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November 16, 2005
Shareowner Empowerment Is Alive and Well: a Preview of the 2006 Proxy Season
    by William Baue

Part two of this two-part article examines the developing trends in shareowner activism as resolutions are filed for the upcoming proxy season.

The past several proxy seasons have witnessed an escalating struggle over the soul of shareowner democracy, a trend that shows no signs of abatement as the 2006 proxy season approaches. Shareowner empowerment seemed on the rise after the October 2003 Securities and Exchange Commission (SEC) rule proposal to open the proxy ballot to shareowner nomination of director candidates--until it languished unadopted more than two years due to corporate opposition. Far from squelching the issue, the delay has served to embolden investor determination to enhance shareowner empowerment.

"I think shareholder empowerment is alive and well," said Pat Wolf, executive director of the Interfaith Center on Corporate Responsibility (ICCR), a network of more than 275 faith-based institutional investors with assets of about $110 billion that coordinates shareowner engagement.

One indication of this is the upsurge in requests over the past year from pension fund trustees, investor relations departments, and corporate boards for Sister Pat to address them on shareowner advocacy.

"I've had more of these invitations this past year than I've had in the four previous years," Sr. Pat told "This shows that the issue of shareholder advocacy has not faded away but has gained currency and the interest of those who advise corporations on shareholder issues."

Another indication of the continuing struggle for shareowner empowerment is the refusal to accept SEC inaction on the issue. The United Brotherhood of Carpenters and Joiners and other unions are re-filing resolutions seeking director elections by majority vote--the resolution recently received 61.2 percent support at KLA-Tencor (ticker: KLAC).

One effect of shareowner resolutions is to inspire companies to voluntarily adopt a measure in response to the proposal (or to avoid the filing of such a proposal.) For example, on October 27 Pfizer (PFE) adopted a policy that would ask directors who get a majority withhold vote to resign, essentially implementing a voluntary version of majority elections, and a number of other companies are following suit.

This exemplifies the goal of shareowner action, which is not simply to garner high votes for shareowner resolutions, but rather to effect corporate change.

"We had very high votes last year on resolutions at pharmaceutical companies, but it still has not yet translated into change on the part of corporations," said Sr. Pat, "whereas on climate change, the persistence not only of resolutions but also dialogue has led to the issuance of reports, and moving forward from there the expectation that there will be real change at corporations."

For example, a resolution asking Pfizer to separate its CEO and board chair roles received 41 percent support in 2005, so ICCR is re-filing it there and at other pharma companies, as well as expanding the campaign to companies in other sectors. On the other hand, in 2005 ICCR withdrew resolutions at five oil and gas companies--Apache (APA), Anadarko Petroleum (APC), ChevronTexaco (CVX), Tesoro (TSO), and Unocal (UCL)--that took concrete steps to measure, mitigate, and disclose data on the environmental impact of their businesses.

"Looking back on the work we did in 2005, we began to realize the work we did on climate change has really led to corporations acknowledging that climate change poses significant risk to operations and assets," said Sr. Pat. "You're going to see this campaign continue to develop and expand into new sectors, including manufacturing."

Sr. Pat points to a similar effect happening in ICCR's work on human rights and supply chain management.

"You may not see resolutions where they'd been filed in the past because we've made significant progress," said Sr. Pat. "The work has really shifted to direct engagement and the development of global codes of conduct."

Unfortunately, shareowner empowerment continues to face erosion as well. In 2005, corporate governance guru Bob Monks pronounced the "death of shareholder democracy" after the SEC allowed ExxonMobil (XOM) to omit his third-year resolution requesting a separation of CEO and chair roles. The SEC has already issued a "no-action" letter in the 2006 proxy season allowing Monsanto (MON) to omit a resolution filed by Harrington Investments Inc (HII) requesting an independent board committee to monitor ethics in the wake of admissions of bribery.

"Shareholders can't nominate Monsanto directors and can't vote against corporate self-nominated directors--corporate directors can be elected by one 'yes' vote," said John Harrington, founder of HII "Moreover, this shareholder resolution that the SEC is allowing Monsanto to keep off the ballot is advisory only."

"Even if the shareholders voted to support independent director oversight, it would not require the company to comply," he added. "Stalin would love this system."

Part one of this two-part article reviews the 2005 proxy season.


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