Shareholder proposals asking conglomerates to spin off their tobacco businesses and eliminate retirement benefits for non-employee corporate directors will be two hot issues on shareholder ballots this year.
Both represent new twists on old themes.
For years, religious investors have focused on the propriety of companies selling tobacco. But this is the first year investors have shifted their attention to tobacco as a bottom-line question.
And while many shareholders continue to focus on how much companies pay their top executives, some are now beginning to question the wisdom of paying non-employee directors the same benefits as executives on a company's payroll. They contend outside directors are expected to be independent monitors of a company's performance, and retirement perks cloud their ability to do so.
Two-thirds of the country's 200 largest companies offer retirement benefits to their directors, according to a recent survey by Pearl Meyer & Partners, a New York-based executive compensation consulting firm.
The plans are usually linked to a director's stay on a board or 10 years, whichever is less. They cost companies about $15,250 per director per year, according to Rhoda Edelman, a partner at Pearl Meyer.
At USX-U.S. Steel Group, for example, directors are eligible for retirement benefits equaling their retainer after five years, according to data provided by Pearl Meyer. On average, non-employee directors receive $27,700 a year in retainers and meeting fees, according to Pearl Meyer.
Meanwhile, Goodyear Tire & Rubber Co., offers directors retirement benefits after they hit 70 and have completed five years on the board, or reach age 65 and complete 10 years on the board. That's about $20,000 a year for the rest of their life, vs. the $28,000 it pays them in annual fees. If the director dies within five years of retirement, the spouse or other beneficiaries are eligible for a lump sum payment of $100,000 less the amount of benefits already paid out.
Meanwhile, the New York-based Interfaith Center on Corporate Responsibility, a coalition of religious investors, is largely behind efforts to separate tobacco operations from the rest of a company's business.
The group also has been successful in getting other shareholder activists, including labor unions, to back their efforts.
At the same time, the ICCR is keeping up its drumbeat against petroleum companies stocking cigarettes at gas stations, asking airlines to ban smoking on international flights, and asking tobacco companies to discuss the nicotine content in cigarettes.
The religious investors offered the divestment proposal not only at all the major American cigarette makers such as Loews Corp., Philip Morris Inc., and RJR Nabisco Inc., but also at Kimberly-Clark Corp., which generates only a small percentage of its revenues from tobacco-related products.
The group also has targeted American International Group to sell its investments in the tobacco industry.
But Tim Smith, executive director of ICCR, credits the New York City Employees' Retirement System with highlighting the issue at Philip Morris, a large tobacco and food conglomerate, last year.
"We are certainly not pretending we invented the issue," he said. ICCR's proposals mirror NYCERS' belief that Philip Morris' stockholders would be better off if the company divested its tobacco operations.
"The massive liability that tobacco companies face hangs over them like a sword. We hope the shareholder proposal will have a strong showing from investors convinced" the stock is devalued because of the consolidation of tobacco and other businesses, Mr. Smith said.
The shareholder proposal asking companies to restructure their tobacco operations "could have a serious impact on shareholders, especially in view of the fact that there are so many pending lawsuits" against cigarette manufacturers, noted Jill Lyons, director of the proxy advisory service at Institutional Shareholder Services Inc., a Bethesda, Md.-based shareholder advisory firm.
And Eric Aiken, president of The Proxy Monitor Inc., New York, doubts House Republicans' efforts to alter the nation's civil justice system will succeed in time to protect tobacco companies from lawsuits.
"I think they are extremely vulnerable and, if nothing else, business considerations will dictate they spin off these operations," he said.
Meanwhile, The Investors' Rights Association of America, a Great Neck, N.Y.-based group representing individual shareholders, has begun crusading against pensions for outside directors.
Of its 61 proxy proposals, 23 were on pensions, at companies such as Alexander & Alexander, BF Goodrich Co., Johnson & Johnson, NYNEX Corp., USAir Group Inc., W.R. Grace & Co. and Merck & Co. Inc.
The Investor Responsibility Research Center, a Washington-based research organization, has tracked 40 proposals on this issue alone this season, of which 36 are expected to be voted upon by shareholders.
"These guys are supposed to be consultants to the corporations and as such are not employees and should not be getting pension plans," said Thomas E. Flanagan, IRAA's president.
Organized labor seems to agree.
The United Brotherhood of Carpenters & Joiners of America, Washington, submitted two similar proposals this year. It withdrew its proposal at Melville Corp. following negotiations with the company, and the company's board is expected to vote on the matter at its next meeting.
The carpenters' proposal on director pensions will, however, go on the ballot at Vulcan Materials Co.
The International Brotherhood of Electrical Workers' national pension fund, Washington, brought up the issue before Sprint Corp., but the same proposal offered by a company employee and member of the Communication Workers of America union, Washington, got on to the ballot instead.
"Some of (these plans) are very lucrative. You go to work for a corporation on its board, and if you have been there five years you get a pension," commented Jim Combs, international representative of IBEW.
Retirement plans for directors became popular in the early 1980s, largely because companies began placing academicians, former government employees and others who did not draw corporate level salaries on their boards. Now, with companies placing retired corporate executives on their boards, there is less of a need for companies to offer this benefit, Pearl Myer's Ms. Edelman explained.
"In the 1980s, there was an exponential growth (in these plans) and now it is probably declining, and we doubt there will be new ones," she said.
