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.”
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
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.
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
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.