What Do Companies Think of Universal Proxy?
They might be concerned about the impact on BoD elections. At least one may worry enough about the new universal proxy card (UPC) to advance its annual shareholder meeting to beat the upcoming effective date.
If you follow the developments and our research and writing, then you know that starting September 1, 2022, proxy contests will use UPC. We've pointed out the advantages to activist investors of UPC. Company advisors have sounded the alarm about the adverse impact on incumbent directors.
We have not seen anything on what activists or companies think about UPC. Now, we have an early example of how one company facing a proxy contest might have reacted. It looks like it advanced its annual shareholder meeting by almost two months to avoid UPC.
Rocky Mountain Chocolate Factory, Inc. (RMCF) represents one of the more complicated and contentious activist situations in recent years. Two separate investors pursued activist projects there since 2019, with multiple proxy contests, settlements, executive departures, BoD resignations, and other assorted controversies great and small.
We don't have a view about really any of it, particularly who's right among the company and investors. Here we address only the timing of the 2022 annual shareholder meeting (ASM), and the context for that timing.
2015-18
RMCF ran its ASM in August, including on August 17, 2018. These appear to have proceeded routinely.
2019
RMCF attracted attention from investor AB Value. In May 2019, to comply with the company advance notice terms, AB Value notified RMCF of its intent to nominate two candidates for the BoD. In August 2019, around the time of the expected ASM, RMCF delayed the meeting to January 9, 2020. In December 2019, RMCF and AB Value settled, and RMCF added the two candidates.
2020
It looks like 2020 proceeded uneventfully. RMCF ran its ASM on September 17, 2020.
2021
Things took a turn. In anticipation of the 2021 ASM, AB Value again nominated directors to run against incumbents. Its settlement agreement had expired, and perhaps RMCF declined to nominate the original two AB Value directors from the 2019 settlement.
Another investor, Global Value Investment Corporation (GVIC), also nominated directors for the 2021 ASM. RMCF quickly settled with GVIC, and accepted one of its nominees.
It looks like RMCF decided to takes its chances with a proxy contest with AB Value. After the settlement with GVIC, it scheduled the ASM for October 6, 2021. The meeting went better for AB Value and worse for RMCF, with AB Value nominees winning two BoD seats and RMCF incumbents winning four. The two incumbents that did not win included the CEO, who eventually left the company in 2022.
2022
The proxy materials for the 2021 ASM set forth an advance notice deadline for the 2022 ASM of May 12, 2022, based on an ASM date of October 6, 2022. Thus, on that date, AB Value notified RMCF of its intent to nominate another candidate, exactly at that May 12th deadline.
The next day, on May 13th, the day after it received the notice from AB Value, the BoD set a date for the ASM of ... August 18, 2022. That's two weeks before the UPC effective date. For the first time in several years, RMCF also disclosed the date of the ASM before it set the record date for the ASM. It looks like the BoD really hurried to beat the UPC deadline.
That makes some sense, if you're the BoD and want to keep your seats. AB Value escalated pressure successfully since 2019. It prompted a settlement in 2019, and won two seats out of six in a shareholder vote in 2021, just a year ago. If the BoD worried about losing more shareholder support in the 2022 BoD election, it logically would seek to avoid giving AB Value any further advantage through UPC.
Maybe RMCF wanted to return to its previous routine August schedule. While it may claim that rationale, the BoD showed no compunctions before about delaying the shareholder meeting several months. In a relatively quiet 2020, it scheduled it for September.
It sure looks like this BoD wanted to avoid UPC, an early illustration of company sentiment about this important rule change.
