In Ackman and Target Tangle in Ballot Brawl, The New York Times’ Dealbook has coverage of the “universal ballot” spat between William A. Ackman’s Pershing Square Capital and Target Corporation (NYSE:TGT). A candidate on Pershing Square’s ticket, Ronald J. Gilson, who is a law professor at Stanford University and an expert in corporate governance, has proposed that TGT place all the nominees running for election to the board on a single ballot, the so-called “universal ballot.” Presently, shareholders in most proxy fights receive two proxy cards and can vote only for one slate of candidates. Gilson’s proposal would give TGT’s shareholders the chance to pick candidates from both management and Pershing Square’s proxies.
Dealbook reports that the shareholder advisory firm RickMetrics Group support the universal ballot proposal:
“Pershing appears to be astutely exploiting the current pro-(shareholder)-choice zeitgeist, and puts Target on its back foot,” RiskMetrics said in a research note issued Tuesday. “It will be challenging for Target, absent some sort of unwaivable legal impediment, to argue against Pershing’s proposal without coming across as anti-shareholder.”
Here is Gilson’s letter to the board:
RONALD J. GILSON
Charles J. Meyers Professor
of Law and BusinessApril 21, 2009
Mr. Gregg Steinhafel
Chairman of the Board
Chief Executive Officer and President
Mr. Timothy R. Baer
Executive Vice President
Corporate Secretary and General Counsel
Target Corporation
1000 Nicollet Mall
Minneapolis, Minnesota 55403Re: Proposal to Use a Universal Proxy at the2009 Annual Meeting of Shareholders
Dear Messrs. Steinhafel and Baer:
On March 17, 2009, Pershing Square Capital Management, L.P. publicly announced that its affiliates had delivered a Notice of Nomination to you proposing to nominate five individuals for election as directors of Target at the company’s 2009 Annual Meeting of Shareholders. I am one of those nominees.
Both Target and Pershing Square have a unique opportunity to make this election historic from a corporate governance perspective. As you may know, the press has reported that SEC chair Mary Schapiro has directed the Commission’s staff to draft proposals for rules governing shareholder proxy access by mid-May 2009. I expect those proposed rules will provide the opportunity for the use of a universal proxy card whereby shareholders can choose – on one proxy card – from among the candidates nominated both by the company and by shareholders. The benefit to shareholders, who may want to choose members from both slates, would be substantial.
I first wrote about the need to remove the barriers to non-control proxy contests some 19 years ago.1 The occasion then was to recommend a change in the bona fide nominee rule to allow a shareholder running a short slate to include the names of the company’s nominees on the shareholder’s proxy card. That recommendation was accepted by the SEC, as I recall at the urging of Mary Schapiro, who was then a Commissioner.
Target and Pershing Square now have the opportunity to proactively provide good corporate governance to the Target shareholders by making it convenient for them to make a choice in what, in the end, is their election. This is not a control contest. The qualifications of the candidates will be fully vetted by the time of the May 28th election, and Target shareholders are entirely capable of assessing the candidates and making a choice. There is simply no excuse to deny shareholders the benefit of the use of a universal proxy card. The alternative will make it procedurally more difficult for Target shareholders to exercise their franchise. This is a problem that we, together, have the power to solve.
I have received assurance from Pershing Square that they would support a universal proxy card for Target’s upcoming Annual Meeting. I now seek the same from you. In the alterative, I ask that you consider allowing the company’s nominees to be named on the Pershing Square Gold proxy card. In either instance, shareholders would have the benefit of being able to choose the best nominees for the job. Target now has the opportunity to hold an election that will be a credit to the company’s corporate governance. I urge you to carefully consider this proposal and do the right thing for Target shareholders.
Very truly yours,
/s/ Ronald J. Gilson
1 Ronald J. Gilson, Lilli A. Gordon & John Pound, How the Proxy Rules Discourage Constructive Engagement: Regulatory Barriers to Electing a Minority of Directors, 17 Journal of Corporate Law 29 (with L. Gordon & J. Pound) (1992).
Here is TGT’s response:
TARGET CORPORATION COMMENTS ON LETTER FROM PERSHING SQUARE NOMINEE RONALD GILSON
MINNEAPOLIS, April 21, 2009 – Target Corporation (NYSE:TGT) today commented on the letter from Pershing Square nominee, Professor Ronald J. Gilson, that Pershing Square filed with the Securities and Exchange Commission (“SEC”). In the letter, Professor Gilson references possible future SEC changes to the federal proxy rules and proposes the use of a universal proxy card by Target and Pershing Square. Pershing Square has initiated a proxy contest to elect its own nominees, including Professor Gilson, to Target’s Board of Directors.
The company said, “We believe Professor Gilson’s proposal, coming at this stage of the proxy contest, would cause delay and confusion. Shareholders have a clear choice between our independent nominees on our WHITE proxy card and Bill Ackman’s slate on Pershing Square’s gold proxy card. We note, as does Professor Gilson, that the SEC may be considering a proxy access proposal. Any such proposal should be allowed to proceed on an appropriate timetable allowing for careful review and consideration by the SEC of a number of issues, including whether proxy access should be available to an entity, like Pershing Square, which has initiated its own proxy contest. In the meantime, the current proxy rules provide a framework for the conduct of the proxy voting process that is perfectly adequate for resolving the issues that Pershing Square is raising.
“With Target’s Annual Meeting only five weeks away, we believe our shareholders clearly understand the choice between our independent directors and the Pershing Square slate. We will be mailing our proxy materials shortly and encourage our shareholders to use our WHITE proxy card to support the reelection of the directors nominated by our Board.”
Shareholders who have questions about voting or the matters to be voted upon at the Annual Meeting are encouraged to call MacKenzie Partners, Inc. at 800-322-2885 Toll-Free or Georgeson at 866-295-8105 Toll-Free. The company will hold the 2009 Annual Meeting of Shareholders on Thursday, May 28, 2009. Target will be distributing proxy materials to shareholders of record as of March 30, 2009.
And Pershing Square’s response:
Pershing Square Comments on
Target’s Objection to Universal Ballot ProposalNew York – Pershing Square Capital Management, L.P., and Professor Ronald J. Gilson, who has been nominated by Pershing Square to serve as an independent director of Target Corporation (NYSE: TGT), expressed disappointment with Target’s response to Professor Gilson’s letter seeking the use of a universal proxy card, naming both Target’s and Pershing Square’s nominees, for use in connection with Target’s upcoming Annual Meeting of Shareholders.
“Rather than causing confusion, the proposal would eliminate confusion by giving shareholders something they would otherwise lack – the simple chance to choose the best among all of the candidates, rather than between two slates of candidates.” commented Professor Gilson. Pershing Square believes that the adoption by both Target and Pershing Square of a universal proxy card would reflect best-in-class corporate governance, and would result in the most qualified directors being elected, regardless of which proxy card a shareholder returned.
On the universal proxy card proposal, Bill Ackman of Pershing Square said, “it’s important for shareholders to have a choice so that they can vote for whichever candidates they prefer, regardless of which proxy card they submit. Pershing Square wants to provide shareholders with that freedom of choice. We are hoping Target will as well.”
Because proxy cards have not yet been mailed, and because new proxy cards are easy to print from the company’s or Pershing Square’s website, Pershing Square does not believe that adopting a universal proxy card would add any material expense to the proxy contest. Pershing Square also noted that it would be willing to bear the additional printing costs of the universal proxy cards.
Furthermore, Target’s public explanation for its refusal to use a universal proxy card does not address why Target would not permit its nominees to be named on Pershing Square’s Gold proxy card. Indeed, based on the timing of Target’s public response, Pershing Square questions how the matter could have been raised with its Board of Directors and whether Target’s nominees were given the opportunity to consent to being named on a universal proxy card or Pershing Square’s Gold proxy card.
Pershing Square requests Target’s nominees for permission to be included on the Gold proxy card in the event that the company will not consent to a universal proxy card.
[Full Disclosure: We do not have a holding in TGT. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]
from WSJ.com, one for the owners…..
By KARA SCANNELL and DAN FITZPATRICK
In a major win for activist investors, the Securities and Exchange Commission plans to toss out decades-old rules in a move that will give activists significantly more power to determine who sits on corporate boards.
The rule change centers on a technical issue: Whether brokers are allowed to vote on their clients’ behalf in director elections. Since 1937, the brokers have been able to vote their clients’ shares, and have typically voted in favor of standing managements and boards.
But starting in January, the SEC will change those standards, say people familiar with the matter. The SEC is expected to announce the rule change as early as next week, these people say. Brokers won’t be able to vote their clients’ shares. Since many small shareholders simply don’t vote, that will give more power to institutional and activist shareholders who do.
The change has long been sought by large shareholders and activists who want to make it easier to dump underperforming boards. They have been stymied, however, by the “broker vote” standards, which diluted their influence.
Investors such as Carl Icahn have long used proxy fights to put pressure on companies and their managements. By eliminating broker votes, they will have an easier time at winning the voting majority necessary to throw out board members. The changes will be most acute at companies with large mom-and-pop shareholder bases.
This month’s fight over the fate of Bank of America Corp. Chief Executive and Chairman Kenneth Lewis provides a test case for how the changes might affect a board election. In standing for election, Mr. Lewis faces opposition from several large investors, including teachers pension fund TIAA-CREF. A separate proposal would require the bank to split the chairman and CEO roles, effectively stripping Mr. Lewis of at least one of his titles.
Change to Win, a coalition of labor unions opposed to Mr. Lewis’ re-election, predicts that 22% of votes scheduled to be cast at the bank’s shareholders meeting will be “broker votes,” based on trends established during the prior two years. If Mr. Lewis wins just over a third of the remaining votes at the meeting, he would be re-elected, according to the group’s analysis.
“Ken Lewis and other directors may only be elected as a result of the broker vote,” said Michael Garland, director of value strategies at Change to Win’s investment arm.
Mr. Lewis has defended his performance and told board members he intends to remain as CEO at least until the financial crisis is over. The bank has said it doesn’t believe a split of the top roles is the right move. It declined to comment for this article.
The move is the first of what is expected to be a series of changes under way at the SEC. The broker vote change was first proposed in 2006, but it languished under the previous SEC chief and was never finalized.
Reviving the broker vote proposal was one of SEC Chairman Mary Schapiro’s first moves since taking the helm in January. The issue was delegated to the SEC staff to approve and won’t require the five commissioners to weigh in. The SEC is expected to take up other issues to expand shareholders’ rights next month.
Several companies, including General Electric Co., Pfizer Inc., J.P. Morgan Chase & Co. and Exxon Mobil Corp., recently wrote letters to the SEC urging the agency to hold off on eliminating the broker vote rule change until the agency undertakes a broader review of proxy rules.
Some companies say eliminating broker votes will make it harder to establish a quorum at shareholder meetings and require costly efforts to encourage voter turnout. Investors call that a red herring.
Under current rules, investors must instruct their brokers on how to vote at least 10 days before the election.
If there are no instructions, brokers are entitled to vote however they wish on “routine” items. Generally brokers vote for management, on the theory that any shareholder who opposed the company’s position would give instructions. In the U.S., about 80% of investors’ stocks are held at brokerage accounts.
Until now, uncontested director elections have been considered “routine.” The SEC rule change is expected to say that such elections are no longer routine items and brokers can’t vote the stock either way without shareholder instructions.
“This is a huge victory for the investor community,” said Ann Yerger, executive director of the Council for Institutional Investors, a Washington organization that represents pension funds holding $3 trillion in assets.
Write to Kara Scannell at kara.scannell@wsj.com and Dan Fitzpatrick at dan.fitzpatrick@wsj.com
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Nice one. Thanks, JM.
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