Home -> Law Blog Directory -> Corporate & Securities Law Blogs -> Institutional Shareholder Services -- Corporate Governance Blog

Corporate & Securities Law

: Institutional Shareholder Services -- Corporate Governance Blog

AFSCME Files Proxy Solicitation Expense ProposalsSubmitted by: Subodh Mishra, Publications

The American Federation of State, County, and Municipal Employees (AFSCME) is planning to submit binding proposals for the 2008 season that call for the reimbursement of proxy-fight solicitation expenses.

Some observers believe this resolution may gain more attention in light of the Securities and Exchange Commission's recent action to bar proxy access resolutions. One such proposal, filed at Houston-based energy company Apache, calls for reimbursement of "reasonable expenses ? incurred in connection with nominating one or more candidates in a contested election of directors to the corporation's board of directors, including, without limitation, printing, mailing, legal, solicitation, travel, advertising, and public relations expenses."

Limits would be placed on the repayment of expenses incurred. For example, reimbursement could only occur for elections after the bylaw is approved and for a "short slate" of nominees (i.e., less than half the board) where one or more is elected and cumulative voting is not allowed. The amount paid to the nominator may "not exceed the amount expended by the corporation in connection with such election." AFSCME also plans to file this proposal at several other companies.

"If the reimbursement proposals do well, they may in the end supplant access," said Charles Elson, University of Delaware's Weinberg Center for Corporate Governance. "I think it's the ultimate solution."

Elson has long been a champion of such proposals, arguing that proxy-cost reimbursement is a more prudent alternative to access.

Other observers are less optimistic, however, and suggest the proposal may not make it on to proxies in light of the SEC's decision in late November to codify its past interpretation of Rule 14a-8(i)(8) to disallow proxy access proposals.

"It's going to be an interesting issue," Stanley Keller, a corporate lawyer at the firm of Edwards Angell Palmer & Dodge, said of solicitation reimbursement proposals. "But to the extent that it's designed or viewed as promoting an election contest, it could very well be subsumed within the excludability argument."

Keller noted that the topic would seem a proper subject under state law, but he believes the SEC will view it as excludable under the recently amended Rule 14a-8(i)(8), which allows for the omission of proposals related to the election of directors. "The question is will it be viewed as promoting an election contest, and my guess is that it will," Keller said.

The 2008 proposal, however, is nearly identical to a 2007 resolution that was unsuccessfully challenged at the SEC by Apache. Moreover, AFSCME officials point to a footnote in the SEC's new rule on director elections that indicates agency officials will not approve the exclusion of certain proposals, including those that relate to the reimbursement of shareholder expenses in contested elections.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on December 27, 2007 (boomark / email).