I am no fan of John Chevedden, the famous (or, if you prefer, infamous) shareholder activist (or, if you prefer, gadfly), but even a stopped clock is right twice a day. Per SEC Rule 14a-8, Chevedden recently put forward the following proposal for inclusion in HP Inc.'s annual proxy statement:
RESOLVED: Shareholders request that our Board adopt a corporate governance policy to initiate or restore in-person annual meetings and publicize this policy to investors.
Our management has adopted procedures allowing it to discontinue a Corporate America tradition - a physical stockholders meeting and "substitute" a virtual meeting - an alarming decision.
Internet-only meetings should not be substituted for traditional in-person annual meetings. The tradition of in-person annual meetings plays an important role in holding management accountable to stockholders.
Personally, I think Chevedden is wrong about the substantive merits of internet-only meetings. They are perfectly lawful in most (all?) states and an increasingly efficient means of shareholder communication.
But I also disagree with the SEC's conclusion that the proposal could be omitted under the exception for ordinary business matters.
The problem, of course, is that the Rule 14a-8(i)(7) exclusion of ordinary business maters is a badly screwed up mess. My article Revitalizing SEC Rule 14a-8’s Ordinary Business Exclusion: Preventing Shareholder Micromanagement By Proposal, 85 Fordham Law Review 705 (2016), which is available online here, documented that Rule 14a-8(i)(7) is intended to permit exclusion of a proposal that “seeks to ‘micro-manage’ the company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.”
Unfortunately, court decisions have largely eviscerated the ordinary business operations exclusion. For example, corporate decisions involving “matters which have significant policy, economic or other implications inherent in them” may not be excluded as ordinary business matters. This creates a gap through which countless proposals have made it onto corporate proxy statements.
The Article proposes an alternative standard that is not only grounded in relevant state corporate law principles but is easier to administer than the existing judicial tests. Under it, courts first look to the state law definition of ordinary business matters. The court then determines whether the matter is one of substance rather than procedure. Only proposals passing muster under both standards should be deemed proper.
Under my proposed test, shareholder proposals that try to mandate how the board should decide specific substantive business decisions are excludible as matters of ordinary business, but proposals that define the process and procedures by which those decisions are made are permissible. Chevedden's proposal goes to how the shareholders meet and thus falls on the procedure side of the line. It therefore should not be a matter of ordinary business.
