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May 20, 2003
Increasing Shareowner Action Fuels Record Proxy Season
    by William Baue

Shareowners are increasingly recognizing and practicing their right to influence corporate practices and policies by filing and voting on shareowner resolutions.

This proxy season a record number of shareowner resolutions have been filed, which is an indication that shareowners are taking more seriously their rights and responsibilities of corporate ownership. Over 1040 resolutions have been filed at corporations, representing a 20 percent increase over last year's total of 802. This is according to the Investor Responsibility Research Center (IRRC), a research organization that provides impartial information on shareowner resolutions.

"There's been a dramatic increase in the number of corporate governance proposals we are tracking--about 760 currently, versus 529 for all of 2002," said Carol Bowie, IRRC's director of governance research services. IRRC divides resolutions into two categories: corporate governance and social responsibility.

The number of corporate governance resolutions related to executive compensation more than tripled, rising from 106 in 2002 to 325 now. Unions, such as the as the AFL-CIO, account for the bulk of this increase.

"Across the board, unions are having to negotiate with companies and take 20 percent pay cuts or get rid of health benefits, for example, while CEOs are making out like bandits," said Tracey Rembert of the Shareholder Action Network (SAN), a project of the Social Investment Forum (SIF). "And it isn't just the unions. A lot of people are disgusted that CEOs golf buddies are all serving on board compensation and governance committees."

"I think the notion of shareholder democracy is beginning to take hold--it's taken investors a few years to realize that, as company owners, they have some power and clout to effect change through the proxy voting process," Ms. Rembert told

Michele Soule, IRRC's marketing director, agrees.

"Shareholders are sick of it, and they seem to have a new energy," Ms. Soule told "I think it's in response to the miserable bear market and the fraud and malfeasance we've been seeing perpetually for a couple of years now."

In order to help investors track resolution outcomes in what IRRC called "one of the most tumultuous annual meeting seasons ever," IRRC yesterday posted "scorecards" of the season's most pressing issues on its website. The scorecards track one social issue, global warming, and two governance issues, executive compensation and classified boards. Classified boards stagger director elections, a practice corporate governance advocates oppose as preventing the kind of board independence that can be achieved through yearly elections.

Besides seeing a record number of resolutions, this proxy season has seen record-high votes. For example, 26.9 percent of voting American Electric Power (ticker: AEP) shareowners supported a global warming resolution there, a record vote for the utilities industry. The majority (8 of 11) of the executive compensation resolutions reported on IRRC's scorecard received more than 50 percent support from voting shareowners, whereas only one such resolution received that much support last year.

Only one of the twelve resolutions IRRC tracked on its classified board scorecard received a minority of support this year. Two such resolutions, at Avon (AVP) and Baker Hughes (BHI), received 80 percent and more.

Although higher votes seem to be more of a norm this season, this characterization does not tell the whole story.

"What strikes me in looking over the first vote results for the 2003 proxy season is not so much the high votes, but the extreme variability in vote levels for identical proposals at different companies," said Meg Voorhes, IRRC's director of social issues services.

Ms. Voorhes points to identical sexual orientation nondiscrimination resolutions that received just 9.9 percent of the shares voted at Emerson Electric (EMR) and a robust 42.8 percent at Dover (DOV). Ms. Voorhes suggested two factors that help explain this discrepancy. First, Emerson has no company-wide non-discrimination policy, which leaves it vulnerable to litigation or reputation damage from any charges of discriminatory practices.

"To many investors, this must have spelled trouble," Ms. Voorhes told

Second, while Dover's stock underperformed its industry and had a net loss over the last three years, Emerson has recently outperformed its industry group.

"When investors are disgruntled with a company's performance, they are often more likely to vote against management on a wide range of issues," Ms. Voorhes said.

Finally, resolution numbers do not reveal some of the most significant advances of shareowner action this year. The filers of shareowner resolutions often are in dialogue with the company before filing the resolution. Filers withdraw their resolutions when companies fulfill the resolution's request or when companies agree to continue meaningful dialogue.

"We've seen a lot of withdrawals [this proxy season], which is a good sign," said Ms. Rembert.


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