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April 21, 2004
Tyco Recommends Vote in Favor of Shareowner Resolution, Joining Three Others
    by William Baue

While companies routinely recommend voting against shareowner resolutions, four companies so far this proxy season have bucked this standard approach.

When shareowner resolutions appear on the proxy ballot, they are typically accompanied by a statement from the company explaining why it opposes the proposal. This proxy season, three companies--Tyco (ticker: TYC), Coca-Cola (KO), and Bank of Montreal (BMO)--have taken the unusual step of recommending a "yes" vote in favor of shareowner resolutions. A fourth company, Fifth-Third Bancorp (FITB), pledged to abide by the will of the majority vote.

There have been isolated instances of yes recommendations in the past. Last year, for example, JC Penney (JCP) recommended a vote in favor of a resolution asking the company to explicitly bar sexual orientation discrimination, as it had already taken this measure. However, several cases of yes recommendations in one proxy season is rare, according to Meg Voorhes, director of social issues services at the Investor Responsibility Research Center (IRRC). IRRC is an independent, impartial proxy research firm.

Tim Smith, president of the Social Investment Forum (SIF), cautions against labeling this development a "trend," though he does characterize it "as a notable result of advocacy in 2004." A close look at one of the yes recommendations reveals how it fits into the broader context of the increasing sophistication of shareowner action.

Tyco, whose reputation took a pummeling in the recent corporate governance scandal and trial of former CEO Dennis Kozlowski, recommended a yes vote on a resolution in part to help resuscitate its negative reputation, according to one of the proposal's proponents.

"Tyco understands it's become a poster child for bad governance and limited accountability to shareholders," said John Wilson, director of socially responsible investing at Christian Brothers Investment Services (CBIS), the resolution's lead filer. "Now they can say, 'here's an example where we're working with shareholders, and we're also going further to develop a system to make sure we're accountable for an environmental management system.'"

CBIS has been conducting shareowner action at Tyco for a long time, filing shareowner resolutions on PVC (polyvinyl chloride, a toxin), but "they've kind of ignored us," Mr. Wilson told After its PVC resolution received too few votes last year to re-file it, CBIS decided to broaden its scope. Recognizing that Tyco, a holding company with many different diverse businesses, is "one of the largest corporate polluters," according to Mr. Wilson, CBIS asked the company to assess its corporate-wide environmental management system (EMS).

"It turns out they were already thinking along those lines themselves, so when we met with them, the idea came up, 'why don't you just support the resolution as a public statement that not only are you taking this step, but also collaborating with shareholders,'" Mr. Wilson said. "That's a real turnaround for the company."

Mr. Wilson sees this development signifying the maturation of shareowner action, on the corporate and advocates' side of the equation.

"The yes vote recommendation is the most dramatic example of ways that companies are finding to work with us," Mr. Wilson said. "One of the things it signals is that companies are having more confidence in their relationships with their shareholders."

"In the past, companies were wary of appearing to capitulate to shareholders, even if they agreed with what we suggested," he added. "Now, the relationships are getting to be less adversarial and more collaborative in many cases, though not in all, of course."

Not only does this collaboration stand to enhance companies' reputations, but also it allows companies to work on these complex issues with those who also seek to enhance stock price. Stakeholders who are not shareowners may bring the very same issues to the company, without consideration for shareowner value.

Unfortunately, movement away from "no" recommendations does not necessarily guarantee success for shareowner advocates. Fifth Third left the decision whether to explicitly bar sexual orientation discrimination in the hands of shareowners, and only a little more than 40 percent of shareowners voted in favor of the resolution.

Editor's Note:
On May 7, 2004, Fifth Third revealed in its quarterly filings with the US Securities and Exchange Commission (SEC) that 62.8 percent of its voting shareowners supported the resolution calling for the addition of sexual orientation to its non-discrimination policy. The 40 percent tally announced at the March 23 annual meeting included abstentions; the revised total followed the SEC protocol of excluding abstentions from the count. "The vote at Fifth Third was the highest vote we've seen on a social issue that was not supported by management since 1986 at the height of the anti-apartheid movement in South Africa," said IRRC's Meg Voorhes.


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