Back when Corp Fin decided to bow out of serving as the referee for this proxy season, many preached that companies still had to be careful when deciding whether to exclude a proposal. Serving as the referee isn’t easy – and definitely opens you up to second-guessing. Something that the Corp Fin Staffers who have served on the “Shareholder Proposal Task Force” know all too well.
As this Cooley alert noted, omitting a proposal this year without substantive staff concurrence could heighten the risk of litigation by proponents. That advice was prescient as this Reuters article reports that the NYC public pension funds have sued a company over its decision to exclude a workforce diversity shareholder proposal after the company decided it had a “reasonable basis” to exclude and went through the process to procure this Rule 14a-8(j) “no objections” letter from Corp Fin.
In the lawsuit, the NYC public pension funds allege that the company “cited the ordinary business exclusion …as the only basis for excluding the Funds proposal” and contend that the company failed to meet its “burden to prove that it has a valid basis to exclude a proposal” under the ordinary business – or any other – exclusion. The lawsuit seeks to enjoin the company from soliciting proxies without including the shareholder proposal in the proxy. So the court is now the referee for this particular shareholder proposal.
It’s worth noting that this particular proposal involves some unique circumstances. The NYC public pension funds have more resources than most proponents – and the company’s exclusion notice was very concise and didn’t include the sort of mini no-action analysis that many other companies have included. Thanks to Cooley’s Beth Sasfai, Brad Goldberg and Michael Mencher for their analysis…
Authored by
Broc Romanek