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Chapter 9 Alter Egos

§ 9.01 Introduction

§ 9.02 Family Members

§ 9.03 Persons Under Common Control

Chapter 9 Alter Egos

§ 9.01 Introduction

Sometimes proponents attempt to avoid the "one proposal" rule by having other persons submit proposals on their behalf. For example, a proponent may act in concert with others to submit alternative proposals in the event that his own proposal is not included or may try to use others as a conduit because he cannot satisfy the eligibility requirements.

It is often difficult for companies to show that proponents are alter egos because the line between permissible shareholder communication and common control is not always clear. If the circumstances indicate that the proponent is acting under the control of — or as the alter ego of — another person a company may exclude all of the proposals.

When it first set limits on the number of proposals a proponent could submit, the SEC warned that it was "aware of the possibility that some proponents may attempt to evade the new limitations through various maneuvers, such as having other persons whose securities they control submit proposals each in their own names."[fn1]

[fn1] Exchange Act Release No. 12,999, 1976 SEC LEXIS 326 (Nov. 22, 1976).

§ 9.02 Family Members

While not conclusive, it can be easier to prove there has been an attempt to evade the one-proposal limit when the alter ego is a family member of the true proponent. Still, it is important for a company to provide concrete evidence of collusion, since the SEC staff does not automatically conclude that related persons are acting in concert. Such evidence can be difficult to obtain.

EXAMPLE:

Excludable proposal

In Texas Instruments Inc.,[fn2] the company successfully excluded a proposal by arguing that a single proponent had submitted six proposals through his alter egos in an effort to evade the two-proposal limitation then in effect. The company noted that the proponent had submitted several proposals himself, and that the company had received proposals from the proponent's daughter, a company of which the proponent was chairman and a foundation of which the proponent was president and director. The company noted that the proponent's proposal and the daughter's proposal were submitted in the same envelope and that all of these proponents purchased their stock on the same day. The proponent did not submit a rebuttal.

EXAMPLES:

Includable proposals

In Raytheon Company,[fn3] the company was required to include the proponent's own proposal and one that he had submitted on behalf of a family trust. The company noted that both proposals had been received on the same day as part of the same facsimile and bore the same address. The proponent claimed that the company misrepresented these facts, that the proposals had been faxed at different times and that each proponent had provided a different address. The proponent argued that the company had not offered any evidence that one proponent controlled the other.
In USX Corp.,[fn4] the proponent successfully defeated a no-action challenge to his own proposal despite the fact that two brothers had also submitted proposals. The company argued that the three proponents shared a common address that was a family-owned business and that the three proposals were really submitted by one of the brothers. The proponent responded that the three proponents were not brothers; rather, one of the proponents was the father of the other two. The proponent admitted that they had worked together and were a close family, but stated that the accusation that "we are all the same proponent is procedural baloney and wasting everyone's time and money." In its response, the staff stated that it was "unable to conclude that the one-proposal limitation should apply collectively to three individuals solely on the basis of a family relationship under these circumstances."

[fn2] 1982 SEC No-Act. LEXIS 1738 (Jan. 19, 1982).

[fn3] 2000 SEC No-Act. LEXIS 355 (Mar. 10, 2000).

[fn4] 1991 SEC No-Act. LEXIS 265 (Feb. 13, 1991).

§ 9.03 Persons Under Common Control

The SEC staff allows a group to submit only one proposal on the group's behalf. However, members of that group can choose to submit their own proposals in their capacity as shareholders.

It can be quite difficult for a company to show that a group conspired to submit multiple proposals. It normally is not enough for companies to merely show that the individual is a member of a group that is also a proponent or even that the group provided legal and clerical assistance to its members who submitted shareholder proposals. The critical issue is whether the member is submitting a proposal on its own or is doing so on behalf of the group.

The SEC staff normally requires clear evidence of abuse of the proposal process before it will permit a company to exclude a proposal. But occasionally the group's actions are sufficient to indicate that it controlled the other proponents and sought to abuse the proposal process.

EXAMPLE:

Excluded proposals

In Dow Jones & Co.,[fn5] the SEC staff granted no-action relief with respect to a proposal submitted by a member of a union. The company contended that when it received the proposal, it had been negotiating for ten months over a new collective bargaining agreement to replace the one that had expired. It pointed to specific media reports in which the union referred to the proposals in connection with its efforts to negotiate the agreement. The company observed that the union initially submitted six shareholder proposals under its own name. The company claimed that the union then resubmitted the proposals separately in its own name and in the names of several union members upon learning of the one-proposal limitation. The company noted that the union's lawyer had helped draft the proposals.

EXAMPLES:

Included proposals

In Staten Island Bancorp,[fn6] the company was required to include a proposal despite the fact that a financial advisory firm at which the proponent's father was the chairman had also submitted a proposal. The company noted that the proponent maintained financial records on the premises of the financial advisory firm's offices and that the documentary support from the proponent's brokerage firm was faxed to those same offices. The proponent responded that she held no interest in the financial advisory firm and that the firm did not provide her with advice with regard to her financial holdings or otherwise. The proponent noted that she maintained financial records at the financial advisory firm so she could properly prepare filings on Schedule 13D.
In Dow Jones & Co.,[fn7] the SEC staff denied no-action relief with respect to a proposal submitted by a member of a union. The company argued that the proponent was the alter ego for the union, which itself did not meet the eligibility requirements. The company pointed out that the union's newsletter characterized the proposal as the union's proposal and that the union's lawyer had helped draft the proposal. In its response, the SEC staff noted the "absence of factors such as the existence of contract negotiations and documentary evidence from the union acknowledging that the proposal was intended to enhance the union's bargaining power."

[fn5] 1994 SEC No-Act. LEXIS 142 (Jan. 24, 1994).

[fn6] 2000 SEC No-Act. LEXIS 462 (Mar. 21, 2000).

[fn7] 1995 SEC No-Act. LEXIS 221 (Feb. 8, 1995).

§ 9.03[A] Common Interest in Securities

The SEC allows persons having an interest in the same shares of stock to submit only one proposal. In other words, the "one proposal" exclusion applies to all persons having an interest in the same securities. This includes beneficial owners and their record owners, tenants in common and joint tenants.

EXAMPLES:

In Met-Pro Corporation,[fn8] the company successfully excluded a proposal from a wife because her husband had unsuccessfully tried to submit an identical proposal. The company argued that not only were the proponents married, but they owned the shares as joint tenants as evidenced by one of the brokerage statements submitted by the wife. In addition, the company noted that the wife submitted her proposal only after her husband was unable to satisfy the eligibility requirements.
In Stone & Webster, Inc.,[fn9] the SEC staff permitted exclusion of a proposal submitted by a trust on the ground that the beneficial owners of the shares held by the trust were nominal proponents acting on behalf of, or under control of, the trust. In addition, one person controlled the trust and the trust participants were family members or did business with each other. The company argued that the trust, and the person controlling the trust, had voting control over the shares, even though the participants retained the economic interests. The company also pointed out that the person controlling the trust had publicly stated that he had control over the shares and provided evidence indicating that the proposals were submitted as part of a campaign to force the company to change its policies. Finally, the company noted that the proposals had been presented together with the same format and on the same letterhead.

[fn8] 2000 SEC No-Act. LEXIS 974 (Nov. 29, 2000).

[fn9] 1995 SEC No-Act. LEXIS 426 (Mar. 3, 1995).

§ 9.03[B] Agents for Proponents

Perhaps the most difficult situation for a company is when someone has been selected as agent or "proxy" to act on behalf of a proponent. This is particularly challenging when the agent itself has also submitted a proposal to the same company. Since the SEC staff allows proponents to obtain agents to represent them, the agreement between proponent and agent itself is not considered evidence of collusion that violates the "one proposal" rule. As a result, companies rarely succeed in proving that an agent is an "alter ego."

EXAMPLE:

Inclusion

In LTV Corporation,[fn10] an agent acting on behalf of multiple proponents successfully argued that he could submit four proposals, as long as he obtained a proxy from each person for whom he acted as a representative. The company claimed that the proponent must have an economic interest in the company and that proxies purporting to grant him the power to vote shares do not give him an ownership interest to satisfy the eligibility requirements. Although the staff sided with the proponent, it made clear that each proponent must meet the eligibility requirements by supplying the company with documentary support of its ownership.

EXAMPLES:

Exclusion

In TRW Inc.,[fn11] the company was permitted to exclude a proposal that the proponent claimed had been submitted by its agent. The company claimed that the putative agent used a message board on the Web to find someone willing to be the nominal proponent and claim that the agent was acting on his behalf. The agent's motive was that he was not eligible to submit a proposal to the company because he was not a shareholder. In its response, the SEC staff stated that the proponent was a nominal proponent for the purported agent, who was not eligible to submit a proposal to the company.
In PG&E Corporation,[fn12] the SEC staff permitted the company to exclude a proposal after concluding that the co-proponents were nominal proponents for a third person who was not eligible to submit a proposal to the company. One of the co-proponents had submitted a proposal with the third person a year earlier but had not agreed to resubmit the proposal. The company discovered these facts after it had sent a copy of its no-action request to the co-proponents. Upon receipt of this copy, one of the co-proponents called the company's corporate secretary to complain.

[fn10] 2000 SEC No-Act. LEXIS 186 (Feb. 15, 2000).

[fn11] 2001 SEC No-Act. LEXIS 102 (Jan. 24, 2001).

[fn12] 2002 SEC No-Act. LEXIS 297 (Mar. 1, 2002).

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