In a reversal of an earlier ruling, the Division of Corporation of Finance has advised Lowe’s Cos. that it may omit from its proxy materials a shareholder proposal seeking an amendment to the company’s proxy access bylaw. After considering new information submitted by Lowe’s, the staff determined that the company has substantially implemented the proposal.
The proposal, which was submitted by John Chevedden, requested that the Lowe’s board take the steps needed to enable at least 50 shareholders to aggregate their shares to equal 3 percent of company shares owned continuously for three years in order to make use of proxy access. Chevedden noted that even if the 20 largest public pension funds were able to aggregate their shares, they would not meet the 3 percent criteria for a continuous three years at most companies examined by the Council of Institutional Investors.
Chevedden added that many of the largest investors of major companies are routinely passive investors who would be unlikely to be part of the proxy access shareholder aggregation process. He also believes that under his proposal it is unlikely that the number of shareholders who participate in the aggregation process would reach an unwieldy number due to the rigorous rules Lowe’s management adopted for a shareholder to qualify as one of the aggregation participants.
Initial ruling. In a March 2 letter to Lowe’s, the staff determined that the company could not omit the proposal based on Rule 14a-8(i)(3), which allows the exclusion of proposals that are materially false and misleading. The staff also determined that Lowe’s could not avail itself of Rule 14a-8(i)(10), which covers proposals that have been substantially implemented.
Reconsideration request. After noticing that the staff was allowing a number of other companies to omit a similar proxy access shareholder threshold proposal under Rule 14a-8(i)(10), Lowe’s wrote back to the staff asking it to reconsider its earlier ruling. In the reconsideration request, Lowe’s reiterated its belief that limiting the size of a nominating group to 20 achieves the essential objective of the proposal by ensuring that shareholders are realistically able to aggregate their shares in order to meet the ownership threshold, while also addressing administrative concerns that might arise if a large number of shareholders sought to nominate director candidates.
The company provided additional data, including the fact that four of the company’s largest institutional shareholders each owned more than three percent of the outstanding common shares as of December 31, 2016. As a result, under the existing 20-person aggregation limit, as long as a shareholder partners with at least one of the four largest institutional shareholders, he or she will be able to use proxy access.
Innumerable shareholder combinations. Lowe’s also argued that any 20 holders of at least 0.15 percent of the outstanding shares may aggregate their holdings to meet the threshold, and that innumerable combinations exist between the two extremes. In the company’s view, therefore, a 20-shareholder aggregation limit achieves the objective of making proxy access fairly and reasonably available to all shareholders, regardless of the size of their individual holdings.
Lowe’s further contended that Chevedden’s proposal would not necessarily increase the number of shareholders that can use proxy access. Rather, it would simply reduce by 60 percent the average number of shares each member of a group would need to own if the maximum number of shareholders were needed to form an eligible group. Any increase in the aggregation limit merely increases the number of shareholder combinations that could create a group owning more than three percent of the common shares, the company stated.
Upon reconsideration, the staff determined that Lowe’s policies, practices and procedures compare favorably with the terms of the proposal. In the staff’s view, therefore, the company has implemented the proposal and may exclude Chevedden’s proposal from its proxy materials.
Companies: Lowe’s Cos., Inc.
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