We’ve never heard of a SLAPP suit before, or not until Wall Street Journal reported on the KBR/Chevedden case on Monday morning:  Firms Try New Tack Against Gadflies: Corporations Look to Block Shareholder Activists’ Proposals by Challenging the Size of Their Stakes – WSJ.com.

Here’s what Wall Street Journal Says:

Companies have long viewed shareholder activist John Chevedden as a pain. The retired aerospace worker and his network of like-minded activists are behind more than 100 proposed changes in corporate governance filed each year for other shareholders.

Two companies have found a new way to block his proposals: They successfully sued Mr. Chevedden, arguing he had no right to offer shareholder proposals because he hadn’t proved ownership of enough of their stock.

Here’s how Jim McRitchie over at  CorpGov.net describes what is going on:

These cases obviously aren’t about ownership. Everyone knows Mr. Chevedden owns the stock. The cases are the equivalent of SLAPP suits, designed solely to intimidate retail shareowners who submit governance proposals that potentially move some small degree of power from management to shareowners.

So what is a SLAPP suit? Wikipedia puts it very neatly:

A strategic lawsuit against public participation (SLAPP) is a lawsuit that is intended to censor, intimidate and silence critics by burdening them with the cost of a legal defense until they abandon their criticism or opposition.

The nub of  both cases has been John’s need to “prove” his ownership through the usual tangled chain of intermediaries and broker/bank nominee problems institutional investors have to contend with. The really odd thing about the case is this: if US companies think Chevedden’s service provider, RAM Trust Services is falsely reporting ownership, why isn’t RAM Trust Services being sued? After all, they are the ones with the deeper pockets.

John’s case isn’t just about minor gadfly irritations of tricky small shareholders. Today it’s John, tomorrow it could be a pension funds or a group of pension funds attempting to work together on a governance problem and find themselves disenfranchised because they can’t prove who they are. It isn’t also just confined to the USA, it’s a global problem which is creating barriers between companies and their owners.

Thanks should go to John and his supporters at ProxyExchange and Corpgov.net for bringing these problems to our attention.

Last Updated: 6 June 2011