Yikes – They’re Back, As Warned: Last-Minute Proxy Fights… And Supposedly “Irrevocable” Proxies
And Those Dangerous “Floor Votes” Too… Very Badly Advised!
It’s early April as we write this, and so far this season we have seen three – count’em, three proxy fights that arose within three weeks of the scheduled meeting dates…and oops! A fourth came along before we were done – all four of them revolving around proposed mergers that dissidents either wanted to thwart – or in one case to go through over the wishes of the incumbent directors…So the predictions we made last year at this time look pretty good.
And in one case – just as we also warned a year ago – those so- called “irrevocable proxies” played a major role in frustrating the people who assumed they were the real holders of the votes– and where a flub in voting the shares could have decided the outcome: After the merger proposal had been made, and in order to guarantee that it would go forward smoothly we presume - but after the record date for the meeting - the acquirer acquired a substantial number of additional shares, along with the voting rights – or so they thought. (This is another situation we think we’ll see more often in the future.) But the sellers gave their irrevocable proxies directly to the buyers of the shares
- who suddenly realized they had no practical or legal way to VOTE their proxies: The actual voting authority rested with the custodial institutions – nine of them in all – that the 11 sellers were using. Fortunately, all of this came to light about 10 days before the meeting…so the company had time to go back to each seller, who went back to each of their custodians, who went back to their respective proxy experts…who went back to Broadridge to obtain individual Legal Proxies…to give to the company reps… so THEY could cast the votes in favor of the merger. And wouldn’t you know, midway through all this, one mega custodian cast their big portion of the subject votes AGAINST the merger, probably following its ‘standard practices’ – and totally unaware of the fact that the firm itself had given an “irrevocable proxy” to someone else, so he could vote FOR. As we pointed out to the company
- which until then was resting peacefully, with a big margin in favor of the merger, ALL of the votes that had been cast in favor of the merger to date – were “revocable proxies”…so resting easy was not a smart thing to do. So readers, forewarned is forearmed where irrevocable AND revocable proxies are concerned.
In the midst of all this drama came a call from an attorney friend in Seattle, asking about “floor votes” – another arcane subject we had written about extensively – and warned about, as being not only a “bad governance practice” but something that could backfire on an unwary company BIG-TIME. We learned from our caller that a growing number of companies have been amending their bylaws to ALLOW FOR this crazy practice
- despite their existing “Notice Provisions” – that were initially designed to PREVENT any matters from coming to a vote where the company itself, and its stockholders, of course, had not been given timely notice.
Not only are a growing number of companies allowing matters to be introduced from the floor – and voted upon – they are actually writing the right into their bylaws! And some are actually shortening the notice provision for “floor votes” to as few as 30 days if the meeting has been postponed for any reason. Talk about BAD ADVICE! OUCH! All of them seem to be doing so under the illusion that these so-called “non-SEC proposals” are somehow different than proposals that appear on the proxy card - which they are NOT, as far as the voting rights are concerned – if the company is dumb enough to grant them that is. They also seem to be laboring under the illusion that the company’s proxy committee automatically has the right to vote No if they wish – for some number of shares they THINK run to them. But most of them are from “street votes” - that are not at all the same as true proxies.
As we’ve said time and again, unless a company has a box to check regarding their authority on “all other business that may come before the meeting” – which will produce a firm set of NUMBERS - of the shares voting For, Against and Abstaining - there is simply no valid or even “knowable” set of numbers to write down in the Final Report. Scariest of all, as we have written and illustrated before, a dissident group that is allowed to introduce a proposal from the floor could very well have enough revocations of old votes – and a big pile of fresh new votes in hand – to actually carry the day these days!
People who think they are avoiding widespread discussion of proposals by excluding them from the official proxy statement – or think they can “make nice” to proponents without printing their proposals but ‘graciously’ allowing them to be introduced from the floor – and thinking that the company’s proxy committee automatically has the right to cast some or all of the street-name proxies that are at the meeting as NO votes without an actual “tally”…are acting on INCREDIBLY BAD ADVICE!