Monday, January 26, 2009
This case always generates a lively discussion. It addresses the limitations on a corporation's obligations to distribute proposals of ordinary shareholders along with proxy materials in advance of a shareholder meeting. In this case, Lovenheim, the shareholder, proposed that the corporation investigate the processes by which its suppliers of pâté de fois gras produced their product. Lovenheim was concerned for the well-being of French waterfowl and wanted to make certain that they lived happy lives before they were slaughtered so that American gourmands could gorge themselves on their distended livers.
SEC Rule 14a-8(i)(5) permits a corporation to refuse to distribute a shareholder proposal if it relates to operations that account for less than 5% of the firm's assets earnings or sales or it not otherwise significantly related to the firm's business. Pâté actually accounted for a tiny portion of the firm's business -- well below the 5% threshold -- so the only question was whether it was otherwise significantly related to the firm's business. The court held that the phrase "significantly related" is not limited to economic significance. A policy issue may also be raised through a shareholder proposal. So, the question becomes: is force-feeding of geese and ducks a sufficiently significant policy issue that a corporation must be required to circulate a proposal relating to that issue as part of its proxy materials? The court, citing regulations intended to prevent cruelty to animals dating back to colonial times, found that it is.
Lovenheim v. Iroquois Brands, Ltd.
Does Iroquois have to police
Whether pâté requires force-fed geese
Yes, western culture protects
Fish, beasts and insects.
The proposal is no mere caprice.