Home > Property & Casualty > Chevedden case highlights public company vs. shareholder proposal battles

Chevedden case highlights public company vs. shareholder proposal battles

smallclaimspixIn an unusual twist in shareholder litigation, four different public companies – EMC Corp, Express Scripts Holding Co., Omnicom Group Inc. and Chipotle Mexican Grill Inc.  – recently filed lawsuits against a 68-year old retired investor shareholder filing numerous shareholder proposals. Over the past several decades, retail investor John Chevedden of Los Angeles has targeted over 400 large organizations, including, Google, GM, Dreamworks Animation and Hewlett Packard, issuing nonbinding proposals to pressure companies to change their governing and pay practices.

Having filed and won more proposals than any individual or institution in history, Chevedden has gained widespread notoriety amongst large corporation executives, attorneys and shareholders as the most “persistent provocateurs” around. Unlike big-money shareholder activists, he typically only buys the minimum number of shares ($2,000) required to submit proposals before launching reform measures, which often digs deep into the details of corporate governance issues such as how directors are elected and when shareholders can call special meetings. He claims the companies’ litigation is an attempt to thwart investors from pushing reform movements through the proxy process. And although he’s been successful in many of his previous efforts more and more companies have begun suing Chevedden for abusing the proxy process.

Representatives from Express Scripts argue that Chevedden submits more proposals than he can keep track of, causing him to make factual errors that may be misleading to shareholders and should be excluded from proxy sessions. Some SEC officials agree, citing a corporation’s fiduciary duty to shareholders as grounds for excluding proposals that are deemed improper or filed on behalf of a small minority that do not reflect the interests of the majority. But earlier this month, federal judges in three separate cases dismissed lawsuits filed against Chevedden, ruling he did not present a legal threat to any of the companies.

In light of the lawsuits against Mr. Chevedden, (and the attention his actions have attracted in general), management and board members of public companies should continue to be vigilant with respect to the broad fiduciary responsibilities they have to the company, its owners and shareholders. Awareness with respect to controls and response plans for dealing with individual activists, even extreme examples like Mr. Chevedden, could prove to be critical.

About the Author

Marcus Janus is a Vice President in WGA’s Executive Risk Practice. He specializes in assisting organizations and their executives with protection and advocacy for their exposures to Directors’ & Officers’ Liability, Employment Practices Liability, Fiduciary Liability, Professional Liability, Crime, and Kidnap & Ransom.

617.646.0258 | MJanus@wgains.com | Connect with Marcus on LinkedIn |

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