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March 28, 2002
Shareowner Resolutions Fuse Corporate Governance with Social Issues in 2002
    by William Baue

A new study offers insights to how this year's proxy season is shaping up.

Yesterday, the Investor Responsibility Research Center (IRRC) and the Social Investment Forum (SIF) released a joint study of this year's crop of shareowner resolutions. The report, entitled "Towards a Shared Agenda: Emerging Corporate Governance and Social Issue Trends for the 2002 Proxy Season and 2001 Issues Review," documents both progress and stagnation on key shareowner issues. IRRC's list of social and environmental shareowner resolutions is accessible through an interactive database at the Shareowner Action Center on the website.

"One notable trend is that the Enron disaster is accelerating a merger of interests between the worlds of corporate governance and social resolutions," said IRRC Director of Social Issues Meg Voorhees.

Of the 712 shareholder resolutions filed in the 2002 proxy season, the report identified 261 that involve social issues and 23 that fuse corporate governance with social issues. This crossover category consists of resolutions asking for increased racial and gender diversity on corporate boards, and those asking for executive compensation to be linked to corporate social responsibility (CSR).

The report recognized a decline in the number of resolutions involving executive compensation. However, such statistics do not necessarily reveal whether progress is being made on the issue or not.

"Shareholder resolutions are not so much intended to pass (which virtually never happens for social policy resolutions) as they are to exert pressure on companies to change objectionable practices," the report states. "Many shareholder advocates also view withdrawal of their proposals as victories, for proponents typically withdraw only when a good portion of their demands have been met, or when management show sincerity and legitimate progress towards meeting such goals."

For example, Responsible Wealth, an affiliate of the non-profit United for a Fair Economy, withdrew its resolution from AOL/Time Warner (ticker: AOL) on February 12 after the company demonstrated a commitment to freeze CEO pay when downsizing. Similar resolutions linking executive compensation to social criteria are on file at eleven other companies, including Boeing (BA), Coca-Cola (KO), and Unocal (UCL).

Other resolutions show little promise of achieving mutual agreements. Responsible Wealth filed a similar resolution with Illinois-based lender Household International (HI) linking executive compensation to the elimination of predatory sub-prime lending practices that gouge low-income people. The resolution cites the company's lobbying against state and local legislation to curb predatory lending practices as a reason for the need to secure a tangible commitment from Household to end its predatory lending.

The vast majority of resolutions fall squarely into the corporate governance or social issue categories. The number of resolutions involving global warming, a social issue, increased significantly this year, with 18 such resolutions on file. Progress has been made on some of these resolutions, though not necessarily enough progress to warrant withdrawing them.

For example, shareowner pressure has prompted Virginia-based CSX (CSX) to post on its website information regarding greenhouse gas emissions from its rail operations. CSX is not only reducing its emissions, but also it has developed a power unit that moves trains in rail yards more efficiently than full-size diesel engines. Wisconsin Energy (WEC) similarly responded to continuing shareowner action, pledging to use World Resources Institute protocol to report on its power plant emissions. However, even these resolutions remain on file, as do the other sixteen resolutions on global warming.

Traditionally, shareholder resolutions garner minority support because management often controls a large portion of shares, and most institutional investors and money managers automatically vote in accordance with management. More and more shareowners are recognizing that their interests may not be synonymous with management's, and may start voting independent of management. Such a trend would imbue shareholder resolutions with increased relevance.

"The 2002 proxy season is unusual, in that Enron reminded us that ordinary votes--like auditor approval--are far from ordinary," said SIF Chairman Timothy Smith, who also serves as senior vice president and director of social responsible investing at Walden Asset Management. "Voting mindlessly with management is no longer classified as the responsible thing to do."


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