We’ll Believe Companies Are Serious About Shareholder Democracy When They Stop the Charade Over Activist Transparency And Begin to Handle Advance Notice Disclosures Fairly

We chuckle ruefully when companies boast about protecting shareholders by forcing activists to disclose extensive detail about their business, investment, and director nominees. They of course do this through advance notice terms in their bylaws.

Companies insist proudly they only want to help shareholders when they require extensive, detailed disclosure from activists. Yet, if BoDs truly want that, they would include all information that an activist discloses. That includes candidate biographies, background on the activist, sufficient detail on a proposal, and many other items that shareholders need to understand what an activist wants from a proxy contest or proposal.

We've made this point in passing recently. We return to it now after seeing an especially laughable example of that boast, and to make it more specifically and forcefully.

Namely, companies don't really want to help shareholders understand all the perspectives and arguments in a proxy contest. They demand information from activists solely to use it against them. How do we know this?

Well, companies have required extensive information from activists and nominees for decades. Not once in all that time have we seen any company disclose that information completely and objectively in company proxy materials. They do not present activist nominees fairly, next to company incumbents. (Of course, they don't present activist nominees at all.) They don't explain the activist's business neutrally. They include only the bare minimum that the SEC requires of them about the activist, except when it helps the BoD make the activist look bad.

The Politan-MASI proxy contest (yes, again) laughably demonstrates that abject hypocrisy. MASI (through its attorney Paul Hastings, who we think should know better) defends its now-reversed advance notice bylaw terms with a familiar refrain, worth quoting in full from a letter to activist Politan:

Far from “thwart[ing] shareholder democracy” as claimed in your letter, the Bylaws are intended to—and in fact do—increase transparency and ensure that stockholders are sufficiently informed of, among other things, potential conflicts of interest and the identity of those significantly backing (financially or otherwise) a director nomination. The Bylaws facilitate information gathering for Masimo stockholders before they are asked to vote on matters of great importance to the Company; they do not, as you posit, impose insurmountable barriers to the free exercise of stockholder franchise. Indeed, insofar as you are invoking “shareholder democracy,” we note that actual democracy has promoted transparency with robust disclosure of financial supporters and aligned parties for decades. There, as here, “[s]unlight is said to be the best of disinfectants; electric light the most efficient policeman.” Buckley v. Valeo, 424 U.S. 1, 67 (1976) (quoting L. Brandeis, “Other People’s Money” 62 (National Home Library Foundation ed. 1933)).

They quote Justice Brandeis! Remind us sunlight is the best disinfectant! Would that MASI expose itself to the same sunlight, and require of its directors what it demands from a shareholder. We will wait a long time before it publishes in company proxy materials everything Politan discloses to it, the good along with the bad.

It doesn't have to work this way. Companies can include whatever they want in proxy materials. The SEC rules require only a bare minimum, finally including names of activist nominees through universal proxy. Companies can do more in the interest of truly helping shareholders, such as allowing activists to provide background on their business and principals, and showing biographies of all BoD candidates.

That they don't today and haven't ever before betrays their real beliefs and intentions about shareholder democracy.