| The SEC Likes Nonbinding Proposals, Too |
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Earlier this year we considered the subject of nonbonding shareholder proposals, as Carl Icahn submitted them at Apple and eBay, and Starboard did the same at Darden. We wondered why big-time activist hedge fund PMs would get involved with the same kinds of resolutions as social and governance activists.
It turns out SEC Chair Mary Jo White has also pondered this question. In a speech earlier this week, she urged BoDs to take seriously these proposals:
Look thoughtfully at the proposals shareholders [submit] to your company. Ask your management team about them and about the proposals that other companies [receive] that could be relevant to your company. Look at the voting results at shareholder meetings - the percentage of votes for a shareholder-supported resolution or against a management-supported resolution are important, irrespective of whether the resolution is approved...
The entire speech merits a quick read, too.
Of course, BoDs can't look thoughtfully at shareholder proposals if investors don't vote on them. As we noted awhile ago, PMs should consider these carefully, and vote accordingly. While nonbinding proposals lack direct impact on a portfolio company, their practical impact makes them worth a serious effort.
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Late last month we considered why Carl Icahn might get mixed up with non-binding (precatory) proposals at Apple and eBay.
We speculate that he studied the strategy that Ralph Whitworth at Relational Investors and CalSTRS undertook at Timken, where a non-binding proposal probably helped speed along the decision to spin-off its steel business. We conclude Icahn may do this because starting this year, shareholder proposals can pressure corporations in new ways.
It seems Jeff Smith at Starboard Value studied the same strategy. This week Starboard announced its plan to submit a non-binding resolution opposing Darden Restaurants' announced spin-off of its Red Lobster business. And, Starboard intends to call a special shareholder meeting for the sole purpose of voting on that resolution. In addition to presenting some interesting strategic choices, it seems that Starboard may not have any other option for opposing the spin-off.
It comes down to winning the hearts and minds of other investors. The extent of support for resolution and special meeting constitute an early sign of what other investors think about the Starboard and Darden plans for the company.
We analyze this situation in a current blog post.
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