Update on VSM-Related Proposals

Here's a major update to my last post about VSM-related shareholder proposals. The SEC staff has posted on its Shareholder Proposal No-Action Responses site the letter it sent to Brinker International last week. Here are the two key sentences:

We are unable to concur in your view that the Company may exclude the Proposal under rule 14a-8(i)(7). In light of technological progress and public health guidance in light of the COVID-19 pandemic, in our view the issue of shareholders’ virtual access to annual and special shareholder meetings does not relate to the Company’s ordinary business operations.

Interesting. So they are making this about... COVID? As James Carville might say, "It's the pandemic, stupid!"

What Significant Policy Issue?

The posting on the SEC site includes something we hadn't seen before: The Humane Society's letter in response to Brinker International's No Action request letter. Here's the paragraph from The Humane Society's letter that sums up its appeal to the SEC staff:

The Proposal seeks a shareholder vote on a high-level policy that implicates issues of shareholder health and safety, inclusion and accessibility, and on environmental sustainability, such as energy and emissions reduction. These have long been significant social issues and have taken on extraordinary significance in light of the global pandemic, civil rights demonstrations, and a renewed government focus on combatting climate change. Indeed, the Company itself has touted its commitment to each of these issues. In light of this, and innovations in remote work and communications tools, the Proposal simply asks shareholders in broad terms whether the Company should incorporate a policy of adding a virtual attendance component to its annual and special meetings.

Notice how they use the term "significant social issues" and try to make some association of their ask on VSMs to last year's civil rights demonstrations. That's very creative on the part of The Humane Society to invoke the "sufficiently significant policy issue" exception to Rule 14a-8(i)(7), which originated in a SEC rule adopting release in 1976 (SEC Release No. 34-12999), however, it doesn't feel to me like that's the hook that worked.

The "significant policy issue" that SEC staff's response seems to latch onto is COVID, or in the staff's words, the "public health guidance in light of the COVID-19 pandemic." Without that, we'd only be left the with the "technological progress" prong of the SEC staff's response, and I highly doubt that's what made this proposal different the ones filed at EMC and all of the other companies.

What happens when the public health guidance in light of the pandemic is eventually lifted? The justification for making a No Action exception to Rule 14a-8(i)(7) based on a significant policy issue goes away, right? Or, does the technological progress prong then prevail, and shareholder proposals asking companies to always provide a remote attendance option go through as a matter of good public policy? What would that mean for proposals asking companies to always provide an in-person option? Successfully invoking the significant policy issue exception may hinge on expanding access to shareholder meetings, which the remote option does, but the in-person option does not. But, there are those who would argue that the qualitative aspect of in-person attendance should also be a public policy consideration.

Watch What You Say

For the record, I actually agree with the basic principle of The Humane Society's proposal. I'd like to see every company provide some kind of remote option for shareholder meetings because it increases access. But, I also agree with Brinker International, Campbell Soup and Cracker Barrel that the VSM requires a lot of work, whether making a change from having done things 100% in person for years or cobbling together a hybrid meeting, which requires more staffing and expense than if you are just doing one or the other.

I've been the person responsible for those events at a company, and it would be hard for most corporate secretaries to procure more staff to pull off a hybrid meeting. There are a host of decision points that have to be made at different times based on various pros and cons, and the planning begins months before the proxy statement goes to print. At the end of the day, management is the group that has to make these calls and execute, all of which requires juggling a lot of moving parts and weaving together multiple threads. So, in my mind, this is part of "management functions" and "the company's ordinary business operations," to quote the rule itself. I don't see the recent technological progress in the VSM space, the current pubic pandemic guidance or the two considered in tandem constituting "policy issues that are sufficiently significant because they transcend ordinary business" to the point that The Humane Society's proposal "would be appropriate for a shareholder vote," especially since The Humane Society is asking for a vote this year on a practice that wouldn't start until late 2022.

However... The Humane Society points to my own work to counter my feelings of empathy for corporate management:

A multi-stakeholder working group reported that, prior to the health focus of 2020, companies that held meetings virtually “cited the ‘environmentally friendly’ aspects of online events, greater convenience for an expanded pool of shareholders to participate in corporate governance.” Report of the 2020 Multi-Stakeholder Working Group on Practices for Virtual Shareholder Meetings (Rutgers Center for Corporate Law and Governance, Council of Institutional Investors, Society for Corporate Governance), December 10, 2020, p. 8. The report recognized the potential for virtual shareholder meetings to be an “important part” of company engagement and to “provide more substantive content on a broader set of subjects of importance to its shareholders, including environmental, social and governance (“ESG”), sustainability, and corporate citizenship.” Id., p. 19.

Touché, Humane Society. Well played.