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June 27, 2002
Shareowner Support for Resolutions Increases Significantly This Proxy Season
    by William Baue

Support for proposals concerning corporate governance as well as social and environmental issues in the 2002 proxy season is reaching record levels.

The filing of shareowner proposals, which often has the aim of bringing attention to certain corporate practices, is a core strategy of socially responsible investing (SRI). The recent corporate governance scandals exemplified by the Enron meltdown have bolstered support for certain resolutions aimed at increasing corporate accountability and transparency. This promises to transform shareowner action from a tactic practiced by social investors and corporate governance advocates to a strategy employed more broadly.

In the 2002 proxy season, shareowner resolutions have received record levels of support. This is the conclusion of a June 10 tally performed by the Investor Responsibility Research Center (IRRC) on the 2,000 leading companies whose proxies it tracks. IRRC identified several corporate governance issues, such as auditor independence, golden parachutes, and board independence, that fueled this increase. Certain environmental and social issues, such as global warming and worker rights, also saw increasing shareowner support, according to IRRC research.

“What’s striking about this proxy season is that, despite the string of scandals involving corporate executives, shareholders aren’t voting against management in a knee-jerk fashion,” said Meg Voorhes, IRRC’s director of Social Issues Research. “Rather, they are picking out and voting in favor of certain key issues.”

The central corporate governance issue revealed by inquiries into Enron and its accounting firm, Arthur Andersen, was “auditor conflict,” or instances where auditors compromise their independence by also consulting for the company. So far this year, 12 auditor conflict resolutions have received an average of 29.8 percent support from voting shareowners. Pacific Gas & Electric (ticker: PCG) shareowners registered the highest vote for this resolution, totaling 46.5 percent of the votes cast.

Similarly strong results at Walt Disney (DIS), where 41.2 percent of voting shareowners supported the proposal at the February annual meeting, created a ripple effect. Apple Computer (AAPL), Bristol-Myers Squibb (BMY), and Johnson & Johnson (JNJ), among others, promised to adopt auditor independence measures in exchange for the resolution’s withdrawal. This exemplifies the goal of shareowner action: to effect corporate change.

“Golden Parachutes,” or agreements that secure lucrative separation packages for executives, have invoked the ire of shareowners. Results from 13 of the 19 golden parachute resolutions revealed an average support of 39.6 percent of the votes cast, up significantly from last year’s average vote of 31.8 percent on 13 such resolutions. The 50.7 percent vote at Bank of America (BAC), up ten percentage points from last year’s vote, prompted CEO Ken Lewis to publicly commit to addressing the proposal’s demands.

Board independence proposals also received increasing support. This year’s average stands at 29 percent for seven proposals, up from 22.5 percent last year. The highest vote of 56 percent occurred at EMC (EMC), a significant increase over last year’s high of 31.9 percent at American International Group. The highest vote recorded thus far this year found 91.4 percent of voting Airborne (ABF) shareowners calling on the company to redeem its poison pill, a defense against takeover bids that also strips shareowner power.

Less than 15 of more than 150 social and environmental proposals received more than 15 percent votes each of the last two years. This year, 17 resolutions have already exceeded this threshold, with only 100 proposals voted so far. Greenhouse gas proposals almost doubled their average percentage, rising from 9.3 percent last year to 18.3 percent this year. Votes of 29.6 percent at American Standard (ASD) and 29.4 percent at Eastman Kodak (EK) surpassed by ten percentage points the previous record for global warming resolutions of 19.4 percent at Niagara Mohawk Power (NMK_pb) in 1994.

In the second-highest scoring environmental and social proposal this year, 32.8 percent of voting shareowners asked Unocal (UCL) to adopt the core conventions of the International Labor Organization. Unocal has operations in Burma (Myanmar), where forced labor is rampant. This result represents a nine percentage-point jump over last year’s vote of 23.4 percent, an increase encapsulating the upward trend in shareowner action.


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