In a case of first impression, GAMCO Asset Management (“GAMCO”) recently nominated a director to the board of National Fuel Gas Company (“NFG”) pursuant to NFG’s recently adopted proxy access bylaw. As far as we know, this is the first time any shareholder has nominated a director using proxy access. When proxy access shareholder proposals first emerged, two pieces of conventional wisdom were often heard. The first was that no activist would bother to use the bylaws, because the holding periods were too long and, even if the activist had ample patience, the payoff was too restricted – yielding only 20% of the board at best. (If the point was simply to get another voice on the board, settlements offer a much quicker route to the same destination.) The second was that institutional holders would never bother to find a director to put on the board, and if they did find themselves in a situation where they wanted to get one or two particular individuals on the board (and didn’t want to find an activist to do the dirty work for them) most boards would be ready to listen to their suggestions. If only for these reasons, proxy access has never seemed that threatening a proposition, and has enjoyed widespread, if anodyne, popularity.
We now have a case where an investor has pulled the proxy access trigger, but the circumstances seem unique enough that the conventional wisdom may remain unchallenged.
GAMCO is indeed a long-term and significant holder of NFG stock – currently holding with its affiliates over 7% of NFG’s common stock. But keep in mind that GAMCO is not necessarily your typical long-term passive investor of legend. In fact, GAMCO has launched more than 20 proxy fights, and, in the case of NFG, made a stockholder proposal in support of the spin-off of NFG’s utility business. The twist is the GAMCO stockholder proposal received the support of only 18% of NFG’s shareholders. So NFG was handily winning the battle with GAMCO as activist. Now they need to win the battle with GAMCO as long-term shareholder.
Did GAMCO choose the terrain of proxy access for tactical reasons or just for convenience? In other words, did it prefer to fight the battle over board representation under the proxy access regime rather than propose a short slate because it felt other institutional shareholders (who overwhelmingly support proxy access) would view its director nominee in a different light than one proposed in a more adversarial context – even if it turns out that GAMCO nominated its candidate as part of its advocacy of the spin-off proposal that was soundly rejected by shareholders? Did GAMCO think NFG would be more constrained in seeking to defeat a candidate nominated pursuant to a proxy access bylaw generally supported by shareholders and designed specifically to ensure long-term shareholders a voice on the board? Or was this just an easier way to get someone on the ballot?
In any event, it will be interesting to see how the election plays out – and whether the proxy access context provides any halo for a director nominated by an activist whose ideas previously lost out with shareholders. If so, it may be worth stepping back and asking if this is what proxy access was supposed to achieve – because so far, it is the only thing proxy access has achieved.