NEW YORK -- Three New York City pension funds are organizing a "vote no" campaign to enlist all shareholders to oppose the re-election of the directors at three companies.
The companies have been unwilling to make corporate governance changes, despite proxy resolutions on the issues that received a majority of votes by shareholders, said Kenneth Sylvester, director-policy, New York City comptroller's office.
The companies being targeted are Louisiana-Pacific Corp.; Great Lakes Chemical Corp.; and Cooper Tire & Rubber Co., Findlay, Ohio.
The city's teachers' retirement system had submitted a resolution to Louisiana-Pacific, seeking the right of shareholders to submit a resolution for a vote and start a proxy campaign at any time, not just at the corporation's annual meeting.
The city employees' and the police pension funds, respectively, had submitted resolutions at Great Lakes Chemical and Cooper Tire & Rubber to repeal classified boards, where directors are elected in staggered terms. The resolutions sought to have all of the directors elected each year, making it easier for shareholders to sweep away unsatisfactory boards.
The resolutions were non-binding on the boards. Each resolution received a majority of the shares that were voted.
Under scrutiny
All three companies have been the focus of the pension funds for some time because their stocks have underperformed their peers and benchmark indexes for one-, three- and five-year periods, Mr. Sylvester said.
The New York City comptroller's office, which oversees the three funds will send out requests-for-proposals for a search for a proxy solicitation firm to assist in the shareholder campaign.
"We are targeting directors because directors are the elected representatives of shareholders," Mr. Sylvester said.
"We feel that if the majority vote of shareholders is rejected by these elected representatives of the shareholders, then who are they accountable to?
"We hope to send a strong message to the boards of directors and hope to enlist the support of other shareholders."
The RFP was expected to go out Dec. 27 and stay open until Jan. 18, said Robert Pam, director-contracting in the New York City comptroller's office.
Even though the resolutions were non-binding, Mr. Sylvester said the pension funds' officials believe the directors and executives of the companies should have found a way to accommodate the concerns expressed in the resolutions especially after the resolutions received a majority of votes that were cast. "The `vote no' campaign will ask shareholders to withhold their votes on the re-election of directors" at the three companies, he said.
Resolutions listed
Each of the three funds submitted a resolution to one of the three companies. The resolutions were:
* The $37 billion New York City Teachers' Retirement System's resolution at Louisiana-Pacific received 67.7% of the shareholder vote. The company's chief executive officer, chief financial officer and general counsel subsequently met with the pension fund's board to discuss their reasons for not implementing the resolution. "But the meeting didn't result in an agreement on the issue," Mr. Sylvester said.
* The $16.3 billion New York City Police Retirement Fund's resolution at Cooper Tire & Rubber received 52.7% of the shareholder vote. The company declined to implement the change.
* The $39.2 billion New York City Employees' Retirement System first submitted a resolution last year to Great Lakes Chemical. It received 54.9% of the shareholder vote. When the company declined to implement it, the pension fund this year sought to resubmit its resolution, and added a clause to make it binding. The company fought the resubmission, said Mr. Sylvester. Company officials successfully argued to the Securities and Exchange Commission that only the board could propose such a binding commitment for a shareholder vote. So the resolution was not allowed in the proxy.
Surprised at campaign
At Louisiana-Pacific, Curtis M. Stevens, chief financial officer, said he was surprised to learn of the "vote no" campaign because the company's top executives took the time to discuss the issue with the pension fund trustees.
He said the campaign "doesn't appear to be particularly constructive."
"We were very responsive," he said, explaining the reasoning company executives used in the discussion with the pension trustees.
"We are in an industry with a lot of scrutiny; environmentalist could use resolutions to be disruptive."
He said the executives had explained to the board that shareholders already have an orderly way of presenting resolutions -- the annual meeting. The resolution, however, if adopted would allow shareholders to initiate a proxy campaign anytime during the year and thus necessitate management to send out a response to shareholders before a vote.
"The concern we have is we could have a `resolution of the month,' Mr. Stevens said. "It would be a major disruption to management."
He noted the pension fund's resolution failed to receive a majority of all possible proxy votes. Despite receiving a majority of shares voted, Mr. Stevens said it needed a supermajority of two-thirds, as required, to effect a corporate bylaw change.
If the "vote no" campaign would succeed, then the board would have fewer directors, he noted. But he pointed out the board has the authority to appoint new directors at anytime.
He acknowledged the company's stock has underperformed. But he noted in the first three quarters of this year, the company ranks favorably in terms of earnings and revenue growth.
Speaking of the pension fund's trustees, Mr. Stevens added, "It doesn't seem like they are interested in enhancing shareholder value. It seems like they are interested in leading the pack in introducing shareholder proposals."
Slim majority
At Cooper Tire & Rubber, Philip G. Weaver, vice president and chief financial officer, said, "I don't believe (the pension trustees) asked us to meet with them."
He noted the slim majority of the vote. "If it's 52%, do you think it's an overwhelming call for change?" he asked. "Our directors who are elected by the shareholders made the decision not to implement" the resolution. Mr. Weaver said the board responded to the resolution vote by forming a committee of four independent directors to review the proposal. "Their conclusion was a classified board should be maintained.
He acknowledged the company's stock "is not stellar." But he noted that in the first three quarters of this year, the company's earnings are up more then 20%. "Very few companies have 20% earnings growth for the year," he added.
At Great Lakes Chemical, Jeffrey Potrzebowski, director-investor relations, who was unaware of the funds' campaign, said "We have a disagreement" on what type of board structure is best.
The board didn't oppose a non-binding resolution to "get an idea of the view of shareholders on a classified board." But he confirmed the board opposed making the resolution binding.
He acknowledged the company's stock has underperformed the Standard & Poor's 500 index, but "we have not underperformed our peer group" in the last year.
As for the new campaign, he said, "Our shareholders have every right to take any action they deem necessary."
