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November 23, 2011
Two Shareowner Proposals Request Proxy Access
    by Robert Kropp

The proposals are based on a Model Shareowner Proposal for Proxy Access, developed by the United States Proxy Exchange, which requests shareowner votes under SEC Rule 14a-8.

Two shareowner proposals addressing proxy access have been submitted thus far for the 2012 proxy season, at MEMC Electronic Materials and Textron. Both proposals, filed by shareowner activist Ken Steiner, are based on a Model Shareowner Proposal for Proxy Access published this month by the United States Proxy Exchange (USPX).

The proposal submitted at MEMC noted that more than half of active board members hold no shares in the company, while the CEO was awarded options worth over $14 million in 2009 without performance criteria. At Textron, the proposal stated, "Executive compensation is a particular concern, with cash-based long-term compensation that does nothing to tie executive performance with long-term shareholder equity value."

The proposals request shareowner votes under Securities and Exchange Commission (SEC) Rule 14a-8, which requires companies to permit shareowner proposals that either request the implementation of proxy access or seek to directly amend bylaws in order to implement proxy access. If supported by a majority of shareowners, the proposal would allow shareowners to nominate candidates for corporate boards of directors.

Rule 14a-8 requires a multi-year process, as a proposal requesting proxy access would have to pass before shareowners are permitted to submit nominees. To be eligible for submitting a proposal under the rule, shareowners must have continuously held at least $2,000 in a company's market value for at least one year.

The focus by USPX on Rule 14a-8 became necessary in July, when the US Court of Appeals in Washington DC agreed with a US Chamber of Commerce challenge to SEC Rule 14a-11. Rule 14a-11, if it had been enacted, would permit shareowners who have owned at least three percent of a company for at least three years to have their nominees for boards of directors included in corporate proxy materials.

However, Rule 14a-11 also capped the total number of shareowner nominations equal to the greater of one nominee or 25% of the number of board members. Rule 14a-8 has no limitations on the number of nominees.

While many institutional investors expressed strong support for Rule 14a-11—in response to the decision by the Court of Appeals, Ann Yerger, executive director of the Council of Institutional Investors (CII), said, "We will continue to advocate for proxy access and will encourage the SEC to promptly address the court's concerns. Proxy access is a core shareowner right that is standard in many countries"—USPX argued that the Rule's thresholds were too high for retail shareowners.

In the 13 pages of discussion that accompanies its model proposal, USPX noted its objections to the "anti-democratic" aspects of Rule 14a-11, and stated, "We applaud the SEC for amendments to Rule 14a-8 to allow shareowners to submit their own proposals for alternative—and presumably better—forms of proxy access at individual corporations. This 'private ordering' approach to proxy access should allow shareowners to experiment with different approaches to proxy access at individual firms, to see what works."


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