ATP, Chevron and the Inevitable Consequences: Bylaws Restricting Shareholder Proposals (Part 3)

There are a number of things to observe with respect to the approach taken by Ashford.  First, issues exist with the company's authority to adopt the bylaw.    

Maryland allows bylaws that regulate the management and affairs of the corporation.  See MD Code Ann. § 2-110 (a) ("The bylaws may contain any provisions not inconsistent with law or the charter of the corporation for the regulation and management of the affairs of the corporation.").  The provision, therefore, says nothing about the right to impose limits on shareholders.  Limits are, however, expressly permitted in the articles.  MD Code Ann. § 2-104(b)(1) ("Any provision not inconsistent with law that defines, limits, or regulates the powers of the corporation, its directors and stockholders").    

Second, management controls a sizeable block of stock that can influence the approval process.  The bylaw requires only the support of a majority of the votes cast.  See Proxy Statement, at 47 ("Approval of the Proposed Bylaw Amendment requires the affirmative vote of the holders of a majority of all of the votes cast at the annual meeting.").  Management, however, owns almost 24% of the shares.  While there are other large shareholders, they are mostly large mutual funds.

Third, the proposed bylaw would eliminate proposals by all small shareholders.  To the extent this suggests that proposals by small shareholders (including unions) are unlikely to attract widespread support, the practice at Ashford does not bear this out.  In 2014, UNITE, a shareholder owning a small number of shares, submitted a proposal that urged "the Board of Directors to take all steps necessary under applicable law to cause the Company to opt out of Maryland's Unsolicited Takeover Act".  

The proxy statement pointed out the small size of UNITE's holdings.  Id. (noting that the proposal came from a shareholder holding "153 shares of common stock, which represents 0.0006% of the total shares outstanding on the record date.").  The company recommended that shareholders vote against the proposal.  Nonetheless, the proposal passed overwhemlingly, receiving 12,318,303 votes for and 6,857,642 against.

Presumably had the 1% bylaw for shareholder proposals been in place, this proposal would have been excluded.

For a recent piece on Fee Shifting Bylaws and the approach taken by the Delaware courts to bylaws, see The Future Direction of Delaware Law (Including a Brief Exegesis on Fee Shifting Bylaws). 

 

Name and Address of Beneficial Owner
 Amount and
Nature of
Beneficial
Ownership(1)		 Percent of
Class(2)		 

Ashford Hospitality Limited Partnership

     4,977,853     17.18 %

Monty J. Bennett

     1,308,207     5.23 %

David A. Brooks

     367,854     1.51 %

Douglas A. Kessler

     301,359     1.24 %

Mark L. Nunneley

     177,642     *  

Jeremy J. Welter

     74,380     *  

Deric S. Eubanks

     40,206     *  

W. Michael Murphy

     16,360     *  

Matthew D. Rinaldi

     7,200     *  

Stefani D. Carter

     6,400     *  

Curtis B. McWilliams

     6,800     *  

Andrew L. Strong

     6,400     *  

All directors and executive officers as a group (12 persons)

     7,290,590     23.68 %
*
Denotes less than 1.0% 
J Robert Brown Jr.