Shareholder Proposal Developments During the 2014 Proxy Season

June 25, 2014

This alert provides an overview of shareholder proposals submitted to public companies during the 2014 proxy season, including statistics, notable decisions from the staff (the “Staff”) of the Securities and Exchange Commission (the “SEC”) on no-action requests[1] and information about litigation regarding shareholder proposals.

I.         Shareholder Proposal Statistics and Voting Results

According to data from Institutional Shareholder Services (“ISS”), shareholders have submitted approximately 901 proposals to date for 2014 shareholder meetings, which already surpasses the total of 840 proposals submitted for all 2013 shareholder meetings.[2]  In 2014, proposals on environmental and social issues, while always prevalent, comprised a majority of proposals for the first time.[3]  The most common 2014 shareholder proposal topics, along with the approximate number of proposals submitted, were:

  • political and lobbying activities (126 proposals),
  • independent chair (68 proposals) and
  • climate change (56 proposals).

By way of comparison, the most common 2013 shareholder proposal topics were (as of a comparable time last year):

  • political and lobbying activities (115 proposals),
  • board declassification (79 proposals) and
  • independent chair (70 proposals).

While John Chevedden and shareholders associated with him submitted by far the highest number of shareholder proposals for 2014 shareholder meetings, there were several other proponents that were reported to have submitted at least 20 proposals.  These proponents were the New York State Common Retirement Fund (54), New York City Pension Funds (48), the AFL-CIO (25), Trillium Asset Management LLC (23), the United Brotherhood of Carpenters Pension Fund (22), and Calvert Investment Management, Inc. (21).

Shareholder proponents withdrew approximately 19% of the proposals submitted for 2014 shareholder meetings to date, a decrease as compared to approximately 28% of the proposals submitted for 2013 meetings and approximately 26% of the proposals submitted for 2012 meetings (as of comparable times during both years).

            A.        Shareholder Proposal No-Action Requests

During the 2014 proxy season, companies submitted fewer no-action requests to the Staff as compared to the previous proxy season.  The following table summarizes the responses to no-action requests that the Staff issued between October 1, 2013 and May 31, 2014, and during the same period in 2012-2013:



Total Staff responses issued



No-action requests withdrawn



Responses granting or denying exclusion



Exclusion granted

161 (71%)

170 (65%)

Exclusion denied

65 (29%)

90 (35%)

Based on a review of the no-action requests for which no-action relief was granted, shareholder proposals were excluded for the following principal reasons:

  • 30% based on procedural arguments, such as timeliness or defects in the proponent’s proof of ownership;
  • 18% because the proposal was vague or false and misleading;
  • 14% based on ordinary business arguments;
  • 12% because the company had substantially implemented the proposal; and
  • 11% because the shareholder proposal conflicted with a company proposal that was to be submitted for a vote at the same meeting.

Of the shareholder proposals for which no-action relief was denied, 58% were challenged as being either vague or false and misleading under Rule 14a-8(i)(3), making these arguments the most frequently rejected arguments, as they were during 2012-2013.  Other unsuccessful arguments made were that the company substantially implemented the proposal (25% of denials), that the proposal related to the company’s ordinary business operations (17% of denials), and that there was a procedural defect in the submission of the proposal (22% of denials).[4]

            B.        Shareholder Proposal Voting Results

Most shareholder proposals voted on at 2014 shareholder meetings did not receive majority support.  Based on the 432 shareholder proposals for which ISS provides voting results, proposals averaged support of 32.5% of votes cast.  Five proposal topics that received high shareholder support, including three that averaged majority support, were:

  • Board declassification, averaging 84.0% of votes cast, compared to 78.7% in 2013;
  • Elimination of supermajority vote requirements, averaging 69.6% of votes cast, compared to 70.5% in 2013;
  • Adoption of majority voting in director elections, averaging 57.2% of votes cast, compared to 58.6% in 2013;
  • Shareholder ability to call special meetings, averaging 41.6% of votes cast, compared to 44.5% in 2013; and
  • Written consent, averaging 38.5% of votes cast, compared to 40.9% in 2013.

Based on the 432 shareholder proposals for which ISS provides voting results for 2014 shareholder meetings, 14.8% received support from a majority of votes cast, compared to 19.2% in 2013 (as of a comparable time last year).  The table below shows the principal topics addressed in proposals that received a majority of votes cast at a number of companies:

2014 Majority Votes

2013 Majority Votes

Majority voting in director elections



Board declassification



Elimination of supermajority vote requirements



Shareholders’ ability to call special meetings



Independent chair



Proxy access



Shareholder approval of shareholder rights plan



No accelerated vesting of equity awards upon a change of control



Political and lobbying activities



Shareholders’ ability to act by written consent






II.        2014 Shareholder Proposal Developments

            A.        Procedural Issues

Use of representatives in shareholder proposal process.  Companies are increasingly concerned about the submission of proposals by individuals purporting to have authority from a shareholder but where the shareholder appears to have no involvement with the proposal.  Some companies have argued that such practices, in which the proponent of a proposal does not provide appropriate authorization from the shareholder, are inconsistent with the Commission’s rationale for adopting a minimum share ownership requirement for Rule 14a-8, which was a need for “shareholders who put the company and other shareholders to the expense of including a proposal in a proxy statement to have some measured economic stake or investment interest in the corporation.”[5]

As we discussed in our client alert regarding the 2013 shareholder proposal season, Waste Connections, Inc. sought and received a declaratory judgment from the U.S. District Court for the Southern District of Texas in April 2013, allowing it to exclude from its 2013 proxy materials a shareholder proposal submitted by John Chevedden on behalf of James McRitchie.  Mr. Chevedden himself owned no shares of the company’s stock, but he had obtained a “proxy” to submit the proposal from Mr. McRitchie, who had submitted proof of ownership under the rules.  Waste Connections argued, among other things, that Rule 14a-8 does not permit a shareholder to grant a proxy to another individual to submit a shareholder proposal.  The district court granted summary judgment to Waste Connections without specifically addressing the issue and, at the same time, denied Messrs. Chevedden and McRitchie’s motion to dismiss the case for lack of subject matter jurisdiction.[6]  In February 2014 (after we issued our 2013 client alert), the U.S. Court of Appeals for the Fifth Circuit affirmed the district court’s denial of the motion to dismiss.[7]  Because the appeal involved only the jurisdictional issue that was involved in the motion to dismiss (which is discussed further below), the Fifth Circuit did not address the company’s “proposal by proxy” argument.

During the 2014 shareholder proposal season, a number of companies submitted no-action requests to the Staff making the Waste Connections “proposal by proxy” argument and other arguments regarding the submission of proposals by representatives.  For example, in The Brink’s Co. (avail. Jan. 17, 2014), Mr. Chevedden submitted a shareholder proposal under purported “proxy” authority from William Steiner.  Brink’s asserted that, because Rule 14a-8 does not provide for the submission of a proposal pursuant to a grant of “proxy” authority, Mr. Chevedden was the true proponent of the proposal but had not demonstrated his ownership of company shares.  The Staff rejected this argument, noting that “John Chevedden submitted the proposal on behalf of William Steiner, the proponent, and a written statement was provided to Brink’s verifying that the proponent satisfied the minimum ownership requirement for the one-year period required by rule 14a-8(b).”[8]

Several companies also made other arguments related to shareholders’ use of representatives.  For example, in Chevron Corp. (avail. Mar. 11, 2014, recon. denied Apr. 4, 2014)*, Investor Voice submitted a proposal on behalf of a Chevron shareholder, Eric C. Rehm, and requested that it be identified in the proxy statement as the proposal’s “sponsor.”  After Chevron replied with a deficiency notice requesting proof that Mr. Rehm had authorized Investor Voice to submit the proposal, Investor Voice provided an authorization letter from Mr. Rehm that was more than one year old and that did not identify the proposal or the subject company.  Chevron argued that this type of broad grant of authority “serves as carte blanche for Investor Voice to submit any proposal that it wishes at any company where [Mr. Rehm] own[s] stock.  If this type of a broad grant of authority were to be permitted, a market for free trade in stockholder proposals could develop, circumventing Rule 14a-8(b)’s requirement that only a stockholder may submit a stockholder proposal.”  However, the Staff determined that the proposal could not be excluded based on this argument.

The Staff also declined to concur that companies could exclude under Rule 14a-8 shareholder proposals in the following scenarios:

  • No explicit grant of authorization:  The shareholder’s letter to the representative was undated and did not explicitly grant any authorization, stating instead that the shareholder was “pleased with the engagement practices of [the representative], including proxy voting, company dialogues, and the filing of shareholder resolutions.”  See JPMorgan Chase & Co. (Zevin Asset Management, LLC) (avail. Mar. 11, 2014).
  • Change of proponents:  The company received a shareholder proposal from the Environmental Working Group (“EWG”) that was accompanied by a cover letter stating that EWG was a beneficial owner of the company’s stock and was submitting the proposal as the “primary filer.”  Although an undated authorization letter from another shareholder also was included, EWG’s cover letter did not reference this letter or the other shareholder.  In response to the company’s deficiency notice requesting EWG’s proof of ownership, EWG stated that it was submitting the proposal on the other shareholder’s behalf and provided that shareholder’s proof of ownership.  See The Coca-Cola Co. (Vanderryn) (avail. Jan. 15, 2014).

Given companies’ concern over whether such practices reflect abuse of the shareholder proposal process, we expect companies to continue to focus on these issues.

Scrutiny of deficiency notices and proof of ownership.  The Staff continued to closely examine companies’ deficiency notices regarding defects in proponents’ proof of ownership letters and to allow proponents an additional opportunity to provide proof of ownership where the notice was deficient.

In 2012, the Staff expressed concern in Staff Legal Bulletin No. 14G (Oct. 16, 2012) (“SLB 14G”) that when a shareholder’s proof of ownership verifies ownership as of a date that falls either before or after the proposal’s “submission” date, “some companies’ notices of defect make no mention of the gap in the period of ownership covered by the proponent’s proof of ownership letter.”  Consistent with this concern, in DST Systems, Inc. (avail. Feb. 4, 2014), the Staff found the company’s deficiency notice to be insufficient because, although the notice discussed the requirement to provide proof of ownership through the submission date, it did not explicitly inform the proponent that the proponent’s proof of ownership failed to comply with this requirement.

SLB 14G also specified that a deficiency notice must “identif[y] the specific date on which the proposal was submitted.”  In both DTE Energy Co. (avail. Jan. 24, 2014) and NCR Corp. (avail. Jan. 24, 2014), the deficiency notices stated the dates on which the companies had received the proposals but did not explicitly identify the proposals’ submission dates.[9]  The Staff determined that the notices were insufficient despite the fact that, in the specific fact patterns at issue, the proposals had been submitted electronically (by fax in DTE Energy and by email in NCR), meaning the submission dates were the same as the receipt dates that were identified in the notices.[10]

The Staff insisted on precision in documenting ownership as of the submission date not only with respect to deficiency notices but also with respect to proponents’ proof of ownership letters.  For example, the proof of ownership letters in Cliffs Natural Resources Inc. (avail. Jan. 30, 2014) and Marathon Petroleum Corp. (avail. Jan. 30, 2014) stated that the proponent had held the requisite amount of stock in the company “continuously for at least one year prior to the date of submission of the shareholder proposal.”  The companies argued that these proof of ownership letters were insufficient because, although they referenced the “date of submission,” they did not identify the date itself.  The Staff concurred that the companies could exclude the proposals even though in prior years it had determined that proof of ownership letters containing identical language were sufficient.  See, e.g., Verizon Communications Inc. (avail.  Feb. 12, 2010).

            B.        Materially False or Misleading Arguments

Rule 14a-8(i)(3) permits the exclusion of a shareholder proposal that is “contrary to any of the Commission’s proxy rules, including Rule 14a-9, which prohibits materially false or misleading statements in proxy soliciting materials.”  Notable no-action letters involving this exclusion during the 2014 season included arguments regarding false statements, references to non-public materials and vagueness of a proposal on a company’s use of preliminary voting results.

Exclusion of false statements.  As in recent prior seasons, the Staff denied many requests for exclusion of the entire proposal or portions of the supporting statement under Rule 14a-8(i)(3) where companies argued that portions of a proposal’s supporting statement were materially false or misleading.  See, e.g., Verizon Communications Inc. (Kenneth Steiner) (avail. Jan. 15, 2014) (denying exclusion where company argued that the supporting statement contained several false statements about the company’s corporate governance and executive compensation); Starbucks Corp. (avail. Dec. 23, 2013)* (denying exclusion where company argued that the supporting statement included multiple false statements about the company’s corporate governance and labor practices).

However, this season a court considered similar issues and ruled in favor of the company.  In Express Scripts Holding Co. v. Chevedden,[11] the U.S. District Court for the Eastern District of Missouri granted a declaratory judgment that the company could properly exclude a shareholder proposal received from John Chevedden.  The proposal requested a policy requiring the chairman of the board to be independent, and the supporting statement included several statements about the company’s corporate governance and executive compensation practices that the company argued were false.  In reaching its decision that the proposal could be excluded pursuant to Rule 14a-8(i)(3), the court stated:

[W]hen viewed in the context of soliciting votes in favor of a proposed corporate governance measure, statements in the proxy materials regarding the company’s existing corporate governance practices are important to the stockholder’s decision whether to vote in favor of the proposed measure. . . .  As such, the Court finds these misstatements are material and, therefore, not in compliance with SEC rules and regulations.

Prior to 2004, the Staff was more willing to concur in the exclusion of false statements in shareholder proposals and supporting statements (similar to Express Scripts), but the Staff changed its position in Staff Legal Bulletin No. 14B (Sept. 15, 2004) (“SLB 14B”) in an effort to move away from editing shareholder proposals based on asserted deficiencies relating to clarity, relevance or questionable accuracy.  In SLB 14B, the Staff stated that going forward “exclusion or modification under rule 14a-8(i)(3)” would be “appropriate” only in limited situations, such as where the company “demonstrates objectively that a factual statement is materially false or misleading.”  However, since SLB 14B, the Staff has viewed few statements as satisfying this standard.  The Express Scripts decision may cause the Staff to reconsider its position and cause more companies to consider or pursue litigation to exclude such proposals.

References to non-public materials.  Several companies sought exclusion of proposals because the supporting statements included unfavorable assertions about the companies that were purportedly based on the non-public reports of GMI Ratings, an investment research firm.  For example, the supporting statement of the proposal in NextEra Energy, Inc. (avail. Feb. 25, 2014) referenced negative information about the company’s corporate governance and executive compensation, citing as its source “GMI Ratings, an independent investment research firm.”  The company requested from the proponent a copy of the GMI Ratings report, but the proponent declined to provide a copy.  The company argued in its no-action request that the proposal was excludable under Rule 14a-8(i)(3) because the company was unable to evaluate the basis for the information, but the Staff rejected this argument.[12]  Many other companies made similar arguments, all of which were rejected.  See, e.g., Northrop Grumman Corp. (avail. Mar. 11, 2014); General Electric Co. (avail. Jan. 15, 2014)*; Starbucks Corp. (avail. Dec. 23, 2013)*.

Vagueness.  The Staff stated in SLB 14B that a proposal may be excludable under Rule 14a-8(i)(3) if it “is so inherently vague or indefinite that neither the stockholders voting on the proposal, nor the company in implementing the proposal (if adopted), would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires.”

Several companies received, and successfully challenged, a proposal that requested a bylaw or a policy that would prohibit the company’s management and board from accessing preliminary voting results on uncontested matters.  The companies challenged this proposal under Rule 14a-8(i)(3), arguing that it was impermissibly vague and indefinite because it provided that the prohibition would apply to management-sponsored say-on-pay resolutions or to resolutions “for other purposes,” but also provided that the prohibition would not apply to the company’s monitoring of votes cast for the purpose of achieving a quorum or to “solicitations for other proper purposes.”  The Staff concurred that this proposal could be excluded as vague and indefinite, noting that “the proposal does not sufficiently explain when the requested bylaw would apply.  In this regard, we note that the proposal provides that preliminary voting results would not be available for solicitations made for ‘other purposes,’ but that they would be available for solicitations made for ‘other proper purposes.”  See, e.g.,, Inc. (avail. Mar. 6, 2014)*; The Home Depot, Inc. (avail. Mar. 6, 2014)*; The Southern Co. (avail. Mar. 6, 2014)*.  Since the time of these Staff responses, a revised version of the proposal has been submitted to at least one company, NetApp, Inc.  NetApp’s no-action request is currently pending.

C.        Ordinary Business

Rule 14a-8(i)(7) permits a proposal to be excluded if it “deals with a matter relating to the company’s ordinary business operations.”  However, the Commission has stated that proposals “focusing on sufficiently significant social policy issues . . . generally would not be considered to be excludable, because the proposals would transcend the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote.”[13]

Although the Staff did not recognize any new significant policy issues under Rule 14a-8(i)(7) during the 2014 season, there were developments on previously recognized significant policy issues involving healthcare reform and incentive compensation.  In 2008, the Staff denied exclusion for a number of healthcare reform-related shareholder proposals because the Staff concluded that these proposals focused on a significant policy issue.[14]  These 2008 proposals asked the companies “to adopt principles for health care reform,” such as “[h]ealth care coverage should be universal” and “[h]ealth care coverage should be affordable to individuals and families.”  See United Technologies Corp. (avail. Jan. 31, 2008).  This season, a proposal similarly asked companies to “adopt . . . Health Care Reform Principles,” but the proposed “Principles” were much more specific, such as “[r]epeal state-level laws that prevent insurance companies from competing across state lines” and “[r]eform federal tax laws to allow individuals to receive a standard deduction for health insurance costs or receive tax credits.”  See Johnson & Johnson (avail. Feb. 18, 2014, recon. denied Mar. 5, 2014)*.  The companies argued that these proposals were excludable under Rule 14a-8(i)(7), and the Staff agreed, noting:

[T]he proposal appears directed at involving Johnson & Johnson in the political or legislative process relating to an aspect of Johnson & Johnson’s operations.  We note in particular that, although the proposal asks the company to adopt principles of health care reform, it advocates specific legislative initiatives, including the repeal of specific laws and government mandates and the enactment of specific tax deductions or tax credits that appear to relate to Johnson & Johnson’s business operations.

The Staff also granted exclusion for a proposal that sought to invoke a significant policy issue involving incentive compensation at financial institutions that the Staff recognized in 2011.  In 2011, the Staff granted exclusion for a proposal requesting a report on, among other things, the compensation paid to the company’s 100 highest paid employees.  While the Staff determined that the proposal was excludable because it “relates to the compensation paid to a large number of employees without regard to whether the employees are in such a position or are executive officers,” it nevertheless stated (in a somewhat unique instance of Staff dicta) that “the incentive compensation paid by a major financial institution to its personnel who are in a position to cause the institution to take inappropriate risks that could lead to a material financial loss to the institution is a significant policy issue.”  See Wells Fargo & Co. (avail. Mar. 14, 2011, recon. denied Apr. 5, 2011)*.  This season, the same proponent submitted a revised version of its 2011 proposal.  The revised proposal requested that the company prepare a report disclosing whether the company has identified employees that have the ability to expose the company to possible material losses, and if the company has identified these employees, the report was also to disclose additional information, including (but not limited to) information about these employees’ incentive compensation.  The companies receiving the proposal argued that the overall thrust and focus of the proposal did not relate to risks arising from incentive-based compensation structures, but to the identification of all possible material losses and liabilities from all employee activities throughout the Company.  The Staff concurred that the proposal could be excluded under Rule 14a-8(i)(7), citing the 2011 significant policy issue and then noting that “the proposal relates to the compensation paid to any employee who has the ability to expose [the company] to possible material losses without regard to whether the employee receives incentive compensation and therefore does not, in our view, focus on the significant policy issue.”  See Bank of America Corp. (avail. Feb. 19, 2014, recon. denied Mar. 10, 2014, appeal denied May 22, 2014)*; Wells Fargo & Co. (avail. Feb. 14, 2014, recon. denied Mar. 10, 2014, appeal denied May 22, 2014)*.

            D.        Substantial Implementation

Many companies implemented proposals that they received and thus either negotiated a withdrawal of the proposal or were able to exclude the proposal under Rule 14a-8(i)(10) as substantially implemented.  This season, 174 proposals were withdrawn, with 59 of those withdrawals occurring after the companies submitted their no-action requests.  Nineteen proposals were excluded as substantially implemented, as the companies either took steps to implement the proposals or elaborated on how they already had implemented the proposals.

For example, Hewlett-Packard Company received a proposal that discussed a number of human rights issues and requested that the board of directors “review and amend, where applicable, . . . Hewlett-Packard’s policies related to human rights that guide its international and U.S. operations.”  A committee of the company’s board of directors reviewed the company’s human rights policies and determined that the policies already reflected a comprehensive understanding of human rights and that, therefore, no amendments were necessary.  The company noted in its no-action request that “the [p]roposal does not identify any particular changes to the Company’s human rights policies that are expected,” and the Staff concurred that the proposal could be excluded as substantially implemented.  See Hewlett-Packard Co. (avail. Dec. 18, 2013)*.

            E.        Proposals Requesting Corporate Action to Maximize Shareholder Value

Over the past few years there have been numerous shareholder proposals requesting that a company take various actions to maximize shareholder value, including: requests that the board break up the company or divest the company of specific assets; conduct a sale, merger, or liquidation of the company; engage an advisor to evaluate alternative strategies for the company that could maximize shareholder value; and issue dividends to return capital to shareholders.

During the 2014 season, 14 of these shareholder value proposals were submitted, ten of which were submitted pursuant to Rule 14a-8 and four of which were proposed from the floor of a shareholder meeting pursuant to state law (and in accordance with a company’s advance notice bylaw procedures) (“Floor Proposals”).

Building on the California State Teachers’ Retirement System (“CalSTRS”) and Relational Investment LLC’s successful campaign during the 2013 season to force a spin-off of The Timken Company’s steel business,[15] a number of proponents submitted particularly aggressive shareholder value proposals seeking to effect significant changes at target companies.  For example, Carl Icahn and several related investment funds (collectively, the “Icahn Group”) sponsored a non-binding Floor Proposal requesting that eBay Inc. conduct a carve-out IPO of its Paypal business in which eBay would sell 20% of Paypal to the public and retain 80% control.  The Icahn Group also proposed the election of two of its nominees to eBay’s board.  After a series of contentious public exchanges between eBay and the Icahn Group, eBay announced that it had reached an agreement with Mr. Icahn under which eBay would appoint one of the Icahn Group’s nominees to the board and the Icahn Group would withdraw the proposals it had submitted for consideration at eBay’s 2014 annual meeting.

III.       Shareholder Proposal Litigation

This proxy season also saw an increase in litigation related to shareholder proposals, primarily by companies seeking declaratory judgments to exclude proposals from shareholder activist John Chevedden.  This increased inclination to litigate was driven by some companies’ successes in excluding proposals through litigation in recent years,[16] though this season’s litigation has yielded mixed results for companies that sued to exclude proposals.  Some of the litigation this season has been brought by shareholders.  The following sections highlight some of the litigation brought this season.

            A.        Jurisdictional Issues

As noted above, in Waste Connections, Inc. v. Chevedden, the U.S. Court of Appeals for the Fifth Circuit affirmed the district court’s denial of a motion to dismiss for lack of subject matter jurisdiction by John Chevedden, James McRitchie and Myra K. Young (collectively, the “Defendants”).  Waste Connections had sued for a declaratory judgment that it could exclude from its 2013 proxy materials a shareholder proposal submitted by the Defendants.  After receiving Waste Connections’ complaint, the Defendants filed a motion to dismiss, in which they stated that they “covenant that they will not sue [Waste Connections] if it elects to exclude the proposal from its proxy materials and their decision not to sue is irrevocable.”[17]  Based on this covenant, the Defendants argued that they “have not caused any injury in fact of sufficient immediacy to confer standing upon [Waste Connections].”  In April 2013, the district court rejected this argument and denied the motion to dismiss, and the Fifth Circuit affirmed the district court’s decision in February 2014.  In reaching its decision, the Fifth Circuit noted that despite the covenant not to sue, excluding the proposal could subject the company to an SEC enforcement action.  It therefore concluded that Waste Connections had standing to seek a declaratory judgment.

However, three district courts in 2014 declined to follow Waste Connections.  In each of Omnicom Group, Inc. v. Chevedden,[18] Chipotle Mexican Grill, Inc. v. Chevedden[19] and EMC Corp. v. Chevedden[20] the shareholder proponents, Mr. Chevedden, Myra K. Young (a co-proponent in Chipotle) and James McRitchie (a co-proponent in EMC and Chipotle), “irrevocably promise[d]” not to sue the companies if they omitted the shareholder proposals.  Based on these promises, the courts in these cases held that the companies lacked standing.  Unlike the Fifth Circuit in Waste Connections, these courts determined that the possibility of an SEC enforcement action was not certain or immediate enough to establish an “imminent injury in fact.”  Accordingly, all three suits seeking declaratory judgments in favor of EMC, Omnicom and Chipotle were dismissed for lack of subject matter jurisdiction.

            B.        Company’s Statement in Opposition to a Shareholder Proposal

In Silberstein v. Aetna, Inc.,[21] plaintiff Stephen W. Silberstein brought suit against Aetna, Inc., its Chairman, CEO and President and members of its board of directors in the U.S. District Court for the Southern District of New York in November 2013 for alleged false and misleading statements in Aetna’s 2012 and 2013 proxy statements.  These proxy statements included shareholder proposals related to Aetna’s political contributions followed by statements in opposition referencing the company’s political contribution reports.  Among other allegations, the complaint alleges (1) that the statements in opposition overstated the audit committee’s oversight of Aetna’s political contributions and (2) that the political contribution reports contained several inaccuracies, including understatement of Aetna’s political contributions to certain organizations.  Mr. Silberstein sought to have the court “[d]eclar[e] void the vote of the Aetna shareholders in opposition to” the 2012 and 2013 shareholder proposals, to require Aetna to amend its 2006-2012 political contribution reports, to require Aetna to inform shareholders that its 2012 and 2013 statements in opposition included “inaccurate and incomplete information” and to require Aetna to resubmit the 2012 and 2013 proposals in its 2014 proxy statement.  Mr. Silberstein filed a motion for preliminary injunction to prohibit Aetna from distributing its 2014 proxy materials and from holding its 2014 annual meeting until it had amended its 2010-2012 political contribution reports, issued its 2013 political contributions report and informed shareholders of the alleged errors in the previous reports.  The court denied this motion because Mr. Silberstein “failed to demonstrate irreparable harm.”[22]  Aetna has since distributed its 2014 proxy materials (which included a shareholder proposal that is similar to the 2013 shareholder proposal), and it held its 2014 annual meeting on May 30, 2014.  The shareholder proposal that was similar to the 2013 shareholder proposal was approved by 5.3% of votes cast at the annual meeting, less than the 6.7% approval it received at the 2013 annual meeting.  The litigation is still pending in the Southern District of New York.


The developments discussed above demonstrate the continued complexity of the shareholder proposal process, particularly when litigation is involved.  Some lessons that companies should keep in mind as they begin to look toward 2015 include:

  • Attention to detail with procedural issues:  Because Staff decisions often hinge on minor nuances in language, companies should pay close attention to detail as they evaluate proponents’ proof of ownership letters and draft deficiency notices to proponents.
  • Shareholder engagement:  Companies have been successful in engaging with shareholder proponents, as reflected by the fact that the number of withdrawn proposals before and after filing a no-action request (174) exceeds the number of no-action letters allowing exclusion (161).
  • Proponent abuses of the shareholder proposal process:  Companies remain concerned about abuses in the shareholder proposal process, but to date the Staff has not been amenable to arguments regarding representatives and false statements.The Staff has been urged to provide more guidance in these areas.
  • Litigation:  While litigation is a viable option in some circumstances, experience this season indicates that predicting the outcome of litigation in this area is difficult.

   [1]   Gibson, Dunn & Crutcher LLP assisted companies in submitting the shareholder proposal no-action requests discussed in this alert that are marked with an asterisk (*).

   [2]   All data in this client alert on shareholder proposals submitted, withdrawn and voted on comes from ISS publications and the ISS shareholder proposals database as of June 2014 unless otherwise noted.  Other data was derived from no-action letters posted on the SEC’s website.

   [3]   See “More Companies Bow to Investors With a Social Cause,” The Wall Street Journal (Apr. 1, 2014), available at

   [4]   The total exceeds 100% because many no-action requests assert more than one argument for exclusion.

   [5]   See Exchange Act Release No. 20091 (Aug. 16, 1983).

   [6]   See Waste Connections, Inc. v. Chevedden, No. 4:13-cv-00176 (S.D. Tex. June 3, 2013).

   [7]   See Waste Connections, Inc. v. Chevedden, 2014 U.S. App. LEXIS 2731 (5th Cir. Feb. 13, 2014).

   [8]   Commissioner Daniel M. Gallagher recognized in a March 27, 2014 speech that it is problematic for proxies to submit proposals on a shareholder’s behalf:

This could be an opportunity to address the practice of “proposal by proxy,” where the proponent of a resolution—typically one of the corporate gadflies—has no skin in the game, but rather receives permission to act “on behalf” of a shareholder that meets the threshold.  While I would support banning proposal by proxy, we could also consider alternatives such as requiring a proponent acting on behalf of one or more shareholders to meet a higher percentage threshold of outstanding shares than would be the case for a proponent who owns the shares directly.

Daniel M. Gallagher, “Remarks at the 26th Annual Corporate Law Institute, Tulane University Law School: Federal Preemption of State Corporate Governance” (Mar. 27, 2014), available at

   [9]   SLB 14G states that a “proposal’s date of submission [is] the date the proposal is postmarked or transmitted electronically.”  In some cases, such as if the proposal is submitted via the U.S. Postal Service, this date is not the same as the date the company receives the proposal.  Please see our October 16, 2012 client alert describing SLB 14G in further detail.

  [10]   The Staff also scrutinized a company’s deficiency notice with respect to issues addressed in Staff Legal Bulletin No. 14F (Oct. 18, 2011) (“SLB 14F”) relating to proof of ownership.  SLB 14F stated that a proof of ownership letter generally must be from a DTC participant, explained how to identify the DTC participant and stated that a company’s deficiency notice must provide guidance to a proponent “in a manner that is consistent with the guidance contained in this bulletin.”  In Fifth Third Bancorp (avail. Feb. 4, 2014), the Staff allowed a proponent seven additional days to obtain corrected proof of ownership even though the proponent’s proof of ownership was not from a DTC participant, because the company’s deficiency notice “did not indicate how the proponent could determine who the DTC participant is for the proponent’s broker or bank” (i.e., “by asking its broker or bank or, if the broker is an introducing broker, . . . through the proponent’s account statements”).

  [11]   See Express Scripts Holding Co. v. Chevedden, 2014 U.S. Dist. LEXIS 19689 (E.D. Mo. Feb. 18, 2014).

  [12]   In their court cases that are discussed below, Omnicom Group Inc., Chipotle Mexican Grill, Inc. and EMC Corporation made similar arguments about information from GMI Ratings, as well as arguments that portions of the proposals were materially false or misleading.  The courts did not address these arguments because the cases were dismissed on jurisdictional grounds.

  [13]   See Exchange Act Release No. 40018 (May 21, 1998).

  [14]   See generally John W. White, “Corporation Finance in 2008 — A Year of Progress” (Aug. 11, 2008), available at

  [15]   In 2013, CalSTRS and Relational Investments LLC submitted a Rule 14a-8 shareholder proposal to The Timken Company requesting that it engage an investment banking firm to effectuate a spin-off of the company’s steel business.  The proposal received 53.4% of votes cast.  In response, Timken’s board formed a strategy committee consisting of all independent and non-Timken-family board members to evaluate a potential separation of the company’s steel business from its other businesses.  In September 2013, the board, upon the recommendation of the strategy committee, approved a plan to spin off the company’s steel business.

  [16]   See, e.g., Waste Connections, Inc. v. Chevedden, No. 4:13-cv-00176 (S.D. Tex. June 3, 2013), aff’d 2014 U.S. App. LEXIS 2731 (5th Cir. Feb. 13, 2014); KBR, Inc. v. Chevedden, 2011 U.S. Dist. LEXIS 36431 (S.D. Tex. Apr. 4, 2011), aff’d 478 Fed. Appx. 213 (5th Cir. June 11, 2012); Apache Corp. v. Chevedden, 696 F. Supp. 2d 723 (S.D. Tex. Mar. 10, 2010).

  [17]   See Defendants’ Motion and Supporting Memorandum to Dismiss for Lack of Subject Matter Jurisdiction, Waste Connections, Inc. v. Chevedden, No. 4:13-cv-00176 (S.D. Tex. Feb. 1, 2013).

  [18]   2014 U.S. Dist. LEXIS 33036 (S.D.N.Y. Mar. 11, 2014).

  [19]   2014 U.S. Dist. LEXIS 33378 (D. Colo. Mar. 14, 2014).

  [20]   2014 U.S. Dist. LEXIS 33940 (D. Mass. Mar. 16, 2014).

  [21]   See Amended Complaint, Silberstein v. Aetna, Inc., No. 1:13-CV-08759 (AJN) (S.D.N.Y. Mar. 3, 2014).

  [22]   See Memorandum & Order, Silberstein v. Aetna, Inc., No. 1:13-CV-08759 (AJN) (S.D.N.Y. Apr. 9, 2014).

Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have regarding these issues.  Please contact the Gibson Dunn lawyer with whom you usually work, or any of the following:

John F. Olson – Washington, D.C. (202-955-8522, [email protected])
Brian J. Lane – Washington, D.C. (202-887-3646, [email protected])
Ronald O. Mueller – Washington, D.C. (202-955-8671, [email protected])
Amy L. Goodman – Washington, D.C.  (202-955-8653, [email protected])
James J. Moloney – Orange County, CA (949-451-4343, [email protected])
Elizabeth Ising – Washington, D.C. (202-955-8287, [email protected])
Gillian McPhee – Washington, D.C. (202-955-8201, [email protected])
Gregory S. Belliston – Washington, D.C. (202-887-3605, [email protected])

© 2014 Gibson, Dunn & Crutcher LLP

Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.