Shareholder proposals and Delaware law

Welcome to shoulder Primacy from free float media podcast about activist investing Security's law, and all the ways of financial legal world's intersect and Collide in real life. An and I have returned and of course, Suzanne Lipton law, professor University of Colorado, who teaches and researches both, both of those was teaching this week. I think security is in business law. She holds up the legal end of the podcast, and that's Michael Levin an activist investor who lives and works in Chicago. He covers the financial side of our podcast. Yes. Okay, I'll read about the email address. Okay, so we just have her mailbag as a reminder to everybody, please send questions comments things you like or don't like to shareholder Primacy. One word act, free flowed, dot LLC. Once again shareholder Primacy at freefloat at LLC, let us know what you think. So, I think an you'd agree here at Cheryl de Primacy. We kind of aspire to talk about a lot of different things, a range of things, kind of Interest us. So, we look at examples of interesting activist situations, and then there's some you like legal cases, and interesting litigation. And sometimes we'll talk about basic ideas and then we'll talk about Advanced research, all sorts of weird Trends and so forth. But and then we also have talked about the news and there was some news quite recently. I think and I think it would you would you assess the speech that we want to talk about from Cherry Atkins of this is he as significant? I would definitely describe it a significant and yeah. Not just substance but for what he was implying. But yes, go on. Okay, so it is significant. It was he made a big speech. So events intervene and Anne and I was in my musings about activism and older Primacy. So we need to talk about Events. So, There was the speech itself which we are going to address them. Then there was a an interesting. I think we call it interesting paper or draft paper or working paper that chair Atkins mentioned and referred to I think kind of prominently in the speech that raises a lot of questions, a lot of interesting and potentially very impactful questions. Good word. Impactful questions about Delaware law. And the relationship between Delaware, law and federal law. Specifically having to do with shareholder proposals. I think that is that the right way to frame? Yeah, I think yeah. Actually an arbitration which we already talked about, but I'll have a thought. Oh, we can, oh, we can talk about the arbitration of this, of professional. Professor. Jesus of chairman Atkins speech. All right, let's talk about the speech. As we said, it was kind of a doozy. He gave a speech at the Weinberg Center. Which is a an academic center with the University of Delaware of course that's a logical place for it on the occasion of its 25th. Anniversary evidently is a huge banquet and he was the keynote speaker. And normally you'd think that a speech like that would just be like, oh, you know, congratulations, you've done so much. Great work. We love Delaware. You're just keep doing what you're doing, but no Jared Atkins decided to take it. Take it another step, and it's interesting because it's it's not just even though it's an academic center and the audience is, it was a big audience of not just academics, but practitioners and business people in government people. I mean a whole. So if Cher Atkins kind of what he was doing, which we have to assume he did, there was a reason he kind of made this speech at that moment to that group of people. I would I would think. Would you would you? Yeah. I mean he was he was direct requests. Yes. Oh yeah right he had some and I wouldn't I'm demands. But yes. Um, right. And so the speech wasn't when that long, there's a transcript available at the SEC website as they always do. When the Commissioners, go, talk. I thought it was fairly and I can say, academic a lot of footnotes in it. I said, is that unusual? I mean, normally a speech is like just, you know, congratulations. But there's a lot of documentation there when they make official speeches in their capacity as Commissioners, they're often footnotes and they get posted and, you know, has her purse or a famous for having clever titles and all that kind of thing. So, oh, I mean there was a lot of economic dad house that it wasn't merely legal legal, you know, Latin references, you know not more than just a bunch of bids in this one and he said, you know, some really great quotes. He wants to make IPOs great again. So clearly he's been listening to the White House political office in terms of how he messages. He did. He said there's three goals for his kind of term at the SEC. He did kind of say this broadly he wants to simplify and streamline disclosure requirements for issuers, which I think every at most SEC Commissioners kind of way as we talked about, I think one of the simplifications is to get rid of quarterly reporting. Yeah, right. Right, right, right, correct. So there may be some, you know, simplified issue or disclosure could mean worse information for investors. So we'll have to I mean there's a there's a balance there. The second goal is he wants to depoliticize shareholder meetings, annual meeting's which again other Others have talked about it seems like he's really going to take a few steps in that direction. And then third he wants to eliminate Frivolous litigation. Those are kind of my words or I don't think he. I think he did, he did use that adjective. Looking at the beach, but he didn't say it explicitly replication. And his remarks tended to cover the latter. Two about deep politicizing shelter meetings and eliminating frivolous litigation. And today we wanted to focus more on the shareholder, the the shareholder meetings and the shareholder proposals. So the way that in his view, the way that shelter meetings are politicized is because of all these ESG these, you know, predatory proposals that people submit and and that's what his mission, at least in this speech is and evidently for the next, you know, Years of his term. So that's what we wanted to kind of address here. so, I don't know if you want to. So we've talked about 1488 many times here at shoulder Primacy. And so that means, you know, they, you know, shareholders any shareholder, you know, can propose items for a shower to vote the company, has to include that matter, on the meeting agenda, and therefore, in the proxy materials at the company sends out. Which of course means that the companies got a printed up and the boards got it you know recommend with they think we should usually opposed and so on and so forth. So I think it's worth saying, that last time we were together, we talked about predatory proposals and binding proposals. This is in the context of, by of bylaw, amendments and the predatory ones. Okay, go ahead. Yeah, no, I mean, our last show, if anyone listened to that one, we were talking about Duke Energy and you never know. But we're talking about Duke Energy and we specifically talked about the distinction between predatory proposals, which are non-binding, which are essentially requests for sure, for Action from the board. But they aren't anything more than requests and binding proposals and functionally. The only thing she should do by themselves. That's binding. Without some kind of bored cooperation is change bylaws. So largely, when we're talking about shareholder proposals, they're coming from the shareholder. They fall into these two categories. They tend to be like bylaw, amendments. and, Share, and, and request for Action, there might be other categories depending on, like, what you call, like, an auditor ratification is right? But at least among ESG Community, that's totally, from a shareholder, not as a response to like anything under federal law. It will almost certainly be binding in the form of a bylaw Amendment or a request for action. All right 14 ah is the rule that requires companies to include these on the shareholder ballots so that people can vote. Well, I think this will be important a little later. I think this specific requirement very literally in 1488 is it requires the company to include the matter in the proxy materials? Yes, which by implication means if it's going to be in the proximate materials, it's going to have to be on the meeting agenda. And that distinction, I think become I think becomes important a little later on, right? Yes, okay. Well let's, yeah, so let's talk just to set some groundwork. Let's give a little more. Where did this? I mean, the idea of to me activists investor guy, the idea of predatory proposals is is a not completely peculiar but it's not like conventional compared to kind of stuff. I'm trying to achieve. So some ground or some background here, some of the, some of the groundwork about where it came from, would be helpful. Credits do. A lot of my understanding of the history of the rule comes from an article by Jill Fisher pen. Yeah, but she wrote this long paper, they gave the history that I and that's where I know it from. But basically, you have to start with the exchange act Securities, Exchange Act of 1934, gives the SEC the power to regulate proxy statements and prohibit misleading, proxy solicitations. And that was, because one of the evils that Congress is trying to combat was a lot of shenanigans and collecting proxies. So they wanted to make sure there was essentially Fair corporate suffrage. And the theory at the time this came up, was that if a shareholder if the company knows, the shareholder is going to like at the floor of the shareholder meeting, stand up and propose something. If the company didn't include that matter in their proxy statement, then that would make the proxy statement kind of misleading. Because it wouldn't have a fair picture of everything that was going to be at the meeting. So as far back as 1940, the SEC started requiring companies to include in its Court, in its materials and the proxy materials matters that it knew were going to come up for a vote at the actual meeting because the Cheryl was going to propose them now. That is a debatable interpretation statute for years. There have been arguments that know the proxy statement is not misleading, just because it identifies particular matters and doesn't identify others and the SEC exceeded its Authority by requiring, the proposals being included in corporate proxy, I mean, that those arguments have been made forever. But nonetheless, the rule persists that if that and it's been amended over over the years, but it's basically developed into a rule that shareholders can propose items for the corporate meeting. And they, if they, if they're properly meet all the requirements, and they give them to the company, the company has to include them in the proxy materials. And then the shareholder also does have to go to the meeting and like propose, right. Yeah. Right. And that and I don't know if you're right, that's like a big deal that, you know, you'll get a lot, you know, smaller or whatever, ESG, proponents, two weeks before, our meeting are out there. Shopping and says, anybody attending the GM meeting this year, I have my proposal and I don't feel like traveling if someone's there and can sort of servers my representative. This happens a lot. Or some yeah, yeah. And people are out there saying or you can hire you go to task grab it. And there's so many rep at the meeting. You know, like they've ended the I'm not sure how well anyway. Um, so anyway, the underlying theory for this rule. Then as you might gather, is that it's supposed to facilitate the state law, right? That the shareholder would have like, the theory here is that the shareholders are right to go to the shareholder meeting and make a proposal. And this rule is supposed to facilitate that, by making sure it's included in the proxy material. So other shares can vote on it. But ultimately it comes from the shareholders state law governance rights. And so for a very long time, the sec's position was something like in the absence of a, whole lot of, you know, evidence the sec's position is, well, we know that Cheryl holders have very limited rights under state law. They can propose things like by laws that are binding, but most matters of corporate policy shareholders. Can't like weigh in on show or can't like force the boards. Take action. The boards and charge shareholders are not permitted to command the board to do anything, but if you figure it, What Cheryl does can do, though, is they can ask for things. Certainly no reason that they can't ask for things. So it's like a request, a request. So, the SEC basically took the position that on certain on various matters if shareholders wanted to make a request that would be a proper subject that they would have the right under state law to do. And so they could also use 1488 to put it in the corporate proxy materials and there's a very long history. Then of shareholders using the proposal rule for what today we'd call ESG, but long before ESG was a phrase like right? Yes, one of the earliest shareholder proposals from 1951 ask Greyhound to desegregate its buses in the early 90s, but go ahead. Yeah, no he really 90 year old is tried to get Cracker Barrel to stop discriminating against gay people. So this is long before ESG was like a phrase and and but a couple like not long ago like maybe last year, I'm not even sure a professor at Oregon most in menashe. She wrote an article that He argued that since these are essentially derived from state law rights, there's nothing under Delaware law, that would stop a company from adopting, a bylaw or a charter provision that limits, the kind of proposal shareholders could make. So if companies were upset that they were getting a whole bunch of purgatory. Proposals Professor minesh is argument was well they can just adopt a bot. The directors can adopt a lot. Are they can put it in the charter that says, actually, here are some limits on your ability to offer offer proposals and there was nothing under Delaware law that would prohibit that. So that was his idea. But now as you say there's this new paper route, From a partner at Morris Nichols, Kyle Pinder. And he actually goes further he argues that it's not just that a company could adopt a bylaw to limit shareholder proposals, he argues there is no right under Delaware law at all to offer. Predatory proposals that the idea that shareholders have the right to go to a shareholder meeting and demand that the board. Take a vote on requests for Action. Simply is not a right that exists under Delaware, law, and either, and either instead or in case law or no, and if that if that is correct, share the Implicit shareholders would not have a right there for to include it on the corporate proxy and for 148, or to put another way companies, if they showed us did. So request companies could exclude, the matter from the corporate proxy on the grounds that this is simply not a proper subject for shareholder action under state law, and he works out whether we You know, ultimately agree or disagree or whatever with the reasoning, he works out a lot of the, some of the detail, the evidence and the logic behind why? That is the case at least in Delaware and this and his analysis can find in Delaware. Essentially write his argument is that there's nothing in Delaware lie. The statue of the case law that explicitly permits it, and we should therefore take the absences of evidence is evidence of absence. I mean that's basically his argument, but he also at the same time does recommend that to collect, you know, to to Clear up any confusion about it to reply that Delaware actually officially like you know go ahead and pass a law that makes clear that shareholders have no right to offer, precatory proposals. So that would that would put it in statute that statue so that way. And then Could if they wanted to permit them and permit them maybe on different terms than what 148 permit. So that's ultimately where he comes out. He comes out that they're not necessarily a good thing. He doesn't like them, he thinks that there's not a whole lot of reasons for them and that Delaware should therefore make it explicit and it's law. Although he does think it is in the law already, that, that there is no right under, Delaware law, offer Purgatory proposals, okay, right? And that gets to the distinction. I was Hinting out a little earlier, which is the, which is between the right to include your proposal on the meeting agenda. Which is strictly, I think, strictly an artifact of state law in Delaware but that that's the yeah. I mean, well, I mean under 1488, that's a claim, Federal Law, requires certain things, right? And then the requirement to put that in the proxy materials that describes. That's a communication of that agenda to all the shareholders, which is regulated by federal law. Okay. Alright. Well the idea Right, under 14. A State law Wright State law, which I think is probably correct that that any right to have things under. 1488 does not like there are other kinds of things that Federal Law requires a shareholder vote on but that's even if state law wouldn't. But that's a separate. Yeah. Um, that the like saying, hey like say Okay, age is but 1488 is supposed to be derivative of the state law rights. That it's simply supposed to be a mechanism that facilitates the rights that you would otherwise have under state law. So, his Delaware law does not give all this time. We've been wronged Delaware law does not. In fact, allow shareholders to make bracket Dory proposals, and so, therefore, Company should be able to exclude the automatically from their from their, right and this then brings us back to Atkins of speech. Yeah. Which is where he where he has some suggestions advice for the Delaware. I mean I I understand the timelines here. Pinder posted his paper online and like days later it appears in in Athens his speech. So I have to assume he either gave Atkins in advance. Copy or something like that. Maybe. But yeah, but but Atkins. So in his speech he took up this point and ran with it and he essentially accepted the premise largely on questioning that that Pinder is right that Delaware law does. In fact, currently not permit, predatory proposals and he sort of declared that if a company like the way and just to make the way this works is of a shareholder proposes and item to include on 148 ballot. And if the company does not want to include, it has to go to the SCC. And essentially request that, it'd be permitted to exclude the matter from the proxy, and then the SEC kind of answers. Yes, or no. Sorry that's just the time the time honored, no action letter right process. So what Atkins essentially declared was that if a company and invited companies to do I mean, this was In it was that if a company wrote to the SEC and said I would like to exclude this proposal because it's predatory and Delaware, law does not permit predatory proposals and they included a legal opinion to that effect, essentially the equivalent of pinder's letter and legal opinion form. Then the SEC would definitely allow the exclusion, which is sort of a bizarre thing to say. Because you haven't seen the other side. I don't know what the like, I mean, Shareholder did that. And the company came back with a legal opinion that these are excludable Under Delaware law. The shareholder might very well off of their own legal opinion and nonetheless just declared. Oh, which is, oh, that's interesting. The SEC is definitely gonna excluded, he just correct. So that legal opinion that you just referred to. That would be like hiring Morris Nichols to write a letter, of course out there. Anybody could summarize it, right? But I think you were but I think My read, my quick read of the speech was that? It's a speech or the paper that uses Beach, that if you get that letter from, you know, a member of the Delaware bar that says that that will be enough evidence for the staff to concur in a no-action request, but he's not even considering that it's not impossible shareholders would put their own letter with their own research, but he also hinted an alternative, which is okay. So there is a procedure for these kinds of disputes that allows the SEC. If it has to decide is this permitted or not permitted to actually go directly to the Delaware Supreme Court and say, can you tell us whether this is okay? Under Delaware law, the SEC only done that once before with the different shareholder proposal. But about Shareholders adopting. A bylaw that would reimburse dissident candidates for their costs. Okay. Oh yeah. So what there was a whole lot longer but but essentially a shareholder wanted to put a bylaw place that would require the boards to reimburse, just in candidates and proxy contest. And the board said that is impermissible under Delaware law and the SEC used that procedure for the first. And as far as I know the only time to say, well, I don't know if this is permissible under Delaware law. Delaware, why don't you tell us so Atkinson Delaware Supreme Court wedding. Tell us. Supreme Court actually created this procedure for the SEC because it would much rather have the SEC, ask it than, like, makeup Delaware law. So, the Delaware Supreme Court did answer it and they said, actually it's excludable and then Delaware's legislature changed a lot of make it, not excludable, but but so, So what? So what? offered in the Alternate the lawyers for the company that say, this is excludable when they get that letter from Morris Nichols or when someone. Yeah, but he also said that another alternative would be to petition the Delaware Supreme Court and hopefully the Delaware Supreme Court would resolve this by explaining whether or not prokary proposals are or are not Permitted under Delaware law. Wow. And all right, and the same time since he seemed to be accepting as unquestioned. That, of course, this article by Kyle, Pinder was accurate. He pretty much seemed to assume that, of course, if we ask the Delaware supreme court, whether these are excludable, they're going to say they are, right? He's right with with emphasis, let's just say there was an implication to the assembled parties. Delaware is going to agree that they're excludable. Right, this was said, push behind it. Okay. Oh, interesting. So he seems to be kind of leading He wants to go and this is like, and like the Texas thing. So where he also Texas. And yeah, go ahead. And that was mentioned this to go ahead, right? Exactly, because he pointed out the Texas, just recently passed a law to allow companies to exclude proposals, you know, on certain, you know, by essentially raising the size that was, that revolved around size of your stock. Yeah, about size of your Holdings. He announced he kind of. So, there are a couple things about mentioning Texas, which is that he mentioned, Texas, which I think was again, it's the, it's the quite frankly, the threat behind the Delaware. Oh, very deaf of him, right. Talking about Texas in front of the Weinberg Center. I think the implication was, this is another reason why Texas is more attractive place to incorporate. I mean, that was the implication, but Like we said this on another show and I really keep needing to screen this from the rooftops. If you are Incorporated in Texas, you do not get to take advantage of that law. That law does not apply to companies that are Incorporated in Texas. It only applies to companies that are headquartered in Texas or that are listed on the traded traded on the new Texas exchange, it's so bizarre. So first of all no one's moving to Texas, so they can exclude shareholder proposals, it wouldn't help. And second because it the law doesn't apply to companies that are chartered in Texas. And I keep saying that that I go back and I check the law to like double check to make sure I'm not a crazy person and it doesn't it. So you are crazy person, but I mean, but for other reasons but here's the thing like acting sort of just assume the Texas law would apply in some circumstances and it just goes on sort of like, you know, of course, if a company properly excludes a proposal under Texas law, the SEC would respect that with glossing right over that. Texas is purporting to regulate the corporate governance of companies that are not Incorporated in Texas. So, That's just gonna continue to drive me, crazy until that gets resolved, but okay, which could. And then of course, he announced a general project like, this is an SEC rule. That was interesting where I mean, it was another part of the why this speech was so. So I think so important. So he says, look, I'm not sure we need 1488 anymore, and the SEC could possibly, revisit the rule or dramatically, change the rule. So, that is the third possibility. Yeah, he says, in his speech, I believe a fundamental reassessment of rule. 1488 is in order. And to that end shoulder proposal modernization is on the commission's policy agenda and I know there's people who study that agenda like I study the Federal Reserve and so and as part of the monetization for effort, I'm asking the staff to evaluate whether the original rationale from 1942, still applies, right? Right. Yeah, this is a pretty basic something misleading about not including things that, you know, that are going to be on the floor. And this is and Kyle penders argument, you know, part of his reason for why we don't need precatory proposals is because she holders can communicate out in other ways so it's just not necessary. Right, cool. Let's um, I think we need to catch our breath here because there's so many. There's a few more things to talk about, related to Kyle's paper and a little more about the speech and so forth. You had a comedy wanted to make about the litigation comments he made. So, let's do that. After this break here at Cheryl Primacy. Shareholder Primacy is brought to you by free flow analytics.com. The only free database of corporate directors, their influence and their performance. If you want a Stocker, retirement plan go to freeflow analytics.com. And look up which of your elected directors are performing well and which aren't use your vote in the alternative democracy and get your data at free flow. Analytics.com. Now, back to the show, The Privacy I'm at Lipton here with Michael Levin. And we're continuing to talk about shareholder proposals under SEC rules and Delaware law. So a lot of the theory here and this is what, you know, Kyle Tinder was arguing and it's what Atkins was suggesting is that shareholders? Don't need 1488, they don't need shareholders proposals. They don't need it to propose things that way they can communicate in other ways. What do you think? I mean, I know you're not crazy about precatory proposals. We've said this before, but I mean, if we're talking about she matters, that's literally the only option, but Like Kyle was suggesting Social Media communication, things like that as an alternative. What do you think? Well let's let's unpack this. Okay, first we have to talk about why I'm not crazy about predatory proposals and it's because As I've said before, I'm stubborn. And I like, when I, when I want to interact with a portfolio company, I want to interact with in ways that are going to have impact. And a predatory proposal to me is, you know, unfortunately a little weak, you know, kind of advising a company to maybe can you do this and then you know, they can slow walk it. So that that's it's not that I don't agree with the overall goals of the, you know, sustainability and social progress. Folks. I'm very sympathetic. There isn't another, I mean, you can't make a company but right, you think and plus a lot of companies settle these. So Sarah honored, a whole big, you we have, right? We talked about this, write a whole big paper a while back about how often companies settle these and they settle them because they're going to, you know, essentially take the action, or some version of the, or some version, or something, or some very weaker, not to be about any issue matter. Like, for example, let's say the company wants a charter Amendment. There was literals are not allowed to propose Charter, amendments. In the first instance, they can vote on them but the board has to propose it. So if Cheryl there's What a charter Amendment, they're only option would be a predator. I mean other than job owning their social Media communication. Like right. They want to make clear, the amount of force that is stance behind it. Shareholders would have to do a shower holder proposal, right? No, correct. And then, and then, we have to address. What we kind of mean by shareholders because there's different flavors of shareholders here. Okay, you know, there's, you know, hardcore Financial activists, which don't really, you know, there's a lot of people who kind of agree with me that they want to have impact. So we we tend to think more about you know, proxy contests and putting directors on the board that are going to pursue avenues that we agree with or you know, bylaw amendments that de staebler board. I mean, really, you know, impactful things and then there's other shareholders that again. Want companies to adopt more broader social sustainability goals, and so forth. And again, they're not great. Okay, cool. And out of necessity again because the only thing in Pinder says this that there's, there's only three things, you know, should do, they can? I think they said, they can vote sell and can't remember the third two, that's Sue and Again you can't as a shareholder you know it's a it's a fairly basic part of of State Corporation law that you can't. You can't compel a company to do something. Those are three, okay? So that leads you to Preparatory proposals and again, we can debate and there's a lot of other people who say You know, these are a waste of time or these are useful, and so forth. There's a lot of times we've talked about that before, okay. But the whole Idea here about communication is. There's some, there's a little bit. There's a tiny corner of truth to. It is that there are many, many other ways now, for shareholders to communicate with each other. So you can social media, there's other more creative ways of contacting other shareholders and so forth whether those are as effective. Well, they're as communicating through proxy materials. I don't know. Well, I mean, certainly can't show a ground swell of support that way and also shareholders can't communicate as easily as they used to be able to. Because if you recall, and I'm sure we mention this, we probably mention this, I don't remember if we mentioned this, the right after the election before Atkins was confirmed as chair the SEC put out a new compliance interpretation saying that passive shareholders have to be careful about their finally about filing a 13. Yeah start filing all these 13 Deeds if they started over ESG engagement was a change of position from the SEC but it also And I saw a report. I think it was Reuters put out a report saying that. After they put out that compliance interpretation, there's been a lot less engagement by Vanguard in Black. Yes, there's no. It's been curtail indicated. Yes. Right. So there's so, so the, the environment in which shareholders can communicate with each other forgetting about communicating with the company. This is all about shareholders communicating with each other. Well, they're all right, to the company. But that's the other thing is that is the one of the values of proposal is, it's not merely. Anecdotal, you know, and for information, so, like like there is a real life. So we talked about, you know, when we talked about the Duke Energy, practicals and so forth and I wondered, you know, why do Duke Energy needed to, you know, have votes, can't they just go out and talk to a bunch of showers and say yeah we want to get rid of this majority, voting requirement. and just base it on consultation with big shelters, but pregnant proposals in this matter it it's it's a more authoritative or a more credible showing of shareholders sentiment About about one or another issue and then the question becomes are those issues sort of proper for a board for a shareholder meeting and so forth. And there's and there's a lot of debate about that too. So he asked what I think about this and I think unfortunately have to resort to it, not 100% sure. Yeah, but okay, so we should really quickly like, my other two things that I think are worth mentioning one is we talked about 14, a six proposals as an alternative and we've got because we've talked about that. Am I getting the number, right? We talked about that before that, where the shareholder circulates, their own proxy material. That's 1484 for 1484. Oh, see. All right. I mean, I'm telling you, I'm telling you about SCC numbering that to the Public's attention 1484. Well, there's others actually worked on it, but I've tried. I've been a, an evangelist for it as a way to, okay. I have impact on a company. Right? Go ahead. 1484, that's the section. You want to talk about? Yeah. Okay. Oh, what about his alternative? Well I mean sure! Oh, and that's actually a great question because Even, let's suppose that the Delaware bar. The I can't remember the section that recommends, the amendments to the statute, the people who brought us 2021 but suppose they were all in the audience. Well, whatever. Let's suppose they were on the audience, they're all her reactions. They all took the hint, they said they always talk about Texas, holy moly, we have to really, and they go. And they say, okay, Purgatory proposals are just not allowed or a company can but by its own right. Yeah, right, right. And and you know, I don't know, I don't know if they'd be able to get as far as passing a law. A statutory changes. I've seen like if they if they're determined enough, I'm not sure if I was a big enough priority to them, maybe they are. That's all separate issue. But that's the thing, whether it's a priority is, very much, a function of the commissioner of the SEC, like chair of the SEC standing in front of them and saying this is going to be Delaware law, right? I mean, I like I don't know that it would have been a high priority but for the fact that the chair of the SEC is basically so with Texas lurking in the background, right? So if the legislature goes and basically either eliminate some themselves or allows companies to eliminate them, either through getting the right letter from Norris Nicole's or through a bylaw Amendment. And I think there's some debate about whether or not this requires a bylaw Amendment or whether they can just get a letter then, then it's going to streamline and simplify, you know, possibly to the detriment of a lot of things, you know, shareholder meetings because, you know what, I think Tesla this year is I think we talked about his like eight, precatory proposal, well, there's a bunch of shelters that, you know, bigger show. There's that would welcome, not having to research those and vote on those. but there's others that think Tesla needs to needs to focus on those issues, but yes, don't just The thing about 14 A4, is that we've seen now with universal proxy, more companies, take more shareholders, taking advantage of the of the ability to just circulate their own proxy materials and not using 1488, their own proposals on the ballot. But if Delaware either it is determined that this pre-existing Delaware law or Delaware makes clear with the legislative change. This is a law prohibits predatory proposes or allows companies to prohibit them. Then Cheryl's would not be allowed to circulate. Write 1484 would not apply here. 144 would apply only to like, bylaw, amendments, which I am, I can't imagine that maybe they'll do anything. The Delaware legislature would allow shareholders to not proposed by a woman. That's crazy. That's not, you can't. That's that part. Okay. That's not even with Peter's arguing for he's right here proposals, so that said, but it kind of depends on which direction we go. Like if Delaware doesn't do anything on predatory proposals, and it is not Taken as a obvious that Purgatory proposals can just be excluded automatically and the SEC reforms 148 in general to make it. So that 1488 does not allow it in some version. Then 1484 that's that's the back that might be the new path for shareholders to just run their own proxy contest based on a proposal, which is now at least more feasible. Because Universal proxy means they conclude the director candidate, right? And and there's and technology is evolving. This gets to a little bit of Pinter's point is technology. Is evolving where a dissonant and activists can undertake a 14a for solicitation. Someone more efficiently they can do. It. But if Delaware simply doesn't allow Purgatory proposals, then you live and that that changes that changes the game completely. But that's that's a that's a couple steps away. So go ahead a couple of points we have to talk about. Yeah. That like this is getting so much attention. Always leaves me with its predatory. Why do companies care? Like, I don't know, I've asked that question. I've asked that question many times and I would welcome your older Primacy at free float dead. LLC get in touch with us, corporate Representatives. What is the big deal about Preparatory proposals? Why do they write? That's kind of if you want to write. So, I don't know. I've asked that question before. I'm going to continue to ask it why. This is such a big deal to boards and companies and there's some potential explanations, but let's leave that open as a question for for possible further exploration. Well, we'll find a gas. Who's willing to be candid with us. About why this, why? This is such a hassle. So anyway, so you had another point you were going to make about Atkins speech. Yeah. Because we talked about man, arbitration last time and I won't rehash it but what it basically comes down to is that SEC is now somewhere between allowing and encouraging and this feature was more encouraging than allowing companies to adopt. A bylaws and Charter Provisions, that would require all Securities Federal Securities claims to be brought not as class actions in court. But as individual actions in arbitration, which is a large, we talked about a large extent. We mean, you wouldn't see cases accepted very extreme cases where somebody had a very large loss that would make it worthwhile to handle individually. But we also said, was that because of recent changes in Delaware live and even though I don't think this is what they intended, Delaware actually prohibits companies from adopting by laws and Charter Provisions that would require arbitration of federal Securities clients. So the other piece of his speech was Atkins, essentially, lecturing Delaware, that it should change, its law to allow these Provisions. So, the proposal rule, it was more like, but this is already is Delaware law, right? That the shareholders are not. But here he had to just basically explicitly said you should change your corporate governance law or else companies are going to go. Go places that are more, you know, better and more sympathetic deliciously Delaware doesn't fully understand the priorities of the SEC and I find this extraordinary. I've never I can't recall like the SEC regulates what it regulates. I can't recall the SEC essentially, lecturing a state or gotten Delaware and saying them, your corporate governance is wrong. These are supposed to be like different spheres. It's supposed to be the corporate governance is essentially a voluntary contract but between Cheryl holders and managers, and they can go to any state and they can choose what they want. The SEC is engaged in a different project, and the idea that a commissioner of the SEC is telling Delaware. I don't like your corporate governance while your internal corporate governance level. Because I have a mission of corporate governance, which is totally is not the sec's job. Their vision is not, they're not supposed to have a vision of corporate governance. They're supposed to be giving investors information and protecting investor interest. and if you're interested, but also in particular, like More a lot. Of these like about direct or Independence for listing standard just touch on corporate governance. But in general historically the sec's job is I'm giving investors information. The substantive regulation of corporate governance is a state matter. And right I just found that part of his speech extraordinary. So when you take it in conjunction with the very strong hand of what he would expect, the Delaware Supreme Court to say. If asked about the idea, the shower proposals. Yes. I always view the way I to a lay non-lawyer, nothing's legal advice here view, the two roles separate them in my head, is that SEC. Regulates Communications among. Shareholders, and between companies and shareholders. For a very good reason. So that becoming going back to the original origins of the ACT, there was a lot of deception about what people were telling each other about an investment and they would leave the rest of like how boards work and how bored elections work and how litigation works all to the states. And and what I think we're starting to see here is potentially a big change in that. Is that is that a proper interpretation of what we're saying? What I'm seeing is Atkins. Basically saying if the SEC doesn't have the power to do it, I'm going to strong arm Delaware into doing it, which is I think that we said, when we talked about mandatory attrition Delaware, walked into his Trap by trying to regulate federal law anyway, but it's probably that was the original sin. Here was Delaware state that its bylaws and Charter Provisions going to regulate Federal Security's. But beyond that, especially when it gets to proposals, this is acting said I have a vision of corporate governance and I think the states should adopt my vision when the SEC doesn't have the power to act and that is extraordinary to me, right? And that's important, is that there's been some discussion like on USB 21. I think that If is there going to be some sort of federal preemption of yeah? Corporate. Okay. And that's part of the problem with that is, there's 49 other states. That have to that have something to say about Federal preemption of corporate regulation. Yeah, but they don't care but no, no quite but there's but there's a difference between the and the federal preemption would clearly come from the SEC. It would be, you know, Congressional changes or whatever. Right. Exactly. But there's a different I mean since Federal preemption of this is is highly unlikely. It's going to take forever and it's very difficult. The next best thing is the federal government telling the leading State Corporation, regulator Delaware, what to do. Yeah. And that I think is, is a way to kind of summarize. What we heard anything similar I ever before? So, anyway, all right, well, this is fascinating, this is so cool. I think we've taken so much time here to talk about this stuff and we'll have to return to what at some point. But for now I think we have a pretty good handle on. What? What the project looks like at the SEC and then she at Delaware, for a little while know. Yeah. All right. Stick to semi-annual reporting for a while. I yeah. That would be if they could just confine their regulatory changes to whether we have quarterly. So many annually. I'd be fine anyway. All right, let's let's go. It's been terrific, visiting on all this. This is shareholder Primacy hosted by Anne Lipton and me Mike Levin. I'm an independent activist investor and advisor to investors about their activist situations and is Professor of Law and Lauren's WTH chair of Business Law at the University of Colorado law school. You can find me Mike at the activist investor.com and at law.com colorado.edu, our podcast is produced and distributed as always by the good Folks at freefloat media. Thanks for listening, we'll talk again soon.