January 22, 2009
Teamsters Proposal to Limit SunTrust Executive Pay excluded by SEC
by Robert Kropp
Shareowner advocates criticize Commission for inconsistent decisions and drift away from mission to
For most of the eight years that the Bush administration has been in office, shareowner advocates
have decried an increasing tendency on the part of the Corporation Finance Division of the Securities and Exchange Commission (SEC) to side
with requests by corporations that shareowner proposals be excluded from consideration at annual
Shareowners have become so concerned over the trend of
exclusion by the SEC that 60 investors wrote to then-President-Elect Obama recently, asking for
strong leadership from the White House and Congress to encourage the SEC to "retract the
staff-created prohibition on resolutions that ask companies to evaluate the financial impacts of
With the Obama administration's espousal of transparency, shareowner
advocates view the 2009 proxy season as an opportunity to engage companies on the issue of
corporate social responsibility. Investors with stakes in the financial institutions that have
benefited from the Troubled Assets Relief Program (TARP) have met their ownership responsibilities
by introducing proposals that require transparency of those institutions in the areas of executive
compensation and economic security.
Unfortunately, shareowner advocates have met with
opposition from the same firms that willingly accepted bailout funds from taxpayers. And in at
least one case thus far, the Corporation Finance Division of the SEC has seen fit to side with a
recipient of TARP funds.
The Atlanta-based SunTrust Banks received $4.9 billion of TARP
funds after its profits declined by 26% in the third quarter of 2008. Firms that receive TARP funds
are required by law to comply with compensation guidelines for their top five executives. The
guidelines include prohibitions on unnecessarily risky incentives and golden parachute payments,
the elimination of tax deductions for salary over $500,000, and the return of bonus and incentive
pay based on materially inaccurate information.
A shareowner proposal submitted by the International Brotherhood of Teamsters sought
to limit executive compensation at SunTrust (and at about 25 other financial firms that are TARP
recipients as well) more strictly by requiring that SunTrust enact a minimum five-year vesting
period on all options, a prohibition on vesting acceleration, and a requirement that all executives
hold at least 75% of all shares gained as compensation for the duration of their careers.
Louis Mazilia, assistant director for capital strategies at the Teamsters, told
SocialFunds.com, "In light of the economic meltdown, we felt that excessive compensation was
incentivizing executives to go beyond preserving shareholder value and into the realm of pro-risk
behavior. These executives came with their hands out to the American taxpayer, asking for
revitalization of the financial institutions that under their stewardship lost incredible amounts
of value. We thought the executive compensation restrictions under the Emergency Economic
Stabilization Act of 2008 (EESA) didn't go far enough."
SunTrust responded by giving
notice to the SEC of its intention to omit the proposal from consideration at its 2009 annual
meeting of shareholders. According to the company, Rule 14a-8 under the Securities Exchange Act of
1934 authorized it to exclude the TARP Proposal from the Company's proxy statement for 4 reasons:
it addresses the ordinary business of the company; it is false and misleading; its terms have been
substantially implemented by the company; and it constitutes nine separate proposals.
Contending that "it is well-established that shareholder proposals concerning the executive
compensation of senior executives are appropriate for inclusion in proxy materials," the Teamsters
submitted that "the company has failed to satisfy its burden of persuasion and should not be
granted permission to exclude the proposal."
The Corporation Finance Division of the SEC
concurred with SunTrust's argument that the proposal was excludable, issuing the opinion that while
the intent of the proposal is that the executive compensation reforms urged in it remain in effect
so long as the company participates in TARP, the proposal appears to impose no limitation on the
duration of the specified reforms and is therefore "vague and indefinite."
scratching our heads over how the SEC failed to get into the merits of the proposal," said Mazilia
of the Teamsters, "Because on the surface the SEC didn't agree with any of the other objections
that the company raised. The SEC decision seems to demonstrate a quick trigger on the Commission's
part and without much thought of the consequences."
Reflecting upon previous SEC decisions
made in response to shareowner proposals submitted by the Teamsters and other labor unions, Mazilia
said, "We have found real inconsistencies. The SEC says it treats every case on its own merits, and
doesn't rely on precedents. But we all rely on precedents. We've seen cases when a proposal for an
independent chairman of the board was granted a no-action, while hundreds of other similar
proposals got through."
"With the new Administration, we hope the Commission will be
regulation minded, enforcement minded, and with a new direction set by the new chairperson,"
The new direction espoused by Mazilia and other shareowner advocates is, in
fact, no more than a return by the SEC to its original mission. The Commission itself describes its
responsibility in these words: "The SEC requires public companies to disclose meaningful financial
and other information to the public. Only through the steady flow of timely, comprehensive, and
accurate information can people make sound investment decisions."