Wasting Trees in California

More than a decade ago, the Securities and Exchange Commission adopted rule amendments that allow for the delivery of a single set of proxy materials to shareholders who share a single address.  This is often referred to as “householding”.  Many publicly traded companies have relied upon these rules to reduce their costs of printing and postage.  From an environmental perspective, less resources are consumed and there is less waste for disposal.

When the SEC adopted rule changes to permit householding, it noted:

[T]he requirements for security holder meeting notices are governed by state law, rather than by the Commission’s proxy rules, and these rule amendments are not intended to preempt state law. Therefore, any company choosing to household the proxy statement will have to consider the possible need to deliver separately the notice of meeting to each security holder in the household to satisfy state law requirements.”

SEC Release Nos. 33-7912, 34-43487.

Corporations Code Sections 601 (governing notices of meeting) and 1501 (requiring delivery of an annual report) each require delivery to shareholders (Corporations Code Section 185).  Thus, California law does not appear to authorize the householding of meeting notices and annual reports.  In contrast, Delaware has adopted Section 233 of the Delaware General Corporation Law to authorize householding.

The question of whether householding is permissible is more than academic.  Failure to give proper notice may result in a challenge to a meeting’s validity and the actions taken at the meeting.  See Ovadia v. Abdullah, 24 Cal. App. 4th 1100 (1994).

The Business Law Section of the California State Bar has sponsored a bill, AB 161 (Adams), that is intended to clarify the status of householding under the Corporations Code.  Although the bill passed out of the Assembly with a 75-0 vote last year, it has been held up in the Senate Judiciary Committee due to concerns by its Chairwoman, Ellen Corbett.  As a result, the bill is dead and California corporations will be forced to continue to waste paper and other resources.

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