“Arbitration” Shareholder Proposals: Man Bites Dog

This recent Bloomberg blog describes a shareholder proposal – and a company’s response – that you definitely don’t see every day. Here’s the intro:

The recent no-action request from Johnson & Johnson to exclude a shareholder proposal from its proxy materials creates a rather unique dynamic. It is indeed an unusual day when a shareholder submits a proposal that could curtail investor rights, and the company responds with a full-throated defense of the shareholders’ right to file suit against it.

That peculiar set of circumstances resulted from an investor request to have the Johnson & Johnson board adopt a bylaw requiring the arbitration of all claims brought by investors arising under the federal securities laws, and providing that any such claims may not be brought as a class and may not be consolidated or otherwise joined.

Geez, and I thought it was odd when Steelers fans were rooting for the Browns to beat Baltimore a few weeks back. . . Anyway, the shareholder proponent is Hal Scott, an emeritus Harvard Law School prof who’s a long-time opponent of shareholder class action litigation.

This situation has produced some very strange bedfellows – check out the signatories to this recent letter to SEC Chair Jay Clayton urging it to grant the no-action relief that J&J’s requested and to reaffirm the SEC’s position that arbitration clauses violate the securities laws.