Like a lot of his fellow shareholder gadfly activist proponents Broc Romanek seems a bit put out by Steven Davidoff Solomon's NY Times column Grappling With the Cost of Corporate Gadflies. Broc listed 10 reactions. Here are my reactions to Broc:
1. Never Use the Loaded “Gadfly” Term – It’s politically incorrect to call someone a “gadfly.” Trust me, it is. ...
And your point would be what? If the shoe fits, etc.... Political correctness is lame.
2. Gilbert Brothers Brought Rule 14a-8 to Life ....
Apropos of Broc's point # 1, here was the headline for John Gilbert's obituary: John J. Gilbert Is Dead at 88; Gadfly at Corporate Meetings. If gadfly is good enough for the Grey Lady, it's good enough for me. Anyway, the obit went on to say of his persistent questioning of CEOs that "not a few of whom considered it badgering." In 1982 alone, these busybodies submitted 198 shareholder proposals to companies. In 1991, they submitted a whopping 75 out of 319 proposals. (Data from this paper.) What I can't find is data on how many of these proposals passed. My guess is zero. In any event, that's not governance. It's a fraking obsession. See Douglas M. Branson, Corporate Social Responsibility Redux, 76 Tul. L. Rev. 1207, 1215 (2002) ("in those years the shareholder proxy proposal area was a territory occupied by corporate gadflies, such as the Gilbert brothers and Evelyn Davis. Critics pointed out that most proposals were motivated more by narcissism than by any heartfelt concern about improved governance or social responsibility"); D. A. Jeremy Telman, Is the Quest for Corporate Responsibility A Wild Goose Chase? The Story of Lovenheim v. Iroquois Brands, Ltd., 44 Akron L. Rev. 479, 487 (2011) ("There arose in the 1940s the phenomenon of the “gadfly investor.” Three such investors, Lewis and John Gilbert and Evelyn Davis, still accounted for 30% of the resolutions submitted to corporations as late as 1982. Their prominence among proponents led to cries that the process was being abused by people who were not interested in the economic well-being of the corporation but by people promoting 'crackpot' ideas or 'afflicted with an insatiate desire for personal publicity.'").
3. Most Individual Proponents Don’t Like Being Grouped Together – John Gilbert hated being lumped together with EYD in media articles. They didn’t act in concert.
And your point would be what? I'm sure Iraq, Iran, and North Korea didn't like being lumped together as the axis of evil.
4. Remarkable That Anyone Bought EYD’s “Highlights & Lowlights” – It’s amazing to me that any company would cave to what is essentially blackmail and buyEvelyn Davis’ “Highlights & Lowlights” – which essentially was a publication about herself. But it was a smart investment for anyone that didn’t want EYD to cause trouble at the annual meeting.
EYD was running a racket not unlike the Sōkaiya in Japan: Blackmailing "companies by threatening to publicly humiliate companies and their management, usually in their annual meeting." Today, of course, its union pension funds that abuse the 14a-8 shareholder proposal to extract private gains at the expense of their fellow shareholders. But 14a-8 is still an enabler of racketeers.
Speaking of Evelyn Davis, here's a few more facts: "Until rather recently, people like Johnny Carson,96 Dr. Spock,97 and others of their ilk were nominated from the floor of the annual meeting by the Evelyn Davises of the world." Thomas J. Andre, Jr., The Corporate Governance Reform Act of 1995, 17 J. Corp. L. 87, 101 (1991). "Mrs. Davis stated at the 1972 annual meeting ‘I'm opposed and against women directors and women officers. I'd much rather deal anytime with the worse men than the friendliest woman.’" Leila N. Sadat-Keeling, The 1983 Amendments to Shareholder Proposal Rule 14a-8: A Retreat from Corporate Democracy?, 59 Tul. L. Rev. 161, 197 n.112 (1984).
5. What Is a “Successful” Shareholder Proposal? – Davidoff presumes that a shareholder proposal is successful only if it receives majority support from shareholders. But I define it much differently. For the proponent who brought the proposal, the definition of success may vary. They merely might want to force the board to consider the issue of the proposal. They actually might want to use a proposal to gain attention so they can obtain a meeting to discuss a more pressing issue (for which they don’t want to publicly disclose).
Does Broc really want to celebrate the use of Rule 14a-8 for disingenuous private purposes? Or to celebrate forcing companies to spend money - i.e., to coerce speech - to give some asinine gladfly a soapbox? Even a proponent of board-shareholder engagement admits that "there is a lot of anecdotal evidence suggesting that often the few people who attend annual meetings do so in order to be disruptive. These anecdotes support the notion that shareholder meetings have become, in one expert's words, a '[t]heater of the [a]bsurd.'" Lisa M. Fairfax, Mandating Board-Shareholder Engagement?, 2013 U. Ill. L. Rev. 821, 837 (2013).
I say repeal 14a-8 and let them send out tweets.
6. Most Recent Court Cases Have Resulted in Losses for Companies
Which is sort of the point. The law is too favorable for shareholder proponents.
7. $87 Grand for No-Action Requests? Call My Lawyer – The gist of the Davidoff article is that shareholder proposals are costing companies so much money. Of course, that depends on whether a company decides to seek no-action relief from Corp Fin to exclude them. Davidoff throws out that it costs companies $87,000 per proposal for “dealing with them.”
Sorry, but we really are talking about serious money here. As far back as 2001, Roberta Romano tolds us that "the estimated present value of the cost of the current regime ... ranges between $293 million and $1.9 billion." Less Is More: Making Institutional Activism A Valuable Mechanism of Corporate Governance, 18 Yale J. on Reg. 174, 182 (2001). See also Alan R. Palmiter, The Shareholder Proposal Rule: A Failed Experiment in Merit Regulation, 45 Ala. L. Rev. 879, 926 n.15 (1994) (citing Susan Leibler's well-known study "using reported costs of shareholder proposals in 1976 and 1981 to estimate that shareholder proposals, both included and excluded, during 1975-1976 proxy season cost U.S. companies a total of $7 million").
8. No-Action Process Ripe for Reform? – Anyways, if the real beef is cost – why not go to the heart of the matter and reduce the costs inherent in the no-action process?
I actually agree with the need for no action letter reform, but that doesn't change the fact that we also need Rule 14a-8 reform.
9. Do Institutional Investors Support Proposals From Individual Proponents? – It appears that Davidoff didn’t bother to talk to any institutional investors to ask their opinion about individual proponents. If he did, I can tell you that most would support the right of these shareholders to submit proposals (in fact, EYD was known to pick topics that would receive wide support on purpose). And that institutions have supported their proposals many times over the years
Broc's probably right that union and state/local government pension funds support expansive Rule 14a-8 rights. After all, they're big abusers of the rule too. I'm not convinced that mutual funds and so on would be so supportive.
10. Shouldn’t the Topic of the Proposal Matter, Not Who Submitted It? – Yep. Amen.
No. The identify of proponents matters a lot. We need to make it a lot harder for hobbyist gadflies like the Gilberts and private rent-seekers like union and state/local government pension funds to abuse the process.
