When do non-binding proxy resolutions become binding? Perhaps when they receive a majority of shareholder votes. That's the sentiment of three New York City pension funds.
Because three companies declined to institute corporate governance changes spelled out over the past two years in resolutions that received a majority of votes, the pension funds of the city's employees, teachers and police are initiating a "vote no" campaign to defeat the directors up for re-election at the companies.
The pension funds in general have a worthy goal: Targeting the companies because their stocks have underperformed benchmarks. But their vote-no campaign goal has merit only in certain cases.
Great Lakes Chemical Corp. successfully fought the New York employees' pension fund's attempt to reintroduce as binding a resolution to end classified boards. Thus, the pension fund rightly felt it had no choice but to seek the defeat of directors.
At Cooper Tire & Rubber Co., the police pension fund's similar resolution received 52.7% of the vote. That majority was too slim to warrant a change. Instead of "vote no," the fund should have sought to reintroduced the non-binding resolution to try to gain a more persuasive majority.
The teacher pension fund is disturbed Louisiana-Pacific Corp. declined to give shareholders authority to initiate a proxy campaign at any time. But there already is an orderly way of presenting resolutions, at annual meetings. Other timing could be disruptive, forcing management to respond to each resolution. In this case, the pension fund ought to be straightforward and call for a "vote no" because it believes corporate performance has been poor.