the big Delaware appraisal case, was the ruling that Dell Inc. had underpaid investors about $6 billion in their going-private transaction. Weirdest, however, was that T Rowe Price would lose out on almost $200 million in underpayments on the Dell stock it held…because of a back-office error, where they voted Yes on the deal when they meant to vote No…thereby losing their rights as lead plaintiff in round-one - and the appraisal rights themselves
in round-two. Nicest, however, was T Rowe’s decision to pay shareholders in several funds that held Dell Computer stock a whopping $194 million, even before being asked - because T Rowe employees forgot to ‘adjust the switch’ on their automated vote-casting platform and erroneously voted FOR the management-led buyout when they told the world they’d vote NO. Earlier reports indicated to us that ISS systems appeared to be at fault…But no, T Rowe’s ‘default option’ for voting is Yes - and while they’d initially voted NO, turns out it was up to them to re-set the switch when the deal was improved mid-way…and they simply did not do so.
What are the important takeaways here? First, “stuff happens” in the proxy voting business: voting mistakes will be made no matter how careful everyone tries to be: Even when 99.9% of all votes are recorded correctly, as current, audited stats indicate, there are still plenty of opportunities left for mistakes to be made. And YOU don’t want to be in that one-tenth-of-one-percent category.
So as we’ve said many times before, (a) your company and your own results are the only ones that really matter, so never rest easy based on averages; (b) you can never be too careful or ‘over-prepared’ for your meeting - especially where voting and vote-tabulating and vote reporting procedures are concerned; (c) you need to have folks with intimate knowledge of voting mechanics and voting minutia - and with “good sniffers” too - involved in cases where voting outcomes might be close or contested or simply very important to you…and (d) there are never any do-overs in corporate elections if mistakes, or simple clerical errors or omissions are made, and discovered after the polls have closed, as the Delaware Chancellor reluctantly had to rule.
Some related weirdness; we saw three cases this spring where one or more directors resigned shortly before the annual meeting and where, heaven help us, the client, and in one case their outside attorney as well, insisted that the votes that had been cast for them could simply be ‘transferred” to the new nominees! One lawyer we talked down from the wall here ultimately advised the company to send out all new proxy materials naming new candidates, which they did… But Hello…The easy and far less expensive option would have been for the board to “take time to carefully consider new candidates” - then fill the vacancies after a decent interval - and after the meeting was over - where all of the newly appointed directors could have served unchallenged and undisturbed until the next annual election.
Still more weirdness…Remember our warning about voting agreements - and “irrevocable proxies” coming into play more and more often? At one company whose meeting we covered this year a 30% holder - who had signed a voting agreement to vote with the board’s recommendation on any proposed merger - said he’d likely not cast his vote. This would likely have deep-sixed the deal. Or maybe, said he, he’d show up and vote no – voting agreement be damned - which would have assured the deal’s doom. The voting agreement was very well drafted however - in a way that it constituted an irrevocable proxy in and of itself - that the company could exercise on its own and that the Inspector of Election would recognize as valid… And happy day, the holder wised up, showed up and voted for the deal as called for.
Maybe the scariest thing of all was the large number of companies we saw that did not understand the basic principles much less the basic mechanics of proper proxy voting: At one company - a mid-sized utility that had a wholly owned subsidiary - there was no regular “process” in place to assure that the subsidiary directors would be validly elected - or to formally cast the subsidiary’s own votes for the election of parent company directors. The four company staffers who had formerly served as their own proxy tabulators and Inspectors, insisted that the Inspector should add the votes into the Final Reports simply on their say-so - with no paperwork at all - which, apparently, is what they had been doing all along. Ultimately, they drew up the courage to ask a senior officer of the sub to fill out and execute the required ballots…but not before rudely telling the Inspector that she “had no business telling them how to do their job”…which, of course was part of her job, and where she was under oath to do it correctly and to the very best of her ability.
Lo and behold, just a few days later, we got an email from Broc Romanek, forwarding a question from one of his many readers on a nearly identical situation, asking if we’d ever heard of an “Affidavit of Regularity and Election”…with the comment/question, “It can’t hurt?” Here’s the question:
“A client has a Delaware company subsidiary with one stockholder (the parent company). At the Annual Meeting of the Sole Stockholder, the Corporate Secretary of the Parent acted as the representative of the Sole Stockholder and voted the stock at the meeting electing the subsidiaries directors.
In the past, a proxy process was used whereby the General Counsel of the Parent (because he could not attend the meeting) appointed the President of the subsidiary to vote the shares on behalf of the Parent; he is an officer of the Parent).
This year the Corporate Secretary of the Parent voted the stock and no proxy process was used. In the past, with the proxy process an “Affidavit of Regularity and Election” was then produced to prove the election. Client has asked if this is needed. I can’t find anything on this and think minutes from the Sole Stockholder meeting should suffice to prove the election of directors. Thoughts?”
Here’s our response: “This sure seems like putting on a belt - and suspenders too - when there are no pants in place: All that was really needed was the subsidiary’s proxy card, signed by a person representing themselves as having the authority to sign it...which is adequately done in Delaware by simply signing it.
And yes, while an Affidavit of Regularity and Election, which we’d never heard of either, “can’t hurt” - the most important takeaway is that the observing all the fine details - or not - usually doesn’t matter all that much…Unless one day it DOES - like in a close or contested election or a disputed plan to merge: Best to observe the fine details we say…to be sure you are always in fighting trim...and completely “challenge-proof.”