The Shareholder Forum

supporting investor access

for the informed use of capital to produce goods and services

 

The Shareholder Forum

Purpose

The Shareholder Forum provides all decision-makers – from the ultimate owners of capital to the corporate managers who use their capital, and all of the professionals in between – with reliably effective access to the information and views participants consider relevant to their respective responsibilities for the common objective of using capital to produce goods and services.

Access Policies

To provide the required investor access without regulatory constraints, the Forum developed policies and practices allowing it to function as an SEC-defined independent moderator. We also adopted well-established publishing standards to assure essential participant privacy and communication rights.

These carefully defined and thoroughly tested Forum policies are the foundation of our unique marketplace resource for clearly fair access to information and exchanges of views.

History

We have been doing this for more than two decades. The Forum programs were initiated in 1999 by the CFA Society New York (at the time known as the New York Society of Security Analysts) with lead investor and former corporate investment banker Gary Lutin as guest chairman to address the professional interests of the Society’s members.

Independently supported by Mr. Lutin since 2001, the Forum’s public programs – often in collaboration with the CFA Society as well as with other educational institutions such as the Columbia Schools of Business and Journalism, the Yale School of Management and The Conference Board – have achieved wide recognition for their effective definition of both company-specific and marketplace issues, followed by an orderly exchange of the information and views needed to resolve them.

The Forum's ability to convene all key decision-making constituencies and influence leaders has been applied to subjects ranging from corporate control contests to the establishment of consensus marketplace standards for fair disclosure, and has been relied upon by virtually every major U.S. fund manager and the many other investors who have participated in programs that addressed their interests.

Commitment

The Forum welcomes suggestions for its continuing support of fair access to the information needed by both shareholders and corporate managers.

Responding to the recent increases in investor engagement and activism, we have established a strong policy commitment to supporting corporate managers who wish to provide the leadership expected of them by assuring orderly reviews of issues. We will of course also continue to welcome the initiation of company-specific programs by shareholders concerned with the use of their capital to produce goods and services, and we naturally remain committed to addressing general marketplace interests in collaboration with educational institutions and publishers.

 

For a subsequent legal ruling on the question of record holding status on which the controversy addressed below was based, see

 

 

Forum Report

 

Responses to Example of the "Proxy Plumbing" Problem

 

The Apache-Chevedden controversy reported on Friday stimulated responses from several Forum participants, including the following (in alphabetical order) who offered either email statements for Forum presentation or blog comments on their own websites.

Andrew M. Clearfield, CEO of Investment Initiatives, LLC, formerly Managing Director of International Corporate Governance at TIAA-CREF and a Governor of the International Corporate Governance Network ("ICGN"), in an email statement:

"The problem is compounded three- and four-fold if you look at cross-border ownership.  Custodians and securities houses don't want to address it, because it is cheaper and more profitable for them to play the shell game with investors' shares than to make sure it is clear at all times who owns what. They will not lobby for change, and may fight it.  It is up to investors to (a) demand cooperation from their custodians (after all, it is the investors who pay the custodians, rather than the other way around), and (b) to go to the trouble to lobby the authorities for clarification in the laws.  No one else is going to do it for investors; they must spend the money and take the time to do it themselves, or it will never happen."

James McRitchie, publisher of "Corporate Governance" at CorpGov.net, who noted that he has been a member of the Chevedden activist network, in his blog "Apache Files Slapp Suit: More Support for DRS":

"...With street name registration, how can Apache know if Chevedden is really a shareowner? (although, appears obvious in this case that he is)  How can anyone expect Chevedden to submit more in the way of proof? He’s already submitted a letter from his broker and, as I recall, another entity up the chain.

"As we point out in our draft petition to the SEC, we retail shareowners aren’t really shareowners at all. We simply trade in 'security entitlements.' The further we stray from direct registration, the more complicated it becomes to enforce the rights of ownership. We moved to the convoluted system we have now because it was the easiest way to get through a paperwork emergency that was bankrupting dozens of brokers. Direct registration wasn’t feasible because we didn’t have adequate computer power. Those days are over. Isn’t it time to move on to direct registration where companies know who there owners are and shareowners can more easily communicate with each other?"

Allen Nelson, President of Allen Nelson & Co., Inc., the firm that provides WorldProxy solicitation and investor relations services, in an email statement:

"I don’t believe the Apache Corporation v. John Chevedden case is an example of a “proxy plumbing” problem nor, necessarily, demonstrates that the current system of defining share ownership is dysfunctional. It does show how Management can legally challenge an activist shareholder who doesn’t have his tackle together.

"While Northern Trust may not appear as a record holder on Apache’s registered shareholder list, it is certain that Cede & Co., the nominee name for The Depository Trust Company (DTC), is listed on the company’s registered list, probably as the largest holder of Apache’s shares since DTC acts as the electronic clearing house for all U.S. brokers and banks with few exceptions.

"Apache’s Cede & Co. Nominee List would in turn show that Northern Trust was one of its participants holding the company’s shares. ...It is standard practice to refer to the Cede & Co. list as well as the registered shareholder list to determine the validity of proxy votes. The Cede & Co. listing would be of no use in ascertaining how long Northern Trust or the underlying beneficial owners have had held Apache’s shares.

"Mr. Chevedden should have known better. He could easily have established his standing as a shareholder of record by directing his broker to deliver the Apache shares out to him. Then Apache and its lawyers would have been able to confirm that he was named on the registered shareholder list. Mr. Chevedden would also have had a dated stock certificate that would prove that he was a registered shareholder of long standing.

"I agree that securities lending and derivatives practices have created serious problems that need to be addressed."

Broc Romanek, Editor for TheCorporateCounsel.net and affiliated publications of Executive Press, Inc., in his "Broc & Dave's Blog":

"One of the longer-standing complaints in the corporate community has been the relatively unchecked ability of John Chevedden to submit dozens of shareholder proposals to companies each year - at companies where he doesn't have an ownership interest. On its face, this violates the shareholder proposal rule's eligibility requirements under Rule 14a-8(b), but Chevedden typically has been able to successfully argue to the SEC Staff that he is acting as an agent for another shareholder - rather than as a conduit because he can't satisfy the eligibility requirements.

"Many corporate secretaries will be cheering to hear that Chevedden was recently sued over his efforts to submit a proposal (although this situation doesn't involve alter egos). ...

"Here are some thoughts from an anonymous member: 'I am glad they are taking Chevedden to court. More companies should make sure his shenanigans have some real consequences. If he started getting his butt hauled into court all across the country, then his proposals would cost more than the price of a stamp.'"

This selection of responses suggests considerable corporate, investor and professional interest in the issues raised about defining stock ownership, as well as in the specific contest. Those of you who want to help guide the resolution of these and related issues are encouraged to communicate your views directly to the SEC or to the organizations that advocate your interests. As indicated in Friday's report, the Forum will not be developing a program to address "proxy plumbing," and should not be expected to report further on the subject other than as it relates to active programs.

 

           GL – January 17, 2010

 

Gary Lutin

Lutin & Company

575 Madison Avenue, 10th Floor

New York, New York 10022

Tel: 212-605-0335

Email: gl@shareholderforum.com

 

 

 

 

 

Inquiries, requests to be included in email distribution lists, and suggestions of new Forum subjects may be addressed to inquiry@shareholderforum.com.

Publicly open programs of the Shareholder Forum are conducted for free participation of all shareholders of a subject company and any fiduciaries or professionals concerned with their decisions, according to the Forum’s stated "Conditions of Participation." In all cases, each participant is expected to make independent use of information obtained through the Forum, and participation is considered private unless the party specifically authorizes identification.

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.

Shareholder Forum™ is a trademark owned by The Shareholder Forum, Inc., for the programs conducted since 1999 to support investor access to decision-making information. It should be noted that we have no responsibility for the services that Broadridge Financial Solutions, Inc., introduced for review in the Forum's 2010 "E-Meetings" program and had been offering for several years with the “Shareholder Forum” name, and we have asked Broadridge to use a different name that does not suggest our support or endorsement.