WASHINGTON -- When the SEC received more than 2,000 letters of protest about proposed shareholder resolution changes, Brian J. Lane was surprised, but happy.
"We were pleased both sides hated our proposed changes. When both sides are unhappy, it means we're doing something right," Mr. Lane said at the Institutional Shareholder Services annual conference held earlier this month.
Mr. Lane is director of the Security and Exchange Commission's division of corporation finance.
The corporate community was worried it would have to include all the dissidents' proposals; activist shareholders feared all their proposals would be excluded.
Mr. Lane expects the new rules will be released this summer, in time for the 1999 proxy season.
While there will be fewer changes than originally planned, the Cracker Barrel provision is likely to be reversed, and the new rules are expected to be written in a style that is easier to comprehend.
Under Cracker Barrel, all employment-related proposals have been excluded from proxy statements for the last four years.
But another conference speaker -- William Patterson, director, office of investments at the AFL-CIO, Washington -- argued the SEC missed out on a chance to give shareholders an override, which would allow them to put resolutions on proxy statements that otherwise would be excluded. The business community said it wouldn't tolerate it, Mr. Patterson said.
As of March 5, the SEC had received 325 requests from companies to exclude proposals.
Mr. Lane also reported that institutional shareholders are now required to file 13G statements electronically. If they are filed on paper, they will be returned.
Interest up outside U.S.
Other areas of discussion at the ISS conference included non-U.S. corporate governance, executive compensation, abstentions and even Vernon Jordan.
CREF, the equity side of the $213 billion Teachers Insurance Annuity Association-College Retirement Equities Fund, New York, is beginning to discuss corporate governance issues with influential players in Europe and Asia, said Richard M. Schlefer, director of corporate governance.
"Influential Japanese are becoming more interested in corporate governance issues because of the persistent problems in the Japanese stock market," he said.
This year CREF has filed resolutions with six companies, calling for independent boards, according to Mr. Schlefer, who noted CREF's definition requires independent auditing, nominating and compensation committees composed of people who have no connection with the company.
"One resolution has been withdrawn, one has been filed with Walt Disney Co. and the other four may come to a vote, but the names won't be released if CREF is successful."
CREF has two main concerns at Disney: outrageous compensation and a succession plan. Currently, there is no clear line for a successor to CEO Michael Eisner, but if an independent board was in place, it would mandate a plan of succession, Mr. Schlefer noted. The current head of the compensation committee at Disney is Mr. Eisner's personal attorney.
Mr. Schlefer also noted an independent board would not have allowed former President Michael Ovitz, who was terminated after only two years, to walk away with a $140 million severance package.
Another view of Disney
But there's another way to look at Disney's Mr. Eisner. Kenneth Huggeson, global practice leader at William M. Mercer Ltd., pointed out that since Mr. Eisner became CEO of Disney in 1984, the company's market capitalization jumped from $1.9 billion to $71.7 billion.
Of that, $8.5 billion came from new shares issued when Disney bought Capital Cities ABC Inc; $20.1 billion came from the Standard & Poor's return on capital; and a whopping $41.2 billion came from value added by management.
And, during that period, Mr. Eisner has only taken half a billion out of the company for his own compensation. Mr. Huggeson emphasized that shareholders should consider how much Mr. Eisner has contributed to Disney's performance.
"Let's be sure we don't shoot the golden goose," warned Mr. Huggeson.
Like CREF, the AFL-CIO is concerned about executive pay, Mr. Patterson said. He contends many companies have been exploiting the bull market. "Independent compensation committees help check that." he said.
American Express Co. Inc. and Coca-Cola Company Inc. negotiated settlements with the AFL-CIO to appoint independent nominating committees. E.I. DuPont De Nemours & Company and U.S. Surgical Corp will vote on these.
Meanwhile, Ken Sylvester, director of pension and corporate affairs in the office of the comptroller, City of New York, said one of the biggest concerns this year is whether abstentions are included in voting proposals.
"Abstentions should not be considered a negative vote," he said. "We sometimes abstain when we don't have enough time to study issues."
Vernon Jordan redux
Two years before Vernon Jordan hit the headlines as a key figure in the scandal surrounding President Clinton and former White House intern Monica Lewinsky, Mr. Jordan won the dubious distinction of being named to the International Brotherhood of Teamsters' list of least valuable directors.
Mr. Patterson, who was previously in charge of corporate affairs at the Teamsters, said those who made the list were selected on the basis of conflicts of interests and company performance. They were rated on absenteeism and commitment. Mr. Jordan serves as a director on 12 boards.
In other conference sessions:
* Howard Sherman, ISS president, said the firm has recommended its clients vote against Marriott International's proposed merger and spinoff. Marriott wants to spin off its lodging timeshare and distribution services businesses to shareholders and merge the remaining company with the food service management operations of France's Sodoexho Alliance S.A., the world's largest catering company. ISS objected to the many anti-takeover and entrenchment devices included as part of the deal.
* Patrick McGurn, vice president and director of ISS corporate programs, observed that Taft-Hartley funds are becoming more involved in the corporate governance movement. International Brotherhood of Teamsters has filed two dozen resolutions involving executive compensation and board independence, which are shaping up to be the key concerns in 1998. The Service Employees International Union has submitted 12 proposals.
* David Levine, special assistant to the general counsel at the SEC, reported only a few institutions have taken advantage of the Reform Litigation Act since it was passed in 1996. The law allows the largest shareholder to become lead plaintiff in a lawsuit.
In 1997, of 175 companies sued in federal court, only nine institutions asked to be lead plaintiff.
* Lowell E. Sachnoff, a securities litigation attorney, said institutional investors with fiduciary responsibilities should monitor cases as they are filed, so they'll know where it makes sense to get involved. "When they do (become involved), shareholder value increases. Since it's necessary to file 60 days after a case has been started, it's important to have a system in place to track cases," he said.
And securities lawyer Jay Eisenhoffer noted settlements usually are better when institutional investors are involved, compared to class actions composed of individuals who own just a few shares in a company.