Views on improving the integrity of global capital markets
17 December 2014

SEC OKs Whole Foods’ Proxy Access Proposal, but Is It in Investors’ Best Interests?


It looks like the issue of proxy access will be a hot topic in the US come next spring’s proxy season thanks in part to a recent ruling by the Securities and Exchange Commission. But first, some scene-setting.

Earlier this fall, CFA Institute released Proxy Access in the United States: Revisiting the Proposed SEC Rule. The report analyzes available event studies as well as case studies of how proxy access is used globally to draw important conclusions about its costs and benefits. Based on the available event studies (and it should be noted that very little economic data and information exists globally on the effects of proxy access), our research revealed positive market reaction to news regarding the implementation of proxy access, and a conversely negative reaction when proxy access was delayed or vacated. These event studies tend to show that markets placed a positive value on proxy access and believed it would improve board performance.

Soon after the report was released, the New York City Comptroller (as part of the Board Accountability Project) announced plans to submit proxy access proposals at 75 companies in the coming 2015 proxy season. The NYC Comptroller’s office proposed ownership thresholds of 3% for three years for its planned proxy access proposals. This 3%-for-three-years model mirrors the language in the original SEC proposal in 2010 that was ultimately struck down by the DC Circuit Court of Appeals.

In November, CFA Institute partnered with CFA Society Washington, DC, and the University of Maryland’s Center for Financial Policy at the Robert H. Smith School of Business to host a panel of experts to discuss the issue of proxy access and the CFA Institute report on proxy access. The panel discussed the increase in “private ordering” around proxy access — that is, individual shareowner proposals asking for proxy access at a few dozen US companies as well as the threshold of 3% ownership for at least three years.

On 1 December, the Securities and Exchange Commission responded to a letter from Whole Foods Market that allowed the company to exclude a resolution for proxy access from its upcoming shareholders meeting. The SEC agreed that a Whole Foods Market shareowner proposal conflicted with its proxy access proposal. The shareowner proposal in question called for proxy access if a shareowner owned 3% of the company’s shares for three years. The proposed Whole Foods Market proxy access proposal that “conflicts” with the shareholder proposal requires a shareholder to hold 9% of the company’s shares for five years.

This decision may make it very easy for companies to avoid any kind of meaningful proxy access simply by placing their own proxy access proposals on the ballot with high-ownership thresholds. Would a proxy access proposal that called for 20% ownership for 10 years “conflict” with a 3%-for-three-years proposal? Would a 50%-for-50-years proposal “conflict” as well?

The point of proxy access is always to ensure board accountability. This SEC decision seems to allow companies an easy way to avoid accountability for their board if they so choose.

What say you?

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About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a senior director of capital markets policy at CFA Institute, where he focuses on corporate governance, ESG, and climate change analysis. He writes and speaks frequently on these topics on behalf of CFA Institute. His paper, Climate Change Analysis in the Investment Process was named “Best ESG Paper” by Savvy Investor in 2021.

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