In response to the threat of a shareholder ambush of director nominations at a shareholder meeting, many Canadian companies have adopted advance notice provisions (ANPs). ANPs require that shareholders inform a company by a certain deadline if they wish to nominate directors to the board. For annual shareholder meetings, this deadline is typically no less than 30 days in advance of the meeting. For special meetings, it is typically no less than 15 days after the announcement of the meeting. Norton Rose Fulbright's Special Situations team has been at the forefront of this development, having been involved in many of the leading cases in Canada with respect to ANPs.[1]
Nonetheless, the recent US campaign involving hedge fund Corvex Management LP (Corvex) and The Williams Companies, Inc. (Williams), where Corvex attempted to elect "placeholder" nominees to circumvent an advance notice deadline, shows that activists may seek ways around ANPs, and that issuers must remain vigilant.
Corvex's attempt to use placeholder nominees comes in the context of Corvex's long involvement as an investor in Williams, with Corvex first announcing a position in late 2013. As the deadline for the Williams advance notice by-law approached for the 2016 annual general meeting, Corvex announced by way of press release that it would be nominating a slate of ten directors, including the managing partner of the firm, to replace the entire board. In the run-up to the annual meeting, it would then identify new, independent directors whom it would envision as serving as long-term directors of Corvex, and provide full information on those nominees and their qualifications in Corvex's proxy statement. All of the placeholder directors were to be employees of Corvex. If elected, the placeholder directors would immediately appoint the directors Corvex had identified and resign. Notably, its press release stated that Corvex sought to allow shareholders to choose directors without the "constraint of a board-imposed nomination window," essentially admitting that Corvex sought to circumvent the advance notice by-law.
Williams subsequently announced plans to overhaul its board. As a result, Corvex's tactics remain untested.
It remains to be seen if such a tactic could be effective in Canada, given the nature of the ANP, which is to provide issuers and shareholders sufficient time and information to make an informed choice about which directors to elect. In any case, as Wall Street Journal online commentary suggests, this tactic may have limited applicability, in part because activists typically seek to replace a minority of the board with carefully chosen nominees.
Regardless of any ultimate success of this tactic, companies should maintain close contact with their shareholder base and review their defensive policies carefully.
[1] In Orange Capital, LLC v. Partners Real Estate Investment Trust, 2014 ONSC 3793, our Special Situations team successfully represented Orange Capital in the litigation. This case clarified the criteria courts will apply in interpreting advance notice by-laws. In Northern Minerals Investment Corp. v. Mundoro Capital Inc., 2012 BCSC 1090, our Special Situations team was counsel to the company in the proxy battle that established the advance notice policy in Canada.
The author would like to thank Joe Bricker, articling student, for his assistance in preparing this legal update.
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