Shareholder activists are gearing up to slam the SEC's proposed shareholder resolutions rule changes.
They plan to hold a press conference Oct. 28, at which a coalition of investors will charge the overall package favors corporations, and is anti-shareholder.
"The proposed revisions are a blow to shareholder advocacy and will seriously cripple the rights of investors to raise corporate governance and social concerns," said Tim Smith, executive director of the Interfaith Center on Corporate Responsibility, New York, which coordinates the shareholder activism activity of 275 religious organizations.
Among the various amendments, the activist community particularly opposes:
*A rule that would allow companies to exclude a resolution proposal if they determine it's related to a personal grievance or special interest, even when it might not be. The Securities and Exchange Commission would issue no opinion, whereas in the past, it did take positions on such matters. As a result, shareholders would have to sue to get their resolution in a proxy statement.
*An amendment that would hike the resubmission thresholds on resolutions to 6% from 3% in the first year; to 15% from 6% in the second year; and to 30% from 10% in the third year.
*An amendment that would allow companies to use a firm numerical measure of relevance, meaning they could exclude resolutions on issues representing less than $10 million of a company's sales or 5% of its total assets.
Ever since the proposed amendments were posted on the SEC's Web site Sept. 19, activists have been fuming. They also have been developing strategies to ensure the amendments don't go into effect, said Bartlett Naylor, director corporate affairs, Teamsters Union, Washington.
Activists go public
Activist shareholders will go public Oct. 28, when the Council of Institutional Investors holds a press conference in conjunction with the Investor Responsibility Research Center's annual conference in Washington.
A coalition of investor advocates - including representatives from big pension funds, religious investors and union leaders - will outline plans to defeat the proposed amendments.
The new amendments also would overturn the controversial Cracker Barrel ruling, which for the last four years has excluded from proxy statements all employment-related proposals as they relate to "significant" social policy issues.
Under the proposed change, certain employment-related resolutions would no longer be excluded automatically, but would instead be reviewed by the SEC on a case-by-case basis.
Mr. Smith of the Interfaith Center was particularly bothered by the proposed change in resubmission thresholds.
"Proxies are tilted toward management anyway. Most banks vote with management. If 10% of investors vote on a resolution, it's a significant statement.
"Under the proposed rules, a massive number of voters will be needed," he said.
Emerging issues such as sweat shops or human rights violations in South Africa might not always meet the financial significance test, added Mr. Smith.
"Sometimes it's unclear how much money is involved.
"Had there been a $10 million rule in effect 10 years ago, resolutions to disinvest in South Africa would never have made it onto proxy statements."
According to research from the CII, Washington, poison pill and
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classified board resolutions were the only ones to consistently win 30% or more of the vote. No social resolutions submitted to Standard & Poor's 500 companies in 1997 received that kind of support.
Of 166 corporate governance resolutions submitted to those companies in 1997, half failed to win support of 15% of the votes. Only 25% - mainly classified board, cumulative voting and poison pill resolutions - won support of at least 30%.
By contrast, only 77 social resolutions tracked by the council in 1997 got 15% of the votes.
The SEC has asked for public comment on the amendments until Nov. 25. SEC spokesman Duncan King said the agency would not respond to the current criticism, and suggested shareholders send in their comments.
Activists are contacting members of the Senate Banking and House Commerce committees to get their support in protesting the proposed regulations.
Jon Lukomnik, New York City deputy comptroller for pensions, said he will lobby Congress about the changes. Alan Hevesi, New York City comptroller, will submit formal comments to the SEC opposing the new regulations, and urge board members to make their views known, Mr. Lukomnik said.
He observed the personal grievance rule is "un-American. If a company says a resolution is personal, the sponsor of the resolution can't get it in a proxy statement without going to court. It's like being considered guilty until proven innocent."
"These rules threaten to swallow the whole proxy process," charged Damon Silvers, associate general counsel at the AFL-CIO.
It takes years until some corporate governance proposals build up enough interest to get votes. With the proposed thresholds, it would be tough to get a lot of issues on proxy statements, he said.
Mr. Silvers contended the changes are contrary to the goals Congress had in mind when it passed the National Securities Markets Improvement Act of 1996, which encouraged the SEC to investigate enhancing shareholders' ability to submit resolutions relating to corporate practices and social issues.
"These changes will foster costly litigation in place of cost-effective and time-proven regulatory mechanisms," Mr. Silvers said.
He and other activists complained that instead of opening up the rules process, the SEC is taking an anti-shareholder stance. "The SEC is supposed to be an advocate for shareholders. Instead it seems to be overly focused on helping corporations, and corporations already have the Chamber of Commerce and the Commerce Department working on their behalf," said Mr. Naylor of the Teamsters.