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- [00:04]
A
Welcome to Shareholder Primacy from Free Float Media, a podcast about activist investing, securities law, and all the ways the financial and legal roles intersect and collide in real life. Here we are, Ann, you and me. Ann Lipton is a law professor at the University of Colorado who teaches and researches securities and business law. She holds up the the legal end of the podcast.
- [00:28]
B
That's Mike Levin, an activist investor who lives and works in Chicago. He covers the financial side of our podcast.
- [00:34]
A
You started asking. Thank you. You started asking a couple of really interesting questions about how kind of proxy voting actually works, like on the ground.
- [00:47]
B
Yeah. And I was just confused about withhold versus abstain and what the difference was. And so.
- [00:53]
A
Yes, right. So we thought we.
- [00:55]
B
I.
- [00:56]
A
Go ahead.
- [00:56]
B
I need the explanation.
- [00:57]
A
Yes, well, I will. I will try. I will do my best. I was going to ask you. These are legal questions in some respect, so. Well, maybe not. They're more of practice and stuff. Yeah, yeah.
- [01:09]
B
They get into some of the like, you know, some of them might be legal, but like not in the kind of thing that ever gets litigated or really disputed.
- [01:15]
A
Yes, absolutely. That's a great point. There's very little case law about what it means to like withhold.
- [01:22]
B
Yeah.
- [01:23]
A
In a vote. And then we will use the recent AGM at Starbucks to illustrate some of these principles because I think actually some of your questions arose out of your at least reading a review of that.
- [01:39]
B
Yeah, because I was wanted to use it as a classroom example. And then the first time a student asked me a question, my answer would be so I don't know.
- [01:46]
A
Oh, interesting. Oh, so we're creating curriculum here. This is great. All right, cool. All right. All right. So there were questions about kind of how proxy voting works and we use Starbucks as the example. So let's spend the first part of our time together to talk about some of these basics and I'll tell you what I know and you can react and then you can tell me what you know. There's a couple of kind of preliminary comments. First, in my experience, the way to know kind of how proxy votes work and what it means to vote for something or what it means to withhold or what a broker non vote is. There's a lot of kind of generally accepted understanding of those terms, but you have to read with some care the company's proxy statement. Every proxy statement does set forth in my experience, with sufficient specificity to understand exactly how votes will count. And there's a lot of similarities among companies that will allow us to make some broad statements right here. But occasionally you get to something a little weird. Somebody says, no, a withhold looks like this, or we'll handle a shareholder proposal in this kind of way. This is how the votes will count. So you need to study the proxy statement. And there's usually. There's always a section that say how the votes. How we will count votes or something. It's sometimes part of the Q and A part or whatever. You know, in proxy statements, there's People can take some creative license and how they organize proxy statements. So this section about how the votes work is not always in the same place for each company, of course. So you need to, you know, kind of look it over and sometimes, you know, if each proposal has its own little narrative, and sometimes companies make it easy for you to combine them anyway. Go ahead. What?
- [03:42]
B
Yeah, no, so I'm just saying that, like, we're talking about exactly like what a vote means, but a completely separate question which intersects and we'll get to is like the voting standard. Like what counts as passing or not.
- [03:54]
A
Yes.
- [03:54]
B
And that is driven not just. That's not always within the company's discretion. A lot of that is like, legal. Like, this is what's required to pass and this is what's not. But. But separately than that is what the vote actually means. Like what you do with your proxy card, what's abstaining, withholding, not leaving it blank, those kinds of things.
- [04:13]
A
Right. And so we will cover all that. Or I'd like to cover all that. So the next broad statement is that there are sort of two different ways that companies need or two different areas where companies need to set this out. The first is how votes work in director elections. When you're voting for or against or withhold or abstain or all that good stuff. Director elections is going to be one area, and then the other major area is proposals and proposals. I mean, very broadly, when you and I talk about proposals a lot, we're talking about, like, precatory proposals, ESG stuff. Okay. Where there's some resolution where some shareholder wants the company to write a report on something. There are many other types. There are several other types of proposals that companies put on their AGM agenda and therefore set up in the proxy statement. Those proposals. A standard one every time is whether to ratify the choice of auditor.
- [05:26]
B
Right. Because that's legally required.
- [05:28]
A
That's a proposal. That's a proposal. Okay. Other proposals say on pay also require. Yeah. The mandatory say on pay vote. Right. So. So the requirement to conduct a vote on those is in federal law or Listing requirements. Sometimes I can't remember where that is. The. Is the audit or federal law. Or listing.
- [05:48]
B
Federal law. What is federal law?
- [05:50]
A
Okay, cool. You can tell how much I pay attention to the approval of the auditors.
- [05:55]
B
Yeah. And executive pay is actually partially federal law and also listing standards.
- [05:59]
A
Exactly right. And. But there's a say on pay, and then there's, you know, there's not only
- [06:03]
B
the action, we're trying to cleanse it. So, you know.
- [06:05]
A
Exactly. Not only is there say on pay, but there's also the frequency of say on pay. So every three years, you have to say whatever.
- [06:12]
B
Do you want it every three years?
- [06:13]
A
Yeah, exactly. Okay. And other proposals could be bylaw amendments. There could be equity issuance. There's a whole list of potential other like proposals distinct from director elections. Okay, so let's talk about those in turn. For director elections, the choices that voters, shareholders have tend to fall into three categories. You can either vote for a director, you could vote against a director. So oppose. And sometimes I've seen know for the word for. It's almost always the word for. Yeah, it's for rather than some other verb like support or approve. So it's always for. Against is against. Sometimes it's opposed, sometimes it's whatever. Okay. And then in some cases, many cases today, there's a third category that's given to you, which is sometimes called withhold or abstain. Okay. And so let's talk about. In order to understand these, we have to talk about the voting standard for directors. Okay. Directors are always approved on a plurality standard. So whoever gets the most votes wins. Okay. So let's suppose that. My favorite example, let's use a board of directors of 10 people. All right? And there's no. No, I haven't shown up. No activist is, you know, doing their thing.
- [07:56]
B
Right.
- [07:56]
A
So the board renominates all 10 incumbents. They don't have to. I mean, maybe someone quit. They put somebody new. But there's 10 people for 10 seats.
- [08:05]
B
Yep. Now, I. This example I use.
- [08:08]
A
Exactly. So. So, and it's a plurality, so, you know, the most. But this is like, sort of, you know, trivial because all 10 people, you
- [08:16]
B
know, if it's a plurality standard, all 10 will be elected. So I like to show my class, like a proxy card, and I say, look, this board has 10 people on it, and there are 10 candidates on the ballot. Or, you know.
- [08:27]
A
Exactly right. But it's. Again, that's kind of trivial. But it's literally a plurality standard.
- [08:32]
B
But that's the league that's under Law. It's a plurality, Right?
- [08:35]
A
Exactly. We're going to talk about majority voting in a minute.
- [08:37]
B
Right.
- [08:38]
A
Okay. The next case of that would be if an activist is there. So with 10, and I show up and I nominate somebody, and so there's 11 people to run for the.
- [08:54]
B
Now, it's possible that somebody, that one person will not get a plurality.
- [08:57]
A
It's going to be the top 10 votes. So when we go count up all. And here we have to go back to the fours. Okay. We add up for all 11. When we're all done voting, we add up all the fours. Forget abstain, forget against, forget all those others. We just add up the fours and the ones with the most of the 10. Exactly. So the 10 who have the most four votes for votes, not the most four numeral four votes win. All right. And so if you can persuade. If you're the acumen, you can persuade everyone to kind of make, you know, make your person more than the 10th, you win. And that's actually a little bit of a strategy these days in universal proxy, but that's for another podcast. Okay. So that's the whole idea. So in a company without a majority vote standard, whether or not it's contested or not, the proxy card, at a minimum, really only needs to list one little choice. Four.
- [10:04]
B
Right.
- [10:04]
A
And okay, but that's hard for people to follow when you're voting, so sometimes they'll listen against or that's where this whole other stuff comes in.
- [10:14]
B
Right. So then there's like this. Right. So there's this against, and there's abstain and there's withholding.
- [10:19]
A
Right. Okay. So. So it's. It's worth noting that withhold and abstain, with minor occasional exceptions, are big. Basically synonymous. Okay. They're kind of the same. So most proxy cards give everyone a choice of three. For director elections, either vote for, vote against, or abstain. And abstain is basically a way to allow a voter to sort of sit out a vote on that particular person.
- [10:54]
B
Yeah, To.
- [10:55]
A
Okay, okay. You could also abstain by leaving for and against blank.
- [11:03]
B
Yes. Except I know that there's a twist on this one. Depending.
- [11:06]
A
Go ahead.
- [11:06]
B
The owner. Because this came up with the Tribune. It wasn't about director elections, but this was a fun thing that came up when there was a takeover attempt at the Tribune.
- [11:15]
A
Yes.
- [11:16]
B
So, no, this is the only reason I happen to know this one little thing, which is that I learned that I guess in most cases, I don't know if it varies if you are the beneficial owner and your shares are Held in street name as a technical matter, you're returning the card to your broker. And if you leave that blank, the broker can't. That's an abstention. The broker can't cast certain impressions.
- [11:38]
A
It's a listing rule. You can't do that anymore. That's where the broker non vote thing comes in. But I'm gonna get that.
- [11:42]
B
Right. Exactly. But if you are the actual holder of record and you return a card with a blank, what you are doing is authorizing the board to vote your shares as you like.
- [11:54]
A
Exactly. I was going to. I'm glad you brought that up.
- [11:57]
B
Yes. So, like, it's a difference. Leaving it blank is different depending on whether you're the holder of record or whether you're holding in street name and your broker's name. And this came up because there was a takeover vote on the Tribune and there was a big opposition because the acquirer was known for kind of stripping newspapers and, you know, getting and stripping the assets and getting rid of, you know, good news coverage, whatever. So the reporters. This is the Chicago Tribune, and the reporters were asking people to reject the bid. And one of the large shareholders was actually the same guy who owns the Los Angeles Times.
- [12:34]
A
Oh, sure.
- [12:35]
B
Yeah. And he basically said, I'm abstaining. I returned a blank card. And everyone thought that meant he was formally abstaining, but he wasn't because he was a holder of record. And by returning a blank card, he was basically giving the board authorization to vote his shares. And I was always of the view that the reason that he kind of made a fuss over I'm abstaining was because he didn't want to openly admit he was allowing the bid, given that he had to maintain good relations with his own reporters at the law.
- [13:01]
A
Right. So it was a pretext.
- [13:02]
B
I learned that one little thing. Yes.
- [13:04]
A
And that's important because if you're. If you're.
- [13:06]
B
Yeah.
- [13:07]
A
If you hold your shares, and here's the thing, is that almost everybody, as we've talked about, holds their shares in street.
- [13:15]
B
But if you're a big shareholder, you might be a holder of record.
- [13:18]
A
Right. You may have. If you've gotten them in a deal or something, something like that, you may be a record holder. Yeah, exactly.
- [13:23]
B
Yeah. So he was.
- [13:23]
A
Exactly.
- [13:24]
B
He was playing a game. He was saying, I abstained. But because he was a holder of record, by returning a blank card, he was authorizing the board to vote his shares as the board recommended. Which in this case was in favor.
- [13:32]
A
Exactly. So I was going to talk about that. I'm glad you brought that up because that, that's. Oh, that's fine. Because we're going to. We'll cover that in a second. We talk about broker non votes. Okay. So that's what happens in director elections with four against. Abstain. Go ahead.
- [13:44]
B
Yeah, so. So other than that then leaving it blank and voting no or voting withhold is functionally all the same thing.
- [13:52]
A
Yes, exactly. Except. Except, except, yes, except for companies that have this so called majority vote standard. The whole reason, in addition to kind of making it a little easier for people to kind of vote. If you really want to abstain, you're allowed to check abstain. It just makes it a little clearer for companies that have a majority vote standard, you have to listen fours and againsts. So it allows people to affirmatively. Abstentions don't count there. Okay, okay. But normally you think about it, you'd have to either have four or abstain. I suppose when we're talking about pleurita votes as we talked about before, but in a majority vote company which is like 2/3 or more of the S P, a lot of companies have this essentially if, if a director doesn't get, and we've talked about this in the context of like zombie directors and so forth. If, if a, if a given director doesn't win more votes for than opposed or against, then that triggers this whole process where they have to resign and then the board has to consider it.
- [14:57]
B
And so, and I, yeah, and I tell my students that majority voting can mean very different things. Sometimes it means really they don't get elected. But most boards give themselves the option to keep them on regardless.
- [15:10]
A
It rarely results in a director actually leaving. Well, happened like twice last year.
- [15:19]
B
Yeah, but I mean at least the way. Well, we'll talk about Starbucks. I'm not sure.
- [15:22]
A
Right.
- [15:23]
B
But some companies, most company like Coca Cola. I was looking at this specifically because that was the example I used in class where they were. They have a majority vote standard. But majority vote, if you don't get it, it just means that you offer your resignation which the board can or cannot accept.
- [15:37]
A
And most of the time boards reject.
- [15:40]
B
They won't. And that's. But, but, but what you're saying is that in that initial question of whether you got a majority vote or not, we, the abstains are basically out of the picture. It's for and it's opposed.
- [15:51]
A
Yes. Abstain literally means I choose not to make a expressive view on this. And so a board that's looking at a majority, you know, whether a Given director got a majority vote, they want to know know is there more support or against and abstain. You know, abstain could mean like with the new LA Times guy. I don't know. Kind of what I think.
- [16:11]
B
Well, yeah, but in the LA Times guy, he wanted to vote his shares in the deal, so he just.
- [16:16]
A
Right.
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B
But as a holder of record, he could return a blank card and basically allow the board to vote his shares as they choose. But so vote no campaigns or should we just.
- [16:28]
A
Well, well, yeah. Well, that's a. That's a great question. So in my experience, a vote no campaign means. Should mean you are encouraging shareholders to check the against box.
- [16:41]
B
Okay.
- [16:42]
A
And not the for box.
- [16:44]
B
To actively oppose rather than abstain.
- [16:47]
A
Yes, to actively oppose. Okay.
- [16:50]
B
Because I'll just be clear. The purpose of a vote no campaign is even in a company that doesn't have majority voting is basically like a situation to like express your dissatisfaction. You may not be able to actually keep them off the board, but you can make it clear that you're unhappy.
- [17:04]
A
Well, right. If you wanted to make. Just make it clear to express dissatisfaction, you could just not vote for. Okay.
- [17:11]
B
Right.
- [17:12]
A
Most vote no or withhold campaigns are intended to kind of trigger this silly. Are intended to trigger majority vote.
- [17:23]
B
Most vote no campaigns are. You're saying are in the case of companies that have already adopted a majority vote.
- [17:28]
A
Yes, exactly. I mean, to vote no in a company that doesn't have it. All you're basically trying to do is say, okay, we're really unhappy.
- [17:37]
B
Yeah, but embarrassing that it works. I mean, I know that there are studies that show that when director support falls below 70%, so there's usually some kind of chance.
- [17:47]
A
Yeah. But we talked last time about trying to shame SNAP and that, you know, it works.
- [17:51]
B
I don't know, it's not entirely without power.
- [17:54]
A
Okay. Anyway, so that's most of what I wanted to say about director elections. One last comment which we started touching on was this whole broker nonvote thing, which is again, almost everybody owns shares in street name, which means your broker casts. Is the actual owner of the shares and they cast the votes for you.
- [18:21]
B
So you send them your instructions and the broker cast and cast them for you.
- [18:25]
A
Right. And so, so when you do that, you're saying, I want you to vote, you know, for, against, abstain. Okay. And most people, most individual investors, humans, don't really fill out these cards really well.
- [18:39]
B
Right.
- [18:40]
A
And there's increasingly, you know, some funds that don't. I don't know. Right. So.
- [18:43]
B
But when we talked about Retail rarely votes, and the SEC is now encouraging institutional not to vote, which is.
- [18:49]
A
Right. Right. Okay. So. So if you don't vote, if you submit a card to the broker because you got it in the mail and you're dutiful and you sort of return stuff, but you don't really. You don't vote on everybody or you vote a little differently or whatever. Okay. It used to be because the broker was the, you know, the custodian, the legal owner of the shares, they could vote your stuff. Okay. This is years ago.
- [19:15]
B
And they tended to vote with management.
- [19:17]
A
They voted always with management. Fidelity. Fidelity, you know, managed that, got 401k money from these people. All right. So that. That got narrowed and narrowed and narrowed. And today brokers who get vote, you know, blank or inconsistent whatever voting instructions are really allowed to vote only on the most. The least controversial stuff. Usually they vote like on the auditor.
- [19:44]
B
Right, okay.
- [19:45]
A
But any kind, even an un.
- [19:47]
B
And they'll be present for the prep for the purpose of a quorum.
- [19:49]
A
Right, right. For. Right. If. Well, that's. That's. Yes, they won't vote. They're not allowed to vote on directors. And we'll talk about proposals in a minute. All right. But yeah, the whole point behind getting, you know, brokers to do this and so forth, people just to submit a card is so you can reach quorum. Okay. You know, you can't have a duly called meeting.
- [20:11]
B
Right.
- [20:12]
A
You know, without, you know, enough people show up. Okay. And so to do that, you got to get enough people to. To actually say, okay, I may not want to vote on anything, but I attended.
- [20:22]
B
I just. My funny story about this is I remember once I held shares in an index fund or something, and they. Yes, they don't hold meetings as often as corporations do, but they can hold, like, once every three years, things like that. And I was being, like, harassed because they couldn't make quorum. Like, they kept, like, not being. Because holders of index funds really don't vote.
- [20:41]
A
Right.
- [20:42]
B
They were really like, you know, like, please vote. Please vote.
- [20:46]
A
Oh, yeah, this has happened. You know, there was some. Some notable cases. I can't remember, AMC movie theaters tried for two years to get a quorum. Yeah. To approve a stock restructuring or a class restructuring. Yeah. So. So increasingly it, you know, with certain kind of meme stocks, it was really hard to get. You know, there's so much retail presence, they just couldn't get people to show up. Couldn't even get people to, you know, submit to some. I mean, because a broker can submit a Broker non vote only if they get the card from the, from the retail holder. If the retail holder does, you know, just tosses the card broke, broker can't say, oh, you know, this was not insured, they got nothing. So. So the broker non vote, you know, depends on the actual individual investors submitting the proxy card back. Yeah. And, you know, for some stocks, that was even. That was a problem. So let's talk for a minute about shareholder proposals, because this. Now that we've kind of laid the groundwork here, I think it's a. It's a pretty direct point we can make that for shareholder proposals there is definitely a for and an against choice.
- [22:01]
B
Yes, yes.
- [22:02]
A
Okay. They will also sometimes have an abstain. Okay. But again, abstain is irrelevant here. It just allows you to sort of make clear that you don't take a position similar to the majority vote for directors for all that list of proposals. It's almost always the case that a proposal is deemed to have been approved if there's more fors than against.
- [22:34]
B
Well, yeah, except that I'll just say, you know, there are different kinds of shareholder proposals and some are bylaws, in which case the passing standard is gonna be legally set.
- [22:42]
A
Right.
- [22:42]
B
But a lot of them are precatory. So there's no legal, there's no rule about what counts as passing a precatory. It's a precatory proposal.
- [22:50]
A
Right.
- [22:51]
B
Frankly, it can have power if it doesn't pass at all. But if a sufficient number of shareholders vote, like if 40% vote for something, boards sometimes find that very hard to ignore.
- [23:00]
A
So is it 40% of outstanding. 40% of who attended, 40% of who voted. Exactly right.
- [23:06]
B
That's the thing. So boards will sometimes, my understanding, is play little games as to what they'll call passing.
- [23:12]
A
Right.
- [23:12]
B
Because they get to announce this didn't pass if they don't want it to pass, because it doesn't matter. It's precatory anyway.
- [23:19]
A
Exactly. So anyway. So, so. But the for and against is is.
- [23:25]
B
Is. The is.
- [23:25]
A
Is. Is. Is essential in looking at the proposal voting compared to director voting where there's no majority vote standard.
- [23:38]
B
Yeah, yeah. Okay.
- [23:39]
A
Okay. And again, you're absolutely right. People can play, you know, companies play all sorts of games with deciding, you know, what count.
- [23:45]
B
Like they'll announce what. What it passed or not based on essentially the measure that they prefer. But.
- [23:51]
A
Right. Yeah. And so they, you know, I suppose companies could say, okay, and we're going to act on this because it passed, or we're not, or we'll Consider it or something. So.
- [24:01]
B
Right.
- [24:02]
A
But that's that whole family. And you're right, some there are different vote standards for like if there's a bylaw amendment, sometimes you need 2/3 of those voting. That's very clear.
- [24:11]
B
That might be in the charter. Exactly. Like there are like that's those things have legal effect. So there are going to be legal standards that emanate from state law and then private ordering in the church.
- [24:20]
A
Right, exactly. So anyway, so making that distinction between kind of how the director votes work, how proposal votes work, how broker non votes affect this and for and against hopefully makes this a little clearer. Right. Is this what you had in mind when you were thinking about this?
- [24:38]
B
Well, I just saw the withholds on the Starbucks thing which we're going to talk about in a minute.
- [24:42]
A
Let's look at it. Exactly. All right, let's, we'll do that. Let's apply all of our new newfound knowledge about how voting works to Starbucks. And we will do that in a minute here at Shareholder Primacy.
- [24:57]
B
Shareholder Primacy is brought to you by free flow analytics.com the only free database of corporate directors, their influence and their performance. If you own a stock or retirement plan, go to freeflowanalytics.com and look up which of your elected directors are performing well and and which aren't. Use your vote in the alternative democracy and get your data @free flow analytics.com now back to the show. Welcome back to Shareholder Primacy. I'm Ann Lipton here with Mike Levin and we're talking about Starbucks and the votes that recently took place at their general meeting.
- [25:32]
A
Right. So give us some of the basics about what happened.
- [25:36]
B
Okay. Well I mean basically it was a general, you know, their usual annual meeting. I gather there were about a billion shares that were voted and there was a vote no ish sort of withhold. They have a majority voting standard which we can talk about. But like there was a campaign that was being run by the New York Some funds.
- [25:59]
A
Yeah. Trillium and. Right, yeah, yeah.
- [26:02]
B
And they were advocating to oppose two directors who they felt were had gone back on Starbucks promise to do better on labor relations.
- [26:11]
A
On labor relations, exactly. All right. So AGM took place March 25. So it was only a couple weeks ago. And for those who possibly don't know this yet, you can just get the results. It's always formed in a filed in a Form 8K. So Starbucks filed their results the same day. It was probably written days before and they just had to hit send on the 8k. So those results are known. And we saw like you said, about a billion shares were voted and there were about 125 million broker non votes. Okay so just to bring it back to what we talked about earlier about shareholders representing 125 million shares sent a proxy card into their broker that was.
- [27:08]
B
Yeah, I actually have a question. Did he really send a proxy card in or is it more like you sign up for your account and you kind of default say deem me to a card because I'm not. I think some people may just be ignoring it, but maybe they've already given.
- [27:22]
A
Yeah. And broker. Yes again and brokers vary. But yeah, brokers brokers could have for purposes of helping Starbucks get to a quorum.
- [27:30]
B
Quorum. Yeah, like not anything else.
- [27:32]
A
But yeah, right, exactly. But yeah. And then there's also plenty who just you know, filled out a card and filled out wrong or something. So yeah. And I wonder what, I can't remember what the shares outstanding were at Starbucks. It doesn't really say in my, my filing here. Anyway, so, so that was what the, the vote basics were. So Starbucks had an uncontested director election unless past unlike prior years where a couple of people have tried to vote.
- [28:03]
B
So there was a once ran labor candidates.
- [28:06]
A
Arizona. Exactly. Or they started to those two years ago and they, they, they settled. But I like to show basically settled it. Yes. So the all the directors that were voting won. Pretty, pretty handle.
- [28:21]
B
Handle it. Yeah.
- [28:22]
A
You know some of the votes were like 97 or 98% for compared to 1 to 2 to 3% against using the two concepts we introduced.
- [28:38]
B
And what about a little while ago?
- [28:39]
A
And so, so the withholds were kind of tiny.
- [28:43]
B
Okay.
- [28:43]
A
You know there was 2 or 3 million shares out of the million billion voted that were where there was some withhelds. And again for it to have been withheld there they were counted either if they were left blank or there was a withhold that was checked. And one of the things that was kind of confusing about this was that when Starbucks published their proxy statement and their so called proxy card, they the choice was there were three choices listed for and against and abstain. So I, so I just read the proxy card and those are your three choices. Four against and abstain. All right. When they reported on their 8K the results were listed as for and against and withheld.
- [29:36]
B
Yeah, that's why I was so confused. But right, well so they must have treated the abstentions.
- [29:41]
A
Abstentions and withheld. Like I said they were synonymous. They were sort of the same. So. And as we observe. We're going to talk about the proposals there in a minute. As we observed, they have a majority vote standard. And you know, the New York pension funds, which is the state 10 pension fund, the city one, and then Trillium, which is we talked about because they were running this project at BJ's, we talked about them last time. And then also SOC, which is another labor union activist fund, they advocated against two directors withhold, I think it was Ford and Knudstrup were the two. And they advocated, you know, sent a bunch of materials and say vote against. Okay. Which is the right thing to do. You want. In order to trigger the majority vote standard, which Starbucks has, there had to be more against than fours. Okay. And what happened, as I said earlier, everybody. Everybody won a lot. Yeah. The two that the funds had advocated against, in fact did receive, you know, fewer votes for the two that were. Were targeted. Received, I think somewhere like around 90 or 91%, where everybody else got, you know, well over 95%. So again, Starbucks has. Has this majority vote standard. Go ahead.
- [31:17]
B
No, except for this one guy who wasn't.
- [31:20]
A
Oh, Campion. Yeah. I do not understand. I looked at that either. I could not find. I didn't dig that hard. But Andy Campion, who is a, you know, former executive from Nike and so forth, he only won like 88 of the votes.
- [31:34]
B
Yeah, he like, like just the math. You could just look at it and see that he. There was a dip in support for him, but he wasn't the guy who was being targeted. So I don't. I don't know.
- [31:43]
A
I know. Yeah, it was. That was really curious to me. He must have pissed off somebody at a big fund where they, where they were trying to, maybe trying to, you know, make his life hard, but that was, that was kind of the result. Is that. Go ahead.
- [31:59]
B
Yeah, no, I was just going to say, but Starbucks, at least the way I read it, has a majority voting standard that leads. Reads is real in the sense that they don't explicitly reserve for themselves the right to keep someone on the board if they lose the majority. I mean, like that, like. So some do. Like a lot of companies that have a majority voting standard will say, but if you don't get the majority, then you offer your resignation and we decide whether you stay on things like that. Starbucks doesn't say that. What Starbucks says is if you don't get majority, then you have to resign. Then you're off the board either 90 days from which, after certification of the election, or after the board fills the position or the date you resign. Like, that's what they say. That said, I still don't think there's anything that stops Starbucks from like renominating someone, I guess.
- [32:53]
A
Yeah, you could, you could just bring them back on or something.
- [32:55]
B
Yeah, but, but they don't, they don't explicitly reserve the right to keep them on if they lose a majority vote.
- [33:01]
A
So this is, this is among the strongest of the majority vote standard bylaw terms that at least I've seen. So again, I haven't studied a lot of these, but. Oh, interesting. All right. So that's what happened with the board. They evidently, you know, kind of switched a little bit of the language from withhold to abstain when they reported the results. It's pretty clear that the funds tried to get people to vote against and they had modest success. Not enough to get the two people. Not enough, but anyway. All right, it's worth mentioning also shareholder proposals. We talked about that. Starbucks is a magnet for these. They get tons of them.
- [33:41]
B
All the consumer facing. Yeah. Companies you've heard of that are consumer
- [33:44]
A
facing, but Starbucks in particular is just a lightning rod for labor stuff and environmental stuff and so forth. So there were, it's actually interesting what Starbucks did this year. They received, they say, six precatory proposals. And there were a couple other proposals. Let me, before I get to the precatory, there was an auditor one. There was say, on pay, you know, those, you know, the auditor one was unbelievably approved. It was just.
- [34:13]
B
Yeah, yeah, because, well, the brokers can vote on that ones, right?
- [34:16]
A
Yes, correct. Right. There was. And then there was other, you know, San PEI did pretty well. Okay. Anyway, and they. So there were these six other precatory proposals that were submitted. Let's talk about those. Starbucks in the proxy statement acknowledged the change in SEC policy from no action to no objection. And evidently for most or all of the six, Starbucks had initiated a no action process. And again, Starbucks annual meetings a little before everybody else's. So they had initiated this process and then the SEC changed its policy to this no objection policy. And so Starbucks could have rewritten all their letters and said. Right. Just said, okay, we're done, and waited
- [35:10]
B
till shareholders sued them or whatever. But they chose.
- [35:14]
A
They. Exactly. They chose to include all six, which is, you know, I suppose, admirable in this day and age, the experience.
- [35:22]
B
I don't.
- [35:22]
A
That's the thing. Okay, okay. So. So there were, of the six, there was one that was advocating to remove some sort of supermajority voting requirement on something. It could be special meetings, it could be bylaw. I don't even know what it pertains to. But there's super majority voting requirement that somewhere in the Starbucks bylaws and Starbucks did not oppose that. We were going to say something. I'm sorry, did I interrupt you?
- [35:48]
B
No, no.
- [35:49]
A
All right. Starbucks did not oppose it, so it won like over 90% support. So we can expect, you know, Starbucks to maybe next year amend some bylaws or something. You know, they're going to slow walk this. They're not going to do it fast to get rid of some super majority voting requirement. There was another proposal to separate board chair and CEO, which today, because if you remember, Brian Nicholl came across from Chipotle and so forth and in order to incite that, you know, they gave him an office in Newport beach and paid him a shitload of money and including, they made him board chair, which was what it took to recruit the guy. And I'm a supporter of separating them. I don't even think CEOs should be on boards. But that's for a different day, that one. Okay, support 13%. And again, in the context of our discussion Today, there were 13% of the voters that voted either for or against. Voted for. And what's the math? 80, 87% voted against. All right, so. And then there were a very tiny number of abstentions there. People who actually checked abstain on the card and those don't count. There were four other shareholder proposals. A couple of them had to do with healthcare, for gender transitioning and so forth. There was some, you know, classic ENS stuff. I didn't even read them over. They each won, I think, less than 1% support. So when you balanced out the fours and against, the fours were under 1% of that total.
- [37:34]
B
Okay.
- [37:35]
A
So, you know, this illustrates some truths, is that, you know, when the company doesn't approve oppose this stuff, you know, there's a good chance they're succeeding. You know, governance stuff does somewhat. Well, yeah, I mean, I'm never sure.
- [37:47]
B
Yeah, I mean when the company, it's complicated because companies may not oppose things that they know are going to like they know that the shareholders are going to vote to repeal the super majority requirements, which I think might have been sort of like. Because, you know, Starbucks actually isn't a Delaware company. It is a Washington company. Right?
- [38:04]
A
Yes, yes.
- [38:04]
B
Some of that super majority stuff is the default rule in Washington. But I think that might be what was going on. But the, you know, you don't know like 90% get it is that because Starbucks didn't recommend against it, or is that because Star. Or did Starbucks not recommend against it because they knew that shareholders were likely to favor it and they didn't? You know, I mean, I don't know.
- [38:25]
A
Who the hell knows? So anyway, so that's kind of how Starbucks results illustrate some of what we were just kind of trying to talk about, about how fors and against work and how, you know, the role of. Of abstentions and withholds and how theirs are kind of synonymous. Maybe, maybe when people wanted we call them vote no campaigns. Maybe it's. We should be calling them vote against.
- [38:52]
B
Yeah, they're vote against. Or sometimes they just withhold the vote. Because in some cases, I think, really, I mean, I know you are routinely skeptical, but I am less skeptical that even, just, even if it doesn't have legal effect, a strong expression of disapproval does make a dent.
- [39:11]
A
It could. But I think the message here is if you're going to advocate for vote no, don't make it a withhold campaign. Don't make it a vote no campaign. Read the proxy and make it a vote against campaign. I think you will have your most. You'll be most impactful for voting to
- [39:29]
B
the extent you're trying to pitch to the uninstructed and then, you know, the uninformed, which would include me until, until today, you know, that. That might be more helpful. Sure. Like if certainly there might be some people who hear vote no and then they look and there's no. Like, they don't see no as an option. They see against and who knows, withhold or they hear withhold and they think I should vote abstain or something. Whatever.
- [39:52]
A
Anyway. All right. You had enough of this?
- [39:54]
B
Yes.
- [39:54]
A
You good? Can we, can we go talk to students about this sometime soon?
- [39:57]
B
Yes.
- [39:58]
A
Excellent. Great. Let's. Let's, let's close up here. Okay. All righty. This is Shoulder Primacy, hosted by Ann Lipton and me, Mike Levin, an independent activist investor advisor to investors about their activist situations. Ann is much better informed now about how voting works in annual AGMs and is also professor of law and The Lawrence W. DeMuth Chair of Business Law at the University of Colorado Law School. You can find me, mike@theactivistinvestor.com and you can find Ann at Law Colorado. Edu. Our podcast is produced and distributed by Free Float Media. Thanks for listening. We will talk again soon.