Responses to Example of the "Proxy
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
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
"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 &
"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
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
Lutin & Company
575 Madison Avenue, 10th Floor
New York, New York 10022