The companies are forming a budding resistance to an influx of investor lawsuits aimed at getting ESG proposals on annual meeting ballots. The litigation came after the Securities and Exchange Commission under Republican Chairman Paul Atkins in November stopped refereeing most proposal disputes between shareholders and companies, which often sought SEC advice before blocking resolutions from annual meeting votes.
In contrast with Chubb and BJ’s,
Shareholders rarely sued companies planning to block their proposals until the SEC policy shift last year. Investors have since brought at least six cases, including a lawsuit against
The litigation is the latest front in a decades-long struggle between activist investors and companies over shareholder rights. Investor advocacy group As You Sow, New York state’s pension fund, and other organizations behind the lawsuits have fought companies at the SEC for years to offer ESG proposals, including on issues surrounding climate change and other environmental risks.
“Few of us are surprised” by the litigation, said Mike Flood, senior vice president of the US Chamber of Commerce’s Center for Capital Markets Competitiveness. “That doesn’t mean we’re happy.”
‘In-the-Weeds Interference’
The lawsuits are the “necessary result” of having a shareholder proposal process that doesn’t work, said Danielle Fugere, president and chief counsel of As You Sow. The organization is suing the SEC over its decision to stop weighing in on investor proposals, while also pursuing a case against Chubb.
As You Sow filed its lawsuit against Chubb March 3 after the insurer said it intended to block the group’s proposal to report on any company efforts to seek compensation for losses related to climate change.
The case came after the SEC told Chubb in January it “will not object” if the company omits the resolution from the voting materials for its upcoming annual meeting. The insurer had told the regulator it planned to bar the resolution under agency rules that let companies prohibit proposals concerning their ordinary business operations and seeking to micromanage them. If cases against Chubb and other companies continue, courts will be tasked with interpreting how far “ordinary business” goes.
The agency in November started sending companies letters saying it won’t object to their exclusion plans, if they request the declaration. The SEC previously told companies whether it accepted—or rejected—their use of agency rules to scuttle proposals. The regulator can bring cases alleging companies wrongly omitted proposals.
As You Sow said in its complaint in the US District Court for the District of Columbia that Chubb’s plans would violate the SEC’s shareholder proposal regulations. The insurer has disputed the claims, saying in a March 19 court filing that As You Sow’s resolution is an “axiomatic example of in-the-weeds interference with daily operations.”
Investor Rights
BJ’s Wholesale Club is fighting similar claims from New York Comptroller Tom DiNapoli in the US District Court for the District of Massachusetts. He manages the New York State Common Retirement Fund, a BJ’s investor.
DiNapoli said in a March 2 complaint that the retailer would break SEC shareholder proposal rules with plans to block a New York State Common Retirement Fund proposal. The resolution seeks a report on risks BJ’s may face from deforestation.
Like Chubb, BJ’s told the SEC it intended to bar the proposal under agency rules that permit companies to forbid resolutions related to normal operations or that try to micromanage them. BJ’s also solicited a letter from the SEC saying the agency won’t object to its plan to prohibit the New York pension fund proposal. The company has challenged DiNapoli’s lawsuit, saying in a court filing it “properly excluded” the proposal.
A spokesperson for DiNapoli said the comptroller is “committed to protecting shareholder rights.” Representatives of BJ’s and Chubb didn’t respond to requests for comment.
Giving Up the Fight
The pushback from Chubb and BJ’s comes as the companies are fast approaching periods when they’re expected to issue proxy voting materials to investors and hold annual meetings.
Chubb has slated its annual meeting for May 21, with final voting paperwork due by April 7, according to a preliminary proxy statement. BJ’s has yet to announce an annual meeting date, though it generally hosts the gathering in June. Companies must give investors proxy voting materials with any shareholder proposals up for consideration at least 40 days before their annual meetings.
Axon initially fought back in court against the Nathan Cummings Foundation, which sued in February over company plans to bar the investor’s political spending proposal. But the company quickly agreed to disclose the information, resolving the case three weeks later.
PepsiCo and AT&T settled investor lawsuits over their plans to block proposals even faster. Both agreed in February to include the resolutions on their ballots within days of being sued.
The Axon, PepsiCo, and AT&T deals came less than two months before they normally send out proxy materials. The companies have held their annual meetings in May in recent years.
Including proposals is often easier and more efficient than entering a court battle, said Shuangjun Wang, a partner at Cleary Gottlieb Steen & Hamilton LLP. Companies must weigh the possibility of plaintiffs getting preliminary injunctions compelling a proposal vote or being ordered to hold a special meeting later to consider the resolution, she said.
“There may be some cases where it’s worth fighting, but in many cases they have bigger fish to fry,” Wang said.
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