Executive pay and repeal of classified boards are the hot governance issues in the 1998 proxy season.
Ken Bertsch, director of corporate governance services at the Investor Responsibility Research Center, Washington, said 329 governance resolutions had been filed as of Jan. 27, with 71 on executive pay and 48 on repeal of classified boards.
For 1998, 254 social issues had been filed as of Jan. 27. Of those, 64 resolutions focus on the environment and energy, and 26 on international codes of conduct.
In 1997, there were a total of 512 governance resolutions and 304 social policy issues.
Governance proponents this year are carefully following the progress of binding bylaw proposals at Fleming Companies Inc. and Kmart Corp., said Mr. Bertsch. In January 1997, a federal district court judge in Oklahoma ruled Fleming must allow shareholders to vote on a binding resolution on its poison pill that was submitted by the International Brotherhood of Teamsters, Washington. Now the case is on appeal at the 10th U.S. Circuit Court of Appeals in Denver. If the Teamsters win, it will be precedent-setting, Mr. Bertsch said.
The union also has teamed up with the New York City Police Pension Fund on a resolution mandating Kmart abolish its poison pill.
The College Retirement Equities Fund's shareholder resolution asking Walt Disney Co. to restructure its board so the majority of directors are independent is also in the spotlight, in part because CREF has been negotiating privately with its portfolio companies for the past several years instead of filing proposals.
CREF has argued the majority of Disney board members are closely affiliated either with Chief Executive Officer Michael Eisner or with the company. CREF is the $119 billion variable annuity component of the $213 billion Teachers Insurance and Annuity Association -- College Retirement Equities Fund, New York.
Option repricing
Another big issue this year is option repricing. The State of Wisconsin Investment Board, Madison, has asked 22 companies for a firm commitment that they won't reprice options in the future.
The $50 billion pension fund is focusing only on the repricing issue this year, a spokesman said, trying to get the companies to adopt the policy through negotiation. It is not naming the specific companies yet, but will issue a list of those that don't agree.
"The companies are primarily small-cap businesses and we own 7% to 10% of them, so it's a concern. Some have already repriced (options) two or three times and we're worried they might do it again," he said.
Repricing is an area that becomes more important when the market goes down, Mr. Bertsch observed. "Executives get all these options and if they are repriced, it takes out the down-side risk, diluting shareholders' interest in a company. That's OK if it's tied to executives' performance, but the repricing gives them an out. On the other hand, high-tech companies have argued that if they don't reprice options, they will lose their employees, so some of them have decided to reprice for everyone except the top five managers."
A new issue this year is the exploitation of negative images such as Joe Camel, which have been used in advertisements, said Joseph Henzlik, director of social and environmental research at Proxy Monitor, a New York-based proxy-solicitation firm.
Several pension funds -- including the Minnesota State Board of Investments -- have filed resolutions with RJR Nabisco Inc. to stop the Joe Camel ads, he said.
Members of the Interfaith Center on Corporate Responsibility, New York, filed a similar resolution with Anheuser-Busch Inc., which was withdrawn, he said. Another was filed with PepsiCo Inc.
Unions show clout
The 1998 season also is one of increased activism among Taft-Hartley funds, which have submitted 70 proposals so far this year, vs. 40 during all of 1997, noted Richard Ferlauto, vice president and director of policy at the Bethesda, Md.-based Institutional Shareholder Services' newly formed Taft-Hartley Proxy Voter Alert division.
"Traditional activists, including the Teamsters, the Service Employees International Union and the United Brotherhood of Carpenters and Joiners of America have increased the number of resolutions they are proposing while new funds such as the AFL-CIO Retirement Fund have joined them," said Mr. Ferlauto.
The SEIU filed resolutions at Columbia/HCA Healthcare Corp. and United Healthcare Corp. asking for anti-fraud compliance and a binding resolution giving shareholders equal access to proxies.
The AFL-CIO has filed a resolution at E.I. du Pont de Nemours & Co. to create an independent nominating committee.
Resolutions on executive severance packages are important to the IBT. Fund analyst Roseanne Landes Weaver said the pension fund filed resolutions at Allied Signal Inc. and Time Warner Inc. asking that shareholders be allowed to vote before the companies offer executives severance packages exceeding $3 million.
It also has filed one with Coca-Cola Enterprises Inc. to end pensions for non-employee directors.
Anti-takeover issues
Poison pill resolutions continue to get the most support, according to Robert Newbury, senior analyst at the IRRC. In 1997, the center tracked 34 anti-takeover resolutions, 17 of which came to a vote, and averaged 54.1% of votes cast. This year, there have been 10 resolutions filed so far.
The top anti-takeover issue this year is the repeal of classified boards, to ensure all directors are accountable every year. The research group has counted 48 proposals on this, including two from the New York City Fire Department Pension Fund -- targeting Fleming and Safety-Kleen Corp. -- and another from the city's five pension funds, targeting Great Lakes Chemical Corp.
The Teachers' Retirement System of the City of New York resubmitted a proposal to Metromedia International Group Inc. to restore shareholders' right to act by written consent and to call special meetings. That pension fund also has submitted a resolution on this issue with Unisys Corp. and is in negotiations about it with Sensormatics Electronics Corp. and Charles Schwab Corp., said Ken Sylvester, director of pension corporate affairs.
New York city funds filed 28 proposals in 1998, double the number submitted in 1997. So far, five have been withdrawn and three are under discussion. The funds' top concerns are classified boards, independent nominating committees, and -- new this year -- a request to exclude abstentions when counting votes taken on shareholder proposals. A resolution on that issue was submitted to Harrah's Entertainment Inc. and withdrawn after the board agreed to amend the bylaws. A proposal on the issue is still pending at Fluor Corp. and under negotiation at Zero Corp.
According to the IRRC's Mr. Newbury, 43% of the companies receiving shareholder proposals that came to a vote in 1997 included abstentions when determining the outcome.
Social issues in spotlight
In the social issue arena, shareholder activists are focusing on labor standards, the environment and tobacco. Twenty-seven proposals are pending or planned for an endorsement of the CERES principles, a 10-point environmental code.
The Interfaith Center, a coalition of 275 religious groups with investment portfolios totaling $80 billion, filed most of the social issues proposals.
Tim Smith, the coalition's executive director, said key proposals relate to equal employment opportunities; diversity on boards of directors; human rights issues such as Myanmar; military issues such as land mines and foreign military sales; the environment, particularly endorsement of the CERES principles; and tobacco.
In addition to targeting major tobacco manufacturers, the group is filing resolutions at related companies such as H.B. Fuller Co. Inc., which makes the glue that holds cigarettes together.
"We're also concerned about sweatshops overseas, and are filing resolutions at companies that sell products made in sweatshops overseas, such as Wal-Mart Stores," said Mr. Smith.
