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Those Who Hold Themselves Apart Seem To Be Getting All The Attention

Who knew that abstentions were so newsworthy?  Here are three recent news stories involving abstentions at annual meetings:

CalPERS' shareholder proposal seems confused, misleading and internally inconsistent:

RESOLVED:    The shareowners of Nabors Industries Ltd. (the "Company") recommend that the Company amend its bye-laws,  in compliance with the law and required processes, to explicitly set out that  approval of all matters other than the election of directors, be calculated by a  majority of the votes cast—using consideration of only "for" votes, "against"  votes, and abstentions. Broker non-votes should not have the effect as a vote  against a proposal under the proposed voting methodology.

CalPERS' resolution seeks a "votes cast" standard, but then states that abstentions should be considered.  An abstention is by definition a vote not cast (etymologically it is derived from the Latin words meaning "apart" and and "hold").  In Delaware, counting abstentions as "no" votes is the default voting rule under the "majority of the shares present and entitled to vote" standard found in Section 216.  See What Good Can Come From Letting The Indifferent and Undecided Hold Sway?  Nabors Industries Ltd., however, is incorporated in Bermuda and it described its voting rule as follows:

As noted, the Company counts votes at shareholder meetings in the neutral manner required by its Bye-laws, which have remained unchanged in that regard since its incorporation and are consistent with the Bermuda Companies Act.  The Bye-laws state that "[e]xcept as may otherwise be provided for in these Bye-laws, and subject to Applicable Law, at each meeting of Shareholders if there shall be a quorum, the affirmative vote of the holders of a majority of Shares present in person or represented by proxy and entitled to vote thereat, shall decide all matters brought before such meeting."  As a result, broker non-votes, counted for quorum purposes because they are present or represented and entitled to vote, are included in the denominator when calculating voting outcomes.  Far from being some surreptitious, anti-shareholder measure, as the proponent implies, this procedure for counting votes applies equally to proposals proposed by the Company and is described in our proxy statement.  It is simple math, no less transparent than any other standard.

In contrast, Delaware law considers broker non-votes to be shares not entitled to vote.  See Berlin v. Emerald Partners, 552 A.2d 482 (1988).

CalPERS, arguing in support of its proposal, correctly notes that counting broker non-votes makes it more difficult for proposals to pass.  As a proponent, CalPERS expectedly wants a low threshold, but I'm guessing that its views might be different when it is opposing a management proposal.

If you still believe that abstentions are unimportant, read the story above concerning Cheniere Energy and this complaint.


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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
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