Last year, John wrote about a shareholder proposal submitted to Johnson & Johnson dealing with a mandatory arbitration bylaw. The SEC granted no-action relief to J&J but since then, the proponent filed a dispute and it’s pending. Now, the same shareholder proponent has submitted a similar proposal to Intuit and it’s up for a vote at the company’s annual shareholders’ meeting later this month.
Based on the “thank-you” letter that CII sent to Intuit’s board, it appears that CII and management have found a shareholder proposal they both agree should be rejected. CII’s letter thanks Intuit’s board for opposing the shareholder proposal. In the letter, CII says that it opposes attempts to keep shareholders from courts through introduction of forced arbitration clauses. Here’s an excerpt:
Mandatory shareowner arbitration clauses in public company governing documents represent a potential threat to principles of sound corporate governance that balance the rights of shareowners against the responsibility of corporate managers to run the business. More specifically, among the many problems that our members have identified with shareowner arbitration clauses is the fact that disputes that go to arbitration rather than the court system generally do not become part of the public record and, thereby, may lose their deterrent effect.
Intuit’s statement of opposition points out that no other shareholders have identified a mandatory arbitration bylaw as a significant concern. In reference to the J&J situation, it also notes that another similar proposal is subject to litigation and says that adoption of such a bylaw would likely expose the company to unnecessary litigation.
Presuming the proposal at Intuit is soundly rejected by shareholders and how the proponent fares in the J&J dispute, it will be interesting to see whether these mandatory arbitration bylaw proposals continue to crop up going forward.
-Lynn Jokela, TheCorporateCounsel.net January 15, 2020
