Sunday, May 25, 2003

Investor initiatives growing

Proxy votes

By Rachel Beck
The Associated Press

NEW YORK - Now that shareholders are voting for major corporate reform at this year's annual meetings, the waiting begins to see if companies implement investor-backed resolutions.

Don't count on it.

As backward as this sounds since investors are supposed to be corporate owners, companies aren't bound to enact shareholder proposals that win a majority of votes in proxy contests.

"This was a record year for shareholder resolutions, but many companies will just thumb their noses at the majority votes," said Ann Yerger, deputy director of the Council of Institutional Investors.

This isn't to say that every company shrugs off shareholder-led initiatives, but it often happens.

That hasn't stopped shareholders from aggressively pressing for change in the wake of business scandals the last few years.

In fact, the number of shareholder resolutions just calling for CEO pay reform at companies included in the Standard & Poor's 1500 stock index more than tripled to 322 from a year ago, according to the Investor Responsibility Research Center.

Other popular shareholder proposals this year include calls for more independent corporate boards, dividing the positions of chief executive and chairman between two people and reincorporating companies in the United States that are based in tax havens offshore.

"The number of shareholder majority votes has gone from trickle to a torrent," said William Patterson, director of the office of investment at the AFL-CIO.

But according to current proxy rules, there's nothing wrong with a corporate shrug off of shareholders.

Proxy contests work like this: Shareholders try to persuade companies to include their proposals in the proxy statements sent to investors before a company's annual meeting. Companies get to decide if the proposals appear or not, though the Securities and Exchange Commission can overrule.

If the shareholder resolutions receive a majority vote, companies have to consider them but don't have to follow them. The proxy wins are really nothing more than a wish-list to management and the board, not a requirement for change.

At Sprint, for instance, 63 percent of shareholders last week approved a proposal for the telecommunications company to get their approval if a severance package is more than double an executive's base salary plus bonuses. The Sprint board is considering the vote.

The rules in place right now are really designed to protect companies from hostile takeovers, but they are also letting companies fend off shareholder proposals that could improve corporate governance practices.

SEC Chairman William Donaldson has said the time has come to see if the proxy rules "are serving the best interests of today's investors, while at the same time fostering sound corporate governance and transparent business practices."

The SEC's challenge will be coming up with revised rules that let investors' voices be heard, without forcing companies to listen to every shareholder's whim.

Innovation continues down on the farm
Prom spending knows no recession
Fish industry tries new angle on labels
Investor initiatives growing
Retailers join new West Chester mall
FCC plan will hurt, for some
Studio adds culture to coasters, mosaics
FDA recalls 100,000 Lipitor bottles
Business notes
What's the Buzz?