A group of religious investors and a union pension fund are appealing to the four members of the Securities and Exchange Commission to overturn a rule that lets companies keep workplace-related shareholder requests off their ballots.
The General Board of Pensions and Health Benefits of the United Methodist Church, Evanston, Ill.; The Sisters of St. Dominic Congregation of the Most Holy Name of San Rafael, Calif.; the Sisters of Mercy Health Services of Farmington Hills, Mich.; and the Amalgamated Bank of New York Longview Collective Investment Fund, representing the Union of Needle Trades, Industrial and Textile Employees, were expected to file their appeal to the SEC commissioners late last week. The three religious investors are all members of the Interfaith Center on Corporate Responsibility, New York.
Since 1992, the SEC has let companies keep shareholder proposals on workplace issues off their ballots on grounds that they relate to the companies' day-to-day business and are of concern to management, not investors.
In their appeal, the investors were expected to ask the four SEC commissioners to overturn a recent ruling by the agency's staff that Shoney's Inc., the Nashville, Tenn.-based restaurant chain, may keep off its proxy a shareholder request on disclosing its record on hiring women and minorities.
The religious investors and the Longview pension fund together own approximately 17,500 shares of Shoney's.
Other religious group investors that belong to the ICCR are planning to separately appeal the SEC's recent decision letting Allied Signal Inc., Chrysler Corp. and Exxon Corp. keep similar workplace-related proposals off their ballots.
GTE Corp., which also received SEC approval to keep a shareholder request on employment policies off its proxy earlier this month, apparently is ready to give investors a report they request on its track record in hiring women and minorities. That would make an appeal in GTE's case unnecessary, according to Timothy Smith, ICCR's executive director.
GTE officials did not return numerous calls seeking comment.
Meanwhile, Shoney's has done an about-face, said Vidette Bullock-Mixon, director of corporate relations at United Methodist Church's pension fund, which is leading the group of investors seeking that information. Shoney's first resisted investors' requests that it publicly disclose its track record on hiring women and minorities, then asked to meet with the investors last week to discuss their proposal, and then called off the meeting at the last minute, she said.
Betty Marshall, the Shoney's spokeswoman who was organizing the meeting with investors, refused to discuss the company's plans.
2 commissioners concerned
While it is too early to say what the SEC members will do about the appeal from the investors, two commissioners - Steven M.H. Wallman and Issac C. Hunt Jr. - have expressed concerns about the rule.
The other two, Chairman Arthur Levitt and Norman Johnson, have not declared their views on the matter. (A fifth seat on the commission is vacant.)
Mr. Wallman last October called for the SEC to reverse its position on letting companies exclude investor requests on workplace issues. In a speech before the Council of Institutional Investors, he noted that "squelching shareholder debate on issues like this is bad public policy,."
Meanwhile, Mr. Hunt last month said at a conference that "The Cracker Barrel rule," as it is popularly known, should be "reconsidered." He has since declined to say whether he would push for a reversal.
Paul M. Neuhauser, a law professor at the University of Iowa, Iowa City, who handles legal matters for the ICCR, said the investors will wait for the SEC to decide the appeal before suing Shoney's.
"The companies and we have to know relatively soon," because of the approaching deadline for the company to mail out its proxy to shareholders for its March 26 annual meeting.
SEC may stand 'pat'
However, some corporate governance experts have suggested the SEC could stay pat until it submits recommendations to Congress later this year on overhauling the shareholder proposal process.
As it is, the SEC has not taken any action on a July 1995 petition by the ICCR, the Calvert Group Ltd. and the New York City Comptroller that it reconsider the rule.
The National Securities Markets Improvement Act passed last fall requires the SEC to submit recommendations to lawmakers by Oct. 11 on improving the shareholder proposal process, and the SEC's division of corporation finance plans to survey thousands of shareholders and corporations to help it frame recommendations.
Meanwhile, investors chose Shoney's as the ideal case to test the SEC rule in court because of the parallels with the Cracker Barrel Old Country Store Inc. case that prompted the SEC to reconsider workplace issues as ordinary business matters, rather than as those with underlying social policy concerns.
In the earlier case, the SEC ruled Cracker Barrel, a Lebanon, Tenn., restaurant chain, could omit a shareholder request that it adopt an employment policy that would not discriminate against homosexuals.
When the SEC handed down the Cracker Barrel ruling in 1992, it also took the unusual step of saying it would let companies bar all employment-related proposals from their annual shareholder ballots because the line between such proposals and social policy had become fuzzy.
The investors who had filed the resolution before Cracker Barrel then sued the SEC, and while they won at a lower court level, the 2nd U.S. Circuit Court of Appeals overturned the court's decision in January 1995.
But the appeals court left open the door for shareholders to sue companies directly for withholding investor requests.
After a nearly two-year moratorium, the SEC resumed giving companies permission to exclude proposals on ordinary business grounds in April 1995.
As with Cracker Barrel, the shareholder request before Shoney's relates to employment practices.
Better chance of winning?
Observers say investors have a better chance of winning a case involving Shoney's because of its spotty track-record on employment discrimination, one that has cost investors because of the $132 million the company paid out some years ago to settle a class-action lawsuit.
As part of an agreement with the Southern Christian Leadership Conference, the company also has spent $96 million since then on helping minorities, according to Ms. Marshall.
These troubles, investors say, are the main reason the company's stock price is sagging. Since January 1994, the company's stock - which pays no dividends - has lost two-thirds of its value and is now trading around 7, the low point of its 52-week range.
Investors say they have a better chance of winning a case relating to a company's employment discrimination than any other workplace issue, because the courts have already handed them a victory once before. In April 1993, a federal district court in New York ruled Wal-Mart Stores Inc., Bentonville, Ark., could not leave out of its proxy a shareholder proposal relating to its employment policies.
Moreover, 140 companies already give shareholders information on their hiring records of women and minorities, including six of the seven companies that last year received permission from the SEC to omit shareholder requests on the subject. Shoney's, is the only one of the seven that continues to hold out, they say.
Most information available
But Shoney's already publishes most of the information the investors are seeking - albeit piecemeal.
Under the terms of the settlement of its employment discrimination case, the company must file an annual report of its minority hiring with the Equal Employment Opportunity Commission. Ms. Marshall said 21% of the company's management is African American, up from 14.5% since 1989.
She also noted Shoney's buys more than $36 million from minority suppliers annually, up from just $1 million a year.
Finally, the company put a similar proposal from the religious investors on the proxy two years ago, but it was turned down by 82% of those who voted, she noted.
