Thursday, December 29, 2016

AES must include shareholder proposal to modify proxy access bylaw

By Jacquelyn Lumb

John Chevedden was successful in his efforts to have AES Corporation include a proposal in its proxy materials to amend its proxy access bylaws in order to align them more closely with the best practices published by the Council of Institutional Investors. The proposed revision would permit the number of shareholder nominees that appear in the proxy materials to be 25 percent of the directors then serving, or two, whichever is greater; would eliminate the number of shareholders who can aggregate their shares to achieve the required three percent threshold; and would remove the limitation on the re-nomination of shareholders based on the number or percentage of votes received in any election. Chevedden said the board should be commended for adopting a proxy access bylaw, but it contains provisions that impair shareholders’ ability to use it.

Basis for omission. AES wrote the SEC of its intent to omit the proposal from its proxy materials on the basis that Chevedden failed to provide the required proof of ownership in response to its request and because the proposal was vague and contained materially false and misleading statements. Chevedden had provided a letter from Fidelity which addressed his ownership in several companies, but AES said the letter did not provide the dates from which he held the shares. AES noted that he must provide proof of continuous ownership of the required number of shares for a one-year period preceding and including October 21, 2016, the date upon which he submitted his proposal.

AES maintained that the three elements in Chevedden’s proposal were subject to multiple and potentially conflicting interpretations and were irreconcilable with the other provisions of the bylaws as amended and restated on November 25, 2015. The proposal also contained false and misleading statements about Delaware law, in AES’s view, referred to an external standard (CII’s best practices) without explaining the context, and materially misrepresented the shareholder base.

AES said it was unclear whether the proposal seeks to modify or to eliminate the eligibility and procedural requirements relating to proxy access nominees or to modify the annual meeting cap on the number of board seats available to those nominees. It was also unclear, in AES’s view, whether the proposal seeks to modify or eliminate the requirements with respect to the number of shareholders who may act as a group or the types of shareholders who may aggregate their shares to validly nominate a proxy access nominee. In addition, AES said it was unclear whether the proposal seeks to modify or to eliminate the limitations and requirements relating to the re-nomination of nominees.

Proponent’s response. Chevedden advised that the Fidelity letter confirming his ownership of the requisite number of shares in three companies, including AES, included a date from which the shares were held that related to all three, not merely the last one to which the letter referred. He added that this same format was used for dozens of 2016 proposals without triggering a no-action letter request.

Chevedden also addressed each of the elements with which AES took issue and suggested that AES was applying twisted logic to challenge the intended interpretations. He added that shareholders do not have to read CII’s best practices to understand the issues on which they would be voting, so guidance or context were not necessary.

Staff response. The staff advised that it was unable to concur with AES’s view that the proposal could be omitted under Rules 14-8(b) or (f) with respect to proof of ownership, and it was unable to concur that the proposal could be omitted under Rule 14a-8(i)(3) as vague or indefinite. The staff added that AES had not demonstrated objectively that the proposal was false or misleading, so it could not be omitted on that basis.