The Oldest Established Permanent Corp Gov Proposal in US Equity Markets*

Activists submit hundreds of ESG proposals each year at US public companies (this year it seems they will submit significantly fewer than in past years). A few times each year an activist submits an AGM proposal that the company recommends shareholders vote for. This might impress the activist, that it wrote a proposal that the portfolio company wants to adopt.

The idea that a company urges shareholders to vote for a precatory proposal actually bothers us. Duke Energy (DUK) takes it to an absurd extreme.

DUK has tried this since 2016

ValueEdge Advisors reminded us recently of this long-running farce. It noted DUK recommends shareholders vote for a precatory proposal to adopt simple majority voting, submitted by corp gov maven John Chevedden for the 2025 AGM (Proposal 4). It might flatter us corp gov types that a company such as DUK supports this.

The history of this particular effort betrays any such warm feelings. It started in 2016, when Chevedden proposed the exact same thing. You see, DUK has a now-uncommon (but not uniquely rare) term in its governing documents that requires support of 80% of outstanding shares to amend the certificate of incorporation (CoI) or bylaws. On the latter, the BoD can of course amend the bylaws whenever it likes. The CoI provides that shareholders can amend the bylaws pursuant to that 80% supermajority. And, as with most public companies, any CoI amendment requires shareholder approval, in this case with the same 80% supermajority. This of course makes it practically impossible for activists to win support for any kind of bylaw or CoI amendment.

The 2016 precatory proposal, which DUK opposed, won support from a majority of shareholders (see chart below). DUK waited a year, and in 2017 dutifully proposed to amend the CoI as shareholders desired. The CoI amendment at the 2017 AGM won 59% of the outstanding shares, a decent outcome but not the needed 80%. DUK magnanimously tried again the next year and won 62% of the outstanding shares, again failing to win the needed shareholder support.

Chevedden took a year off, and in 2020 submitted the same precatory proposal. This time DUK neither opposed or supported it. It won 94% of the votes, as good as it gets. So, in 2021 DUK again put the CoI amendment to a vote, which won support from 63% of shareholders. While better than 2017 and 2018, it still wasn't the 80% it needed.

Chevedden waited another year, and in 2023 tried another time (he's nothing if not determined, as many companies have learned). DUK again neither opposed or supported it. His precatory proposal won 79% of the votes, not as good as in 2020 but still a healthy majority. DUK dusted off the CoI amendment the next year, and in 2024 it won 64% of the votes. The upward trend in support still could not break the 80% barrier.

For this year, now DUK recommends shareholders support the proposal. We're eager to see how much better it does relative to the 94% support in 2020. With the expected support, DUK would put it up for yet another shareholder vote (fifth time is the charm?) in 2026.

Company support means little

Other companies do this. For example, CAT received a precatory proposal for a climate policy report for a vote at its 2022 AGM (Proposal 4). CAT recommended its shareholders support it, so it received 96% of the votes.

Last year, HCC recommended its shareholders support a shareholder proposal for a proxy access bylaw. Of course, this was the memorable situation at which the United Mine Workers submitted four proposals and solicited proxies itself. Among those four was the proxy access bylaw proposal, which then won 99% support.

It bothers us that CAT didn't simply write the climate policy report, or HCC didn't just amend the bylaws to provide for proxy access. If they wonder whether shareholders really want this stuff, then their investor relations folks could easily tell them. Endorsing the shareholder proposal might make the activist or others feel good. It mostly serves to delay even longer responding to the proposal.

DUK takes this approach to an extreme. Activists like that it supports this year's majority vote proposal. Instead, it merely reveals how little DUK wants it.

We suspect DUK hasn't made any serious attempt to round up the needed 80% of outstanding shares. We found no evidence of extra shareholder communication or solicitation in the four years with the CoI bylaw amendment on the AGM agenda. Also, three times DUK shareholders endorsed a precatory proposal to eliminate the supermajority provision. DUK could have quickly called a special shareholder meeting or solicited written consent from shareholders to implement the change. Instead, it waited a year until the next AGM to put it to a shareholder vote.

DUK also has abundant experience with this particular proposal and a good idea of how much shareholders want it. Instead of merely endorsing the Chevedden proposal, why not put the CoI amendment on the 2025 AGM agenda and (finally) solicit aggressively?

Look, we know why. DUK doesn't want shareholders to amend the bylaws, and doesn't need any amendments to the CoI. If it did, we can be quite sure it would hire multiple solicitors and communicate creatively with shareholders to bring out the needed participation. Otherwise, it can continue to slow-walk the proposal and blame shareholders for failing to turn out for the AGM.

So, let's not get excited that DUK supports activist John Chevedden's precatory proposal. Let's get angry it hasn't done more.

*with apologies to and affection for Guys and Dolls.