Investors Protest Corporate Lawsuits Against Shareowners (SocialFunds; 3/25/14)

by Robert Kropp

A coalition of investors led by NorthStar Asset Management writes to four companies that have sought to bypass regulatory system by bringing lawsuits against shareowners for resolutions they filed.

SocialFunds.com — Companies seeking to exclude shareowner resolutions from their proxy ballots traditionally request a no-action letter from the Securities and Exchange Commission (SEC). The process, accoridng to a recent letter from a coalition of investors led by NorthStar Asset Management, is “well-established, functional, and mutually-agreed” upon.

“Sidestepping the role of the SEC as the ‘moderator’ of engagement between corporations and shareholders diminishes the authority of the SEC,” the investor letter continued.

The investor letter was addressed to four corporations—EMC, Omnicom, Express Scripts, and Chipotle Mexican Grill—because they attempted to do just that: bypass the authority of the SEC by filing expensive lawsuits against shareowners for filing resolutions. This month, at least two lawsuits filed by corporations seeking to have resolutions excluded from their proxy ballots have failed. A judge in Massachusetts ruled in favor of Chevedden and CorpGov.net founder James McRitchie, who had filed a resolution calling for an independent Chair at EMC. The information technology company sought a no-action letter from the SEC, but its request was turned down. It then filed suit, and lost a second time.

Also, a judge in New York ruled in favor of Chevedden, granting him a dismissal of a lawsuit brought against him by Omnicom.

Writing to EMC, the investors stated, “while you certainly had the legal right to go to court to overturn the SEC’s no action decision, we question the necessity, wisdom and use of shareowner resources to do so.”

Despite the fact that three of the lawsuits have been decided in favor of the shareowners, “our concerns about the motivations and implications of these suits remain,” the investors continued.

The Massachusetts judge who found in favor of Chevedden and McRitchie observed that seeking a declaratory judgment in the courts amounts to “’reversing the statutory scheme,’ and would also deny the SEC of its role, as the procedures of the SEC provide shareholders with a ‘relatively inexpensive opportunity to get claims disputes resolved,’” according to the investor letter.

The letter also observed that the companies appear to be singling out Chevedden as the target of their lawsuits, because “his resolutions often receive majority votes from shareholders…We strongly urge the company to deal with the proposal’s resolved clause based on its merits.”

See the original article here.

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