United States: On The Third Day Of Privacy, The Shareholders Gave To Me……

Last Updated: December 15 2014
Article by Megan N. Gates

.......Shareholder Proposals on Cybersecurity and Privacy: Another Country Heard From

As the holiday season slips into the rear view mirror, another season looms large for public companies —- proxy season.  Adding to the ever-growing chorus of demands for increased transparency by public companies on cybersecurity and privacy matters, institutional shareholders have recently begun to contribute their own distinctive voices to the discussion. One powerful tool being deployed in this regard by institutional shareholders is the ability to require public companies to include certain shareholder proposals in proxy statements for shareholder meetings.   This right allows public company shareholders who jump through the procedural and substantive hoops created by Rule 14a-8 under the Securities Exchange Act of 1934, as amended, to air their concerns publicly and directly through the company's own proxy statement, and to require that a vote be taken at the meeting on their proposals, alongside the company's own proposals. 

Rule 14a-8(i)(7) allows public companies to exclude shareholder proposals from their proxy statements if the proposal "deals with a matter relating to the company's ordinary business operations." Recipients of shareholder proposals on cybersecurity and privacy matters have frequently taken the position that these proposals are properly excludable on these grounds. However, the fact that a proposal arguably relates to ordinary business matters is not the end of the analysis. The SEC has indicated that "...proposals that relate to ordinary business matters but that focus on 'sufficiently significant social policy issues . . . would not be considered to be excludable because the proposals would transcend the day-to-day business matters.'" Shareholder proponents have locked on to the "transcendent and significant social policy" theme to make their case for inclusion of these proposals.

For example, in a letter sent to the SEC's Division of Corporation Finance in February 2014 by shareholder proponents arguing in favor of the inclusion of a proposal to Cerner Corporation, which would have required Cerner to "...publish a report...explaining how the Board is overseeing privacy and data security risks...," the shareholders argued:

"The Company asserts that the Proposal is excludable pursuant to Rule 14a-8(i)(7), as addressing the Company's ordinary business – the policing of privacy and data security.  Although prior Staff decisions have allowed similar exclusions, this Proposal addresses a transcendent social policy issue. Under the Staff's decision-making process, an issue may not be considered a significant policy issue one year, but can rise to such a status if the issue has congressional, public and media attention, and a clear nexus to the company.

Privacy and data security have become the focus of national and international discussion and debate, addressed as top-level priorities by heads of government and legislatures around the world.  They are also the focus of national and international lobbying campaigns, investigation by numerous non-governmental organizations, and an extraordinary amount of media attention.  In this instance, the issue of board oversight of privacy and data, and the catastrophic risks associated with a failure of such oversight, is a very significant social policy issue

The shareholder proponents in the Cerner matter ultimately withdrew their petition, because Cerner's audit committee amended its charter to add references to privacy and data security as risk-related topics to be reviewed and overseen by the audit committee, and the proponents were satisfied with that action as a means of addressing their concerns.

Some shareholder proposals on cybersecurity and privacy have been voted on at shareholder meetings. For example, the American Express Company's proxy statement for its May 2014 shareholder meeting included the following shareholder proposal:

"Resolved, shareholders request that the Company publish an annual report explaining how the Board is overseeing privacy and data security risks, providing metrics and discussion, subject to existing laws and regulation, regarding requests for customer information by U.S. and foreign governments, at reasonable cost and omitting proprietary information."

In response to the shareholder proposal, AMEX argued in its proxy statement that it had already implemented extensive programs and policies relating to privacy and data security, and that as a result the shareholder's proposal would not "add any additional value." AMEX's shareholder base was apparently persuaded by the company's argument, as the proposal only garnered 21.3% of the vote at the meeting.

Apple was one of the first companies faced with a shareholder cybersecurity proposal in 2013 put forward by Trillium Asset Management:

Resolved, that the Board of Directors publish a report, at reasonable expense and excluding confidential or proprietary information, explaining how the Board is overseeing privacy and data security risks.

Interestingly, in its supporting statement, Trillium said:

It should be emphasized that the Proposal is not asking the Company to disclose risks, specific incidents, supplier relationships or legal compliance procedures, but rather, we believe investors need to understand more fully how the Board is overseeing the concerns described above. It is likely that, as greater scrutiny is placed on these issues by regulators and the general public, shareholder proposals in this area will only increase. Below are some steps to consider to ensure that your company is well-positioned to respond to such a proposal.

It is likely that, as greater scrutiny is placed on these issues by regulators and the general public, shareholder proposals in this area will only increase. Below are some steps to consider to ensure that your company is well-positioned to respond to such a proposal.

So, for this third day of privacy, we have three takeaways for the upcoming proxy season: 

  • Engage with your institutional shareholders to assure them that you are addressing the issue and have made it a priority. Productive dialogue can go a long way towards avoiding a public fight (and the associated expense) over whether the company is doing enough.
  • Review your Board's committee charters to assess whether they address this issue adequately and reflect the Board's commitment to getting it right.
  • Take, and disclose, a proactive stance on privacy and cybersecurity issues. AMEX was able to make a compelling argument that the shareholder proposal would not add to the comprehensive steps that the company had already taken (1) to ensure that its board was kept apprised of potential issues in this area, (2) to adopt privacy and data protection principles, and (3) to comply with new and evolving standards of good privacy and data protection practices. Without the company being able to point to these extensive measures, the shareholder proposal may have had a higher chance of success.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Megan N. Gates
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions