DealLawyers.com Blog

From the ISS “Corporate Governance Blog“:

“Should dissidents get reimbursed for running proxy contests even if they lose? That’s the premise of a new proposal filed by the American Federation of State, County and Municipal Employees (AFSCME) now expected to go to a vote at three companies. The proposal calls on American Express, Citigroup and Bank of New York, to amend their bylaws to allow “for reimbursement of expenses in proxy contests where a dissident shareholder seeks to elect less than a majority of the board.” Under the proposal dissidents who actually succeed would be fully reimbursed, but even some losers could receive partial reimbursement under a complex sliding scale, though only if the vote exceeds a certain threshold. AFSCME argues that proxy contests have been rare because the costs for drafting and mailing proxies, and for hiring advisors, are high.

Both American Express and the Bank of New York attempted to exclude the proposals on several grounds including that it was in contrast to commission rules requiring security holders to bear the mailing costs associated with proxy solicitations. The companies also sought to exclude the proposal by citing SEC Rule 14a-8, which allows for omission if a shareholder resolution relates to director elections, or deals with matters related to the company’s ordinary business. The SEC rejected the companies’ assertions, so the proposals will now appear on proxy statements beginning next month.

Rich Ferlauto, director of pension and benefit policy at AFSCME, says that, “In lieu of proxy access, reimbursement for solicitation expenses will give shareholders a needed leg up in the board room when it comes to confronting unresponsive and unaccountable boards.”

If the proposal passes–a long shot at best given it’s a first-year proposal, analysts say–will the number of such contests increase?”