DealLawyers.com Blog

I’m sure you’ve already heard about the Starbucks proxy contest led by the Strategic Organizing Center, a coalition of labor unions, including the Service Employees International Union (SEIU). If not, this Wall Street Journal article discusses the coalition’s concerns and its three nominees. The article notes that the coalition has submitted shareholder proposals in the past, but this is the first time it has launched a proxy contest. It makes only a brief reference to universal proxy — noting that UPC could benefit the coalition.

But others have expanded on this point. Michael Levin at The Activist Investor has called this “the first ESG proxy contest under UPC.” And, while this Paul Hastings alert is cautious about extrapolating too much from one contest, it says this might be early evidence that some of the corporate world’s concerns about UPC are coming to fruition:

Some corporate observers recognized the possibility that universal proxy would enable and encourage labor unions and other single-agenda activists to hijack the director election process as a means to advance their agenda and extract management concessions. SEC representatives, universal proxy supporters and some corporate advisors dismissed the idea as fear mongering, and were quick to seize on the lack of comparable campaigns during the 2023 proxy season as clear and irrefutable evidence that such fears were unwarranted [but] [t]he SEIU campaign should remind corporations that the full implications of the universal proxy card cannot be assessed after a single proxy season. We would expect similar campaigns organized by labor and other interest groups will occur in the coming proxy seasons.

The alert explains how UPC has made using “the annual shareholder meeting process as a very public platform to pressure corporate management and advance their agendas” more attractive to activists:

The fact is that these nominal contests by single-agenda activists can be conducted inexpensively with the activist mostly freeriding on the company’s proxy solicitation efforts. The universal proxy rules require that a dissident solicit shareholders representing at least 67% of the voting power of shares entitled to vote on the election of directors. While the SEC Staff has made clear through interpretive guidance that merely filing a proxy statement on EDGAR is not sufficient to meet the 67% solicitation requirement, according to the SEC’s adopting release, these solicitation costs even at a mega-cap company would be less than $10,000. Further, based on publicly available data from FactSet, we estimate that the SEIU would have to mail proxy materials or provide electronic access through e-proxy procedures to less than 300 Starbuck’s shareholders to meet the 67% solicitation requirement.

[…] In addition to lowering the campaign cost for a dissident group, the inclusion of the dissident’s nominees on the management proxy card is likely to increase the chances that shareholders elect at least one of the three SEIU nominees.

What’s a board to do? The alert makes some recommendations. One cites a workers’ rights proposal that received support from a majority of shareholders at the 2023 annual meeting, and suggests companies closely consider voting results on shareholder proposals and, where a proposal garners significant support, proactively engage with shareholders “to make sure [the board is] responding to the concerns that caused shareholders to vote in favor of such proposal.”

– Meredith Ervine