Back when Exxon’s board first created its retail voting program – allowing retail shareholders to submit advance instructions to always vote with Exxon’s management – the New York City Comptroller’s Office submitted a shareholder proposal asking Exxon to open up the program to allow retail shareholders to submit other standing instructions, that would not always vote with management (such as, for example, voting as a particular proxy advisor recommends). Exxon, of course, recommended shareholders vote against the proposal because, as I blogged at the time, Exxon argued it would be violating its own fiduciary obligations to offer such an option.
Anyway, the SEC recently worked with Tesla to create a template for similar retail voting programs at any company. In connection with that, the SEC also just issued two CFIs about these programs. In the first, the SEC affirms that no company that offers standing voting instructions to always vote with management is required to create an option to allow shareholders to vote in accordance with the recommendations of a third party, which, not surprising.
But the second CFI says:
Question: Can a registrant’s retail voting program offer shareholders an option to submit standing voting instructions that require votes to be cast in accordance with voting recommendations issued by a third party?
Answer: A registrant may be engaging in a solicitation subject to the federal proxy rules when it communicates with shareholders about submitting standing voting instructions through the registrant’s retail voting program. Accordingly, absent an available exemption under Rule 14a-2(a), such communications may be soliciting materials subject to Rule 14a-9, which prohibits material misstatements and omissions.
Registrants that want to permit shareholders to submit standing voting instructions requiring votes to be cast in accordance with third-party voting recommendations should consider, for purposes of Rule 14a-9, whether shareholders would be furnished with material information about the recommendations necessary to understand how their shares will be voted on a particular proposal at an upcoming meeting pursuant to the instructions. Two important factors that should be considered are whether shareholders will:
- receive the third-party voting recommendation on a particular proposal at no cost; and
- have sufficient opportunity after receiving the recommendation to override the vote to be cast pursuant to the standing voting instruction.
For example, the third party may provide its voting recommendation to the registrant at no cost and with sufficient time so the vote to be cast on a particular proposal pursuant to the instruction is disclosed in the registrant’s definitive proxy statement. Alternatively, the third party may agree with the registrant to provide the voting recommendation directly to shareholders at no cost and with sufficient time for shareholders to override the instruction by voting on the registrant’s proxy card for the meeting.
So this is a bit convoluted but I think the SEC is suggesting that if an issuer allows retail to vote as a third party recommends – Glass Lewis’s ESG policy, or As You Sow, or something – the issuer is responsible if the third party violates Rule 14a-9, which includes a requirement that the policy be offered for free.
Look, it’s not that I expected issuers to be leaping over themselves to offer retail shareholders the opportunity to vote against management, but apparently just in case that might happen, the SEC is there to ensure issuers are strongly incentivized against it.
And there is no other thing. No new Shareholder Primacy podcast this week; back soon!
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