Proposal 6: Shareholder Proposal – Shareholder Proxy Access Reform
Mr. John Chevedden has given notice of his intention to present a proposal at the 2017 Annual Meeting. Mr. Chevedden’s address is 2215 Nelson Avenue, No. 205, Redondo Beach, California 90278, and Mr. Chevedden represents that he has continuously owned no less than 100 shares of the Company’s common stock since July 1, 2015. Mr. Chevedden’s proposal and supporting statement, as submitted to the Company, appear below.
The Board of Directors opposes adoption of Mr. Chevedden’s proposal and asks stockholders to review the Board’s response, which follows Mr. Chevedden’s proposal and supporting statement below.
The affirmative vote of the holders of a majority of the shares of common stock present, in person or represented by proxy at the meeting and entitled to vote is required to approve this proposal.
Shareholders request that our board of directors take the steps necessary to enable at least 50 shareholders to aggregate their shares to equal 3% of our stock owned continuously for 3-years in order to make use of shareholder proxy access.
Even if the 20 largest public pension funds were able to aggregate their shares, they would not meet the 3% criteria for a continuous 3-years at most companies examined by the Council of Institutional Investors. Additionally many of the largest investors of major companies are routinely passive investors who would be unlikely to be part of the proxy access shareholder aggregation process.
Under this proposal it is unlikely that the number of shareholders who participate in the aggregation process would reach an unwieldy number due to the rigorous rules our management adopted for a shareholder to qualify as one of the aggregation participants. Plus it is easy for our management to screen aggregating shareholders because management simply needs to find one item lacking from a list of typical proxy access requirements.
This proposal has added importance to our company because we do not have an independent Chairman of the Board. Our CEO, Bradley Tilden reports to our Chairman, Bradley Tilden. This was the same arrangement that Wells Fargo had until it dumped John Stumpf after millions of lucrative fake accounts were opened for Wells Fargo customers under his watch.
Plus our Lead Director, Phyllis Campbell has 14-years long tenure on our Board which can make her think like an insider. And Ms. Campbell does not bring a fresh perspective from any recent directorship at another large company.
Please vote to enhance shareholder value:
Shareholder Proxy Access Reform – Proposal 6
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST PROPOSAL 6 FOR THE FOLLOWING REASONS:
In December 2015, the Board of Directors adopted a bylaw amendment granting proxy access to shareholders who meet certain stock holding and other eligibility requirements. The adoption of such a provision is considered good governance by many investors. As an increasing number of companies adopted proxy access provisions during 2015 and 2016, certain standards emerged. The Company’s bylaw provisions mirror the current prevalent practice, including permitting up to 20 shareholders to aggregate their holdings in order to reach the share ownership threshold.
The Company’s existing proxy access bylaw does not prevent shareholders with more limited holdings the opportunity to nominate director candidates for inclusion in the Company’s proxy materials when combined with other shareholders (not exceeding 20 in total) to satisfy the ownership requirements. We believe an aggregation limit of 20 provides abundant opportunities for the Company’s shareholders to combine with other shareholders to satisfy the ownership requirement, provided that they also satisfy the required holding period requirement, which would be determined at that time by proof of ownership from the specific aggregating shareholders. More than 50% of the Company’s shares are held by the top 25 shareholders, and as of December 16, 2016, each of these shareholders owned between 0.72% and 15.45% of our outstanding common stock. The concentration of significant holdings among these shareholders means that any shareholder seeking to form a group to make a proxy access nomination, regardless of the size of its holdings, could achieve the 3% minimum required ownership in any number of ways, by combining with one or a small number of the 25 largest shareholders, or by combining their shares with other shareholders with any amount of holdings who also meet the eligibility requirements. If the aggregation and ownership requirements for proxy access cannot be satisfied, other avenues are still available to a shareholder seeking change to the Company’s board of directors, including recommending director candidates for nomination by our board of directors as described in the Director Nomination Policy section of this proxy statement and nominating director candidates for election to the board of directors in accordance with the requirements of the Company’s advance notice bylaw.
Through June 2016, an aggregation limit of 20 shareholders has been adopted by the vast majority (88%) of companies that have implemented proxy access. In fact, many of the Company’s long-term shareholders have adopted a 20 shareholder aggregation limit as a standard for their own governance practices.
Increasing the number of shareholders that are able to aggregate shares to meet the holding requirements of the Company’s proxy access bylaw would increase the administrative burden on the Company to ensure the eligibility and procedural requirements have been satisfied by each shareholder in the aggregate pool. This presents a drain on Company resources of time and money, which the Company believes is not in the best interest of the shareholders.
For the reasons stated above, and because the Board believes the current shareholder aggregation limit set forth in the proxy access provisions contained in the Company’s Bylaws achieves the purpose of the proponent’s proposal, the Board of Directors unanimously recommends a vote against the proposal.