THE RISKS OF LAWSUITS FROM “DISSED PROPONENTS” ARE REAL ONES, ISSUERS: DON’T LET MORE SHAREHOLDER DOLLARS GO TO WASTE, WE SAY, BUT STAND FIRM IF A PROPOSAL IS WEAK

The ink was hardly dry on the SEC release on no no-action letters when three thwarted proponents went to court to seek relief, as we predicted many would do.

Four NYC public pension funds sued AT&T in New York federal court over its decision to exclude a workforce diversity shareholder proposal after the company decided it had a “reasonable basis” to exclude it.

 The same day, another lawsuit was filed against Axon Corp. by the Nathan Cummings Foundation in a D.C. federal court over the exclusion of a political spending shareholder proposal. 

The third lawsuit involved a procedural exclusion basis at Pepsi – whether the company properly notified the People for the Ethical Treatment of Animals (PETA) about alleged deficiencies when the proposal was submitted to the company. 

After a bit of legal handwringing - at no small expense, for sure - both AT&T and Pepsi settled – by agreeing to include the two proposals. Axon Enterprise went one better - agreeing to do what proponent, the Nathan Cummings Foundation, asked for in the first place - “broad and detailed annual disclosure and transparency on its direct political spending.”

Meanwhile, three new lawsuits have been filed as we went to press: 

1. As You Sow filed a complaint in the US District Court for the District of Columbia over a shareholder proposal seeking a climate change-related report. 
2. The New York State Comptroller filed suit in the US District Court for the District of Massachusetts over a shareholder proposal on deforestation risks.
3. A coalition of The Interfaith Center on Corporate Responsibility (ICCR) and As You Sow, represented by Democracy Forward filed suit against the SEC - ICCR et al. v. SEC et al. – over the changes they made in the shareholder proposal rules - in the U.S. District Court for the District of Columbia. 

Please note carefully, dear readers, that, per their press release, Democracy Forward Foundation is “a national legal organization that advances democracy and social progress through litigation, policy, public education, and regulatory engagement.” It appears to be shaping up as a highly active and formidable new force on the Governance scene… so be sure to carefully consider the risks of lawsuits before you decide to drop shareholder proposals summarily.  

Our advice has been the same – long before the recent SEC actions emerged:

 If a proposal is clearly immaterial to the business of the company as a whole - or ‘substantially implemented” - or clearly infringes on the right of directors to handle the “ordinary business of the company” – DROP IT – and let the proponents sue – which not many wannabe proponents are in a position to do. Who needs a no-action letter anyway if you’re sure the proponent would lose in court?

If it comes from one or more big investors, or a credible coalition – or from a seasoned gadfly who might get some sympathy and support from larger investors in the interest of “shareholder democracy” - run it as submitted, with the best but briefest rebuttal you can come up with. 

These two alternatives are significantly less expensive that assembling a horde of lawyers and “advisors” to fight proposals off – which, as we see, you often end up losing – while ticking off some of the most powerful players on the scene - positioning you as intransigent and anti-investor - and setting you up for more attacks in future years!