Dozens of companies are likely to face their own workers as disgruntled shareholders at their 1994 annual meetings.
As many as 70 employee-shareholder corporate governance resolutions may be on ballots at this year's shareholder meetings, more than twice the number presented last year, according to Patrick S. McGurn, director of the corporate governance service at the Investor Responsibility Research Center, Washington.
Employee shareholders, backed by powerful labor unions, are seeking all kinds of changes in the way their employers are managed, from limits on executive pay, confidentiality of shareholder votes, the elimination of anti-takeover measures, and changes in the composition of the board of directors.
Labor unions, says Greg A. Kinczewski, vice president and general counsel at Marco Consulting Group, Chicago, "are just realizing that in addition to being representatives of workers, they also are representatives of people who have an awful lot of money invested in these companies and have to be as vigilant as at the negotiating table."
The 1994 annual meeting season also will be marked by the hundreds of companies seeking approval from shareholders of performance-related executive pay plans that might put top managers' pay above the $1 million tax-deductible limit imposed by Congress last year. The new law requires companies to get approval for such plans from shareholders in order to preserve the deductibility of salaries, bonuses, stock options and other forms of compensation that puts executives' take-home pay above the deductibility cap.
An estimated 800 companies likely will seek this approval from shareholders, said W. Eric Aiken, president of The Proxy Monitor, New York, a consulting firm.
A significant number of companies "are taking precautionary measures" in getting shareholder approval even if their top executives are unlikely to take home more than $1 million, Mr. Aiken said.
The upswing in hostile merger activity also is expected to lead to a revival in the use of proxy fights as a way to gain control of coveted companies. Already, GE Capital Corp. has launched a proxy battle against Kemper Corp., to install four of its nominees on the board of the Chicago-based insurance and mutual fund company. Kemper is resisting a $2.2 billion bid from General Electric Co.'s finance unit. Competition between defense contractors Northrop Corp. and Martin Marietta Corp. for Grumman Corp. also could lead to a proxy fight, observers say.
"You are likely to see proxy contests being used strategically as part of a bid, whether to elect directors or in support of a precatory proposal," noted Jamie Heard, president of Institutional Shareholder Services Inc., a Bethesda, Md., consulting firm.
Meanwhile, the surge in shareholder activism by employees and labor unions is coming back to haunt corporations that have put millions of shares in the hands of workers through employee stock ownership plans, pension funds, or stock option programs since the mid-1980s, reckoning they could count on employees as allies in hostile takeover bids.
And it comes at a time when the large public pension funds that dominated the shareholder activism movement for years have adopted a quieter, conciliatory approach to seeking changes in the way companies in their investment portfolios are managed.
In fact, meetings with chief executives and corporate directors throughout the year, rather than bold statements in the press during the annual meeting season designed to embarrass managements, or shareholder proposals in proxy statements, now mark the corporate governance strategies of pension funds such as the behemoth California Public Employees' Retirement System and the State of Wisconsin Investment Board.
John C. Wilcox, chairman of the proxy firm Georgeson & Co. Inc., New York, attributes this sea change in strategies of the large public pension funds to changes in proxy rules that allow large investors to openly discuss with each other concerns about companies in their investment portfolio.
"The whole proxy process is moving off stage," Mr. Wilcox said. "One of the consequences of the proxy rules was ... to permit discussion among shareholders and outside of the confines of the proxy process."
Thus, the $82 billion California employees' system, which had focused on 10 poor performing companies in this proxy season, has only one shareholder proposal on the ballot - at U.S. Shoe Corp. - asking that all directors be re-elected annually.
The California system intends to "actively" seek support from other pension funds and large investors for its proposal at U.S. Shoe, said Richard H. Koppes, general counsel. The system holds 680,000 shares of U.S. Shoe.
Meanwhile, the $35 billion Wisconsin investment board has reached agreements with all six companies it had targeted for shareholder advocacy efforts this year, and does not have any outstanding resolutions, said Kurt N. Schacht, general counsel.
Only the New York City Employees' Retirement System is continuing to aggressively use shareholder proposals as a means of wringing concessions from managements. "We always refile proposals until the company meets our requests," said Eric Wollman, director of corporate governance.
The $23.7 billion New York City pension fund, one of five funds for city employees, has proposals on the ballots of 10 companies, including five companies that did not yield to its demands last year. Additionally, the fund has withdrawn its proposals at five companies that have adopted its resolutions.
Meanwhile, William Patterson, director of corporate affairs at the International Brotherhood of Teamsters in Washington, says the union is supporting about 12 employee shareholder resolutions this year. "Employees were presented with opportunities to purchase stock in the 1980s and told they were owners, and they have increasingly seen they are not treated with the same respect as owners," Mr. Patterson said.
"In the last year or two, employee shareholders have stepped forward as an independent force that will go against managements if needed."
Not only are union members filing more shareholder proposals than ever before, but the number of unions getting involved in shareholder activism also is up.
The United Brotherhood of Carpenters General Officers and Representatives Retirement and Pension Plan, Washington, originally had filed 25 shareholder proposals this year, while members of the Communications Workers of America have filed six proposals this year, a few more than those filed last year, said Stephen Abrecht, research economist at the union's Washington headquarters.
The rise of the labor shareholder activism movement also has put the spotlight on the Securities and Exchange Commission as the arbiter of shareholder resolutions companies may exclude from their proxies. The SEC has declined to give companies the nod to withhold resolutions that relate to "ordinary business operations" pending its appeal of a court decision in a case involving the Cracker Barrel Old Country Store Inc. (See accompanying story). But the agency has the authority to let companies omit resolutions on a dozen other grounds, including if they deal with personal grievances, relate to matters outside the company's control or to operations that are a small part of the overall businesses.
A number of companies targeted by rebellious employee shareholders have urged the SEC to let them omit those resolutions on one or more of those grounds, claiming these actually are part of an attempt by unions to increase their leverage at the bargaining table. In many instances, the agency has consented. For example, it allowed Motorola Inc. and Merrill Lynch & Co. to omit a proposal from the Carpenters Pension Trust of Southern California asking for a report outlining the impact of the North American Free Trade Agreement on those companies because it concurred the trade agreement affected an insignificant part of the companies' businesses. But the agency rejected a request from the Southwestern Bell Corp. to exclude a similar proposal from the United Brotherhood of Carpenters
Meanwhile, Consolidated Freightways Inc., Palo Alto, Calif., which failed in its efforts to exclude a proposal from a Teamsters member seeking annual elections for all directors, and from a former employee and Teamsters member to adopt confidential voting, notes in its proxy statement the proposals are part of the "Teamsters' continuing efforts to harass and pressure the company and its subsidiaries in connection with various labor-management efforts." The company added support of the shareholder proposal the Teamsters effort to pressure the company "into entering labor agreements that are contrary to the interests of the company's shareholders."
