WASHINGTON -- In its first foray into shareholder activism, the $500 million pension fund of AFSCME -- the biggest public employee union in the country and largest labor organization in the AFL-CIO -- won a majority of votes at three of the five companies where it submitted resolutions, and near majorities at the other two.
But the strategy behind the fund's activism aims as much to inspire similar activism in public employee retirement funds, as for AFSCME's own power to affect the outcome of corporate governance issues.
"If we as a national union are going to be influential with trustees of other pension funds, we needed to be more active ourselves," said Michael Zucker, director-office of corporate affairs for the American Federation of State, County and Municipal Employees, Washington.
No action yet
Mattel Inc., Baxter International Inc. and Great Lakes Chemical Corp. haven't acted yet on the fund's proxy resolutions, even though they received, respectively, 65%, 60% and 54% of shares voted.
The Mattel resolution called for a shareholder vote on its poison pill anti-takeover provision, while the resolutions at Baxter and Great Lakes sought repeal of their classified boards of directors.
At Bank of New York Co. and Conseco Inc., AFSCME's resolutions received, respectively, votes of 46% and 40%. The BoNY resolution called for a vote on its poison pill, while the one at Conseco sought an end to its classified board.
All five resolutions were non-binding.
Mr. Zucker said the staff fund isn't big enough to give it the clout of multibillion-dollar institutional investors such as the California Public Employees' Retirement System. But its impact could be significant in influencing other public and union funds.
The outcome of the votes showed AFSCME's influence extended far beyond its relatively small ownership in the targeted companies; it owns 102,600 shares of Mattel, 4,100 of Baxter, 21,500 of Great Lakes Chemical, 7,500 of BoNY, and 4,500 of Conseco.
Many AFSCME members are beneficiaries in numerous public employee pension plans that own stock in these companies, he said.
For instance, he said, public pension plans for AFSCME members own a combined 3.7% of Mattel's 423 million outstanding shares.
Funds supporting retirement benefits of AFSCME's members total more than $1 trillion.
"By being active, they are being a role model for other public union trustees," said Michael Flaherman, trustee of Sacramento-based CalPERS and chairman of its investment board, speaking about those who oversee smaller funds.
When AFSCME "points out particular problem companies, this tends to prod other shareholders to look at what they should be doing" in terms of corporate governance activity, added Mr. Flaherman, an economist at the Bay Area Rapid Transit in San Francisco and a member of AFSCME.
"AFSCME sees itself as having an educational role and actively is trying to educate trustees on what their responsibilities are and trying to serve the interest of all its members," Mr. Flaherman said.
Gerald W. McEntee, president of AFSCME and chairman of the staff pension plan, declared in a statement, "Our first year of shareholder activism has been a success."
Explaining further the fund's strategy, Mr. McEntee said, "Our activism is unique because its benefits extend to most AFSCME members," who number 1.3 million. The fund's proposals "were presented to companies with stock owned by numerous public employee pension plans. Because of this, our activism will benefit staff plan participants and the thousands of our members whose pensions are provided by public employee retirement plans."
"We believe the large vote counts will force companies to rethink their stance on governance issues," he said. "Historically, Mattel, Great Lakes Chemical and Baxter International have resisted calls for reform."
Mr. Zucker was hired in November by the AFSCME to develop a shareholder activism program for the staff pension fund.
Before joining the AFSCME, he spent 14 years as director-office of corporate and financial affairs for the Union of Needletrades, Industrial and Textile Employees, Washington.
Because he'll have more time to prepare for the next proxy season than he had for the current season, Mr. Zucker said, "We plan to submit more proposals at an expanded number of companies."
Before Mr. Zucker arrived, the AFSCME fund left voting of its shares to Proxy Voting Service of Institutional Shareholder Services Inc., Rockville, Md., under guidelines established by the fund's board. But it hadn't submitted any resolutions. It continues to use the service.
In the aftermath of the proxy voting, Mr. Zucker said AFSCME officials are communicating with the three companies where its resolutions received a majority of votes to initiate a discussion with corporate management or directors about implementing the resolutions or resolving the issues in tune with the votes of most shares. Whether the AFSCME fund will reintroduce the resolutions will depend on the outcome of the discussions.
At Great Lakes Chemical, Jeffrey Potrzebowski, director-investor relations, said while 54.6% of the shares that were voted favored the resolution, the votes represent only 44.2% of total outstanding shares because of some holders not voting shares or abstaining.
"At the time of the vote result, the chairman of the board indicated there was a philosophical difference between the board and the union" on a classified board, he said.
The board took the vote under advisement, he added.
In 1998, the $39.2 billion New York City Employees' Retirement System submitted a non-binding resolution at Great Lakes Chemical to repeal the firm's classified board; it received 54.9% of the shareholder vote. When the company didn't implement the change, the system the following year sought to make the resolution binding. But the company successfully kept it out of the shareholder proxy statement.
At Baxter, Deborah Spak, senior communications manager, said, "The board will be evaluating their response to the resolution at its regular fall meeting." She confirmed the AFSCME resolution received 60.4% of the shares voting.
James Rosensteele, senior vice president, corporate communications, Conseco, confirmed the voting results and said the AFSCME proposal was the first time a proposal on the classified issue was voted on by Conseco shareholders.
Representatives of the other companies couldn't be reached for comment.