Archive for February, 2015

CalPERS, activist shareholder battle Whole Foods

February 23, 2015

James McRitchie of Elk Grove, a retired state worker and publisher of a corporate governance website, asked Whole Foods Market last fall to allow its large, long-term shareholders to put their candidates for the board of directors on the company ballot.

The Whole Foods response led to SEC action last month that energized a new drive by CalPERS and other big investors for proxy access, the long-sought ability of shareholders to put board candidates on voting cards companies send to shareholders.

“Whole Foods, in a not so wholesome move, decided they would ask the SEC to allow them to exclude Jim McRitchie’s proposal,” Anne Simpson, CalPERS global governance director, told the CalPERS board last week.

Whole Foods obtained a Securities and Exchange Commission staff ruling that its more restrictive proposal to allow proxy access could replace McRitchie’s on ballots sent to shareholders.

After CalPERS and others objected, SEC chairwoman Mary Jo White last month ordered a review of the staff ruling. Given that go-ahead, CalPERS and other big investors are backing a drive to place proxy access on company ballots, petitioning about 100 so far.



The coalition means business: The California Public Employees Retirement System and others are warning they will use their shareholder clout to vote against board members who try to derail proxy access.

“If companies frustrate this process by going to court or using cleverness as an alternative to decency, then we will hold the board accountable,” said Simpson.

State Treasurer John Chiang, elected to the office last fall after two four-year terms as state controller, told Simpson he appeared in person at an ExxonMobil shareholder meeting to support a challenge on a global climate issue.

“So to the extent you think there is a role for us to engage in those kinds of efforts at some point, please feel free to share them,” said the treasurer, who has a seat on the boards of CalPERS and the California State Teachers Retirement System.

Earlier this month the CalSTRS board formally supported proxy access similar to the McRitchie proposal. It’s based on an SEC plan, blocked by the courts, allowing proxy access to shareholders with at least 3 percent of shares held for three consecutive years.

A CalSTRS news release said its corporate governance unit, led by Anne Sheehan, will “urge fellow shareholders to withhold their votes from company directors” who exclude or pre-empt a proxy access proposal similar to the SEC plan.

Proxy access has been a CalPERS top priority for nearly two decades, Simpson reminded the board last week. Nominations to company boards are usually made by board committees, often with advice from company executives.

The company puts its board candidates on a proxy voting ballot sent to shareholders. If shareholders don’t have access to the company proxy, they would have to send out a separate ballot, which can be costly.

Advocates say proxy access, common in Europe, is a shareholder right that would enliven elections. A changed board could break up an insider club, be more responsive to shareholders and provide better oversight of companies and executive pay.

Proxy access is said to be particularly important for long-term institutional investors like CalPERS with large amounts of a single stock, sometimes in market index funds. If unhappy with a company, it’s not easy for them to sell their shares.

Companies have resisted proxy access, arguing that boards know the needed qualifications and expertise. Opening the proxy could make it easier to push special interest proposals, favoring some at the expense of others and damaging the company.

“The rule sought to give outside groups — think organized labor and ‘social investors’ — easier access to board of director ballots, undermining the primacy of management, directors and shareholders in running a business,” a Business Roundtable news release in 2011 said of the SEC proxy access plan.

Some critics say the CalPERS board is dominated by public employee unions. CalPERS would like to align its investments with “environmental, social and governance” goals said to be needed for the long-term “sustainability” of companies.

Institutional investors like CalPERS hoped they were on the way to proxy access when the Dodd-Frank Wall Street reform in 2010, enacted after the credit crisis, reaffirmed the authority of the SEC to issue a proxy access rule.

A new SEC rule, approved on a 3-to-2 vote, automatically granted proxy access to shareowners to nominate candidates for up to 25 percent of the board seats, if the shareowners hold 3 percent of shares continuously for three years. But the rule was overturned in 2011.

An appeals court said the SEC failed to adequately consider the rule’s effect on “efficiency, competition and capital formation.” Denied a blanket rule, investors began a company-by-company drive to put approval of proxy access on shareholder ballots.

Whole Foods countered McRitchie’s SEC-based proposal with a plan to allow proxy access if 9 percent of shares were held for five years. The SEC staff allowed Whole Foods to reject McRitchie to avoid a conflict with the company proposal.

Overruling the staff, the SEC chairwoman, White, called for a review of the policy that lets the company proposal prevail when there is a conflict. Most think her action means companies cannot replace a shareowner proxy access proposal with their own plan.

New York City Comptroller Scott Stringer, backed by a $160 billion pension fund portfolio, has filed 3-and-3 proxy access proposals at 75 companies. Some companies have voluntarily allowed proxy access, notably General Electric this month.

“So far we have tracked well over 100 companies where this is going to come to a vote,” Simpson told the CalPERS board. “So I think this is going to be the issue of the season.”

She gave the board a chart of proxy access proposal highlights listing 33 companies selected for being in the energy sector, 20 for having diversity issues and 19 for governance issues.

Whole Foods postponed a March 10 annual meeting, presumably to consider its next step. The upscale chain specializing in organic food has won environmental awards and last year was No. 44 on Fortune’s “100 Best Companies to Work For.”

McRitchie was on a panel last week at a SEC roundtable on proxy voting in Washington, D.C. Last August he urged the state worker 401(k) plan, Savings Plus, to report proxy votes by companies in its $10 billion investment fund.

“Currently we receive the information electronically on a quarterly basis,” Pat McConahay, a state Human Resources spokeswoman said last week. “We make it available for anyone who requests it. We are continuing to assess ways to make the information available online in a user-friendly way.”

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Posted 23 Feb 15

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