Shareholder activists have scored a small victory against corporations seeking to block their proposals from appearing on proxy statements.
On March 7, Judge Mark Wolf dismissed a suit brought by EMC Corp. in Massachusetts District Court against well-known and prolific activists John Chevedden and James McRitchie, who sought to put a shareholder proposal on the ballot recommending an independent chair at the company.
According to McRitchie’s blog corpgov.net, EMC first tried the Securities and Exchange Commission no-action process under Rule 14-a-8, which allows companies to exclude shareholder proposals under certain conditions. The SEC declined to block the proposal, writing in a Jan. 16 letter, “We are unable to concur in your view that EMC may exclude the proposal or portions of the supporting statement.”
EMC then brought suit against Chevedden and McRitchie in late January. It has not been the only company to do so. Similar cases against Chevedden have been brought by Express Scripts, Chipotle, and Omnicom, for example. And for at least two companies—Express Scripts and Waste Connections—the strategy worked.
In the case of EMC, McRitchie writes in his blog: “We provided them with an irrevocable promise not to sue if they excluded our proposal and a promise not to try to present the proposal at their meeting if the proposal was excluded but we refused to withdraw the proposal. EMC argued without that withdrawal they could be sued by the SEC or other shareholders.”
According to McRitchie, the judge found EMC “didn’t meet the required grounds for standing, since no harm would come from our actions.”
EMC was represented by Nutter, Mcclennen & Fish. Lawyers at the firm could not be immediately reached for comment but EMC spokesman Dave Farmer issued this statement: “EMC is exploring all its options with regard to this case.”
Gary Hewitt, an expert at corporate governance firm GMI Ratings, observed in a recent e-mail that “it will be interesting to see if this trend of companies suing their shareholders broadens beyond its current focus on Mr. Chevedden.”