Shareholders in Google parent company Alphabet are set to vote on a proposal regarding board oversight of ‘anticompetitive practices.’
Specifically, the measure filed by CtW Investment Group requests that Alphabet’s board ‘report to shareholders on how it oversees risks related to anticompetitive practices, including whether the full board or board committee has oversight responsibility, whether and how consideration of such risks is incorporated into board deliberations regarding strategy and the board’s role in Alphabet’s public policy activities related to such risks.’
In its supporting statement, CtW Investment Group says the ‘anticompetitive practices of big tech companies, including Alphabet subsidiary Google, are receiving increasing scrutiny from the public, regulators and enforcers.’ It states that Google has been criticized for having a monopoly over internet search and having access to user data ‘to eliminate competitors not only in search but also in adjacent areas such as online shopping.’
The proponent notes that the House Judiciary Committee’s antitrust subcommittee began investigating competition in digital markets in 2019. It also notes that last October the US Department of Justice (DoJ) and 11 state attorneys general sued Google, accusing it of ‘maintaining monopolies through anticompetitive and exclusionary practices in the search and search advertising markets.’ Google said in a statement at the time that it believes the complaint is without merit and that it will ‘defend itself vigorously.’
‘Backlash against anticompetitive practices can increase pressure for new regulation,’ CtW Investment Group states. It concludes: ‘Given the widespread debate and rapidly changing environment, we believe robust board oversight would improve Alphabet’s management of risks related to anticompetitive practices and that shareholders would benefit from more information about the board’s role.’
Alphabet unsuccessfully sought no-action relief from the SEC for excluding the proposal. Its first argument is that the proposal may be omitted under Rule 14a-8(i)(7) because it concerns the company’s ‘ordinary business operations.’
It notes the supporting statement includes reference to the congressional scrutiny and DoJ complaint. ‘These are all aspects of the day-to-day work that the company has undertaken for many years as part of its global legal compliance program, which includes ensuring compliance and making decisions about legal strategy with respect to competition laws and regulations in all of the jurisdictions around the world in which the company operates,’ Alphabet states.
Therefore, it argues, the proposal simply requests a report on the board’s oversight responsibilities of management’s daily functions in regards to ensuring Alphabet stays in full compliance with all legal and regulatory requirements to which it is subject around the world.
The company says that such oversight of legal compliance and risk management, particularly in terms of anticompetitive matters, requires expertise in competition laws and regulations in all relevant jurisdictions, as well as experience in identifying and evaluating relevant issues, approaches and options over a wide variety of issues that may relate to competition law compliance, among other things.
‘As such, ‘anticompetitive risks’ necessarily extend beyond the scope that the proposal contemplates, which is the enforcement and litigation side of competition,’ it adds.
The proposal is excludable because it relates to pending litigation matters and the company’s related legal strategy, and would constitute ‘micromanagement of the board and management in carrying out their ordinary business duties in connection with such litigation matters,’ Alphabet says.
It also notes: ‘A core element common to the company’s defense of many of the pending competition matters is that its products and services benefit its customers, a consideration integral to its everyday operations.’
Alphabet’s other main argument is that the proposal may be excluded under Rule 14a-8(i)(3) because it is ‘impermissibly vague, indefinite and susceptible to various interpretations so as to be inherently misleading in violation of the proxy rules.’ For example, it asserts that the term ‘anticompetitive practice’ is subject to ‘vast differences in interpretation depending on the audience.’
Among other things, the company states that ‘reasonable minds can disagree about what ‘oversight responsibility’ means, including whether oversight is advisory in nature only, or [whether] people who oversee a project are expected to make decisions concerning that project.’
The SEC does not agree, posting to itss website last Friday that it is unable to concur with excluding the proposal on any of the bases Alphabet asserts.
The company has not yet published its proxy statement. Its 2020 AGM took place on June 3 last year.
A request for comment from Alphabet was not returned.
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
