This week, an interesting article by Cydney Posner of the Cooley LLP firm, highlighted a noteworthy shareholder proposal tactic by the New York City Comptroller, involving a climate change proposal. As Posner explains, the New York City Comptroller submitted a climate change shareholder proposal to aerospace component maker TransDigm Group Inc. TransDigm submitted a no-action letter request to the SEC staff to attempt to exclude the proposal. TransDigm’s request to the SEC was submitted in early November of 2018. Normally, as the No-Action process unfolds, the NYC Comptroller would respond to TransDigm’s request then both parties would wait for the SEC to decide to either grand or deny the request.
Instead of submitting its own letter, the NYC Comptroller decided to file a lawsuit seeking to compel the company to include the proposal on its proxy. The Comptroller notified the SEC that it would not respond and instead was filing suit and in doing so requested the SEC let the court adjudicate the complaint. Facing the lawsuit, and considering the costs and benefits, TransDigm withdrew the No-Action request from the SEC and agreed to include the proposal on its proxy rather than fight the issue in court. The Comptroller's office issued a press release announcing the settlement.
The Comptroller’s technique poses some interesting questions. Recently, several high-profile shareholder proponents, such as Arjuna Capital, have been using the shareholder proposal process in conjunction with well-coordinated media strategies to move companies into a negotiated withdrawal of the proposals in exchange for specific disclosures and requests. By focusing on a persuading a few companies within an industry to agree to a withdrawal in exchange for the disclosure, the proponents have been able to put significant pressure on other industry peers to copy the disclosures merely by filing a resolution. The Comptroller is perhaps on the verge of another strategy with similar results. By successfully targeting companies using this litigation strategy, the Comptroller can potentially create industry expectations for the inclusion of this proposal thus pressuring similar companies into permitting shareholders to vote. The litigation strategy does carry some the risk that if a suit were to proceed and the proponent were to ultimately lose in court, then identical proposals would be excludable by law. However, if the proponent succeeded, the company would risk losing.
The Comptroller's strategy avoids the risks associated with getting an SEC No-Action request which could subsequently be used as precedent to exclude similar proposals. Additionally, even by doing so once, the NYC Comptroller has sent a strong signal to any other company that gets one of its proposals that it is willing to take this type of actions to ensure the proposal is on the proxy ballot.