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SEC Permits Investment Adviser to Submit Shareholder Proposal on Behalf of Client

By | March 11, 2016

The SEC recently denied no-action relief to a request by Baker Hughes Incorporated to exclude a Rule 14a-8 shareholder proposal submitted by Newground Social Investment, SPC, a registered investment adviser, on behalf of an advisory client. The advisory client and proponent making the proposal was the Equality Network Foundation.

The proposal submitted by Newground did not include any proof of Newground’s authority as an investment advisor to act for the proponent and no statement from the proponent itself that it planned to continue to hold the shares through the date of the annual meeting. The proposal only stated “the Proponent acknowledges its responsibility under Rule 14a-8(b)( l ), and Newground is authorized to state on its behalf that it intends to continue to hold a requisite quantity of shares in Company stock through the date of the next annual meeting of stockholders.”

Baker Hughes sought to exclude the proposal on the following grounds:

  • Exchange Act Rules 14a-8(b) and 14a-8(t) because Newground failed to demonstrate that it is either eligible under Exchange Act Rule 14a-8(b)(2) to submit the Proposal itself or authorized to submit the Proposal on behalf of a shareholder proponent that is eligible under Exchange Act Rule 14a-8(b)(2) to submit the Proposal; and
  • Exchange Act Rules 14a-8(b) and 14a-8(t) because the shareholder proponent failed to provide its own written statement that it intends to continue to hold sufficient shares of the Company’s common stock through the date of the Company’s 2016 Annual Meeting of Stockholders.

The SEC apparently accepted Newground’s arguments that all an investment adviser needs to do to submit a shareholder proposal on behalf of a client is to:

  • state that it represents a client,
  • demonstrate a relationship with the client by providing rule-compliant, third-party documentation of proof of continuous ownership, and
  • convey the intent of that client to continue to hold the requisite value of shares through the time of the next shareholders meeting.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

 

Contact Steve Quinlivan for more information.