Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. Print
December 13, 2004 12:00 AM

Proxy resolution study debated

Paper says most firms shun shareholder resolutions, but ISS official says companies more receptive

  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    By David Hoffman

    NEW YORK — Even when a proxy resolution wins a majority of the vote, most companies tend to ignore shareholder resolutions, according to a working paper scheduled to be published next year in the Harvard Law Review.

    But at least one industry expert said the paper's findings are flawed.

    While it is true that companies might not have acted on shareholder resolutions in the past, a rule proposal that would give shareholders limited access to the proxy-nomination process has made companies more receptive to resolutions, said Patrick McGurn, senior vice president and special counsel to Institutional Shareholder Services Inc., Rockville, Md.

    Under that rule proposal, which was first suggested in 2002, companies would be required to include on their proxy ballots director candidates nominated by shareholders, subject to certain thresholds and triggering events.

    Mr. McGurn argued that the possibility the Securities and Exchange Commission could adopt the proposal has caused companies to take shareholder resolutions more seriously.

    "In light of board access being on the ballot, we have seen a number of folks adopting majority-passed resolutions," he said.

    Mr. McGurn offered several examples.

    In November, Federated Department Stores Inc. in Cincinnati said its board intends to submit to shareholders in May a binding proposal that would eliminate staggered board terms by 2006 and provide for the annual election of directors.

    The proposal is a response to a non-binding shareholder proposal to declassify the board — which received a majority vote at the company's 2003 annual meeting.

    Shareholder activists don't like staggered boards, which effectively stop acquirers from gaining control of boards.

    Goldman Sachs Group Inc., New York, and Prudential Financial Inc., Newark, N.J., both said in September that their boards intended to submit similar proposals. Their decisions were made after shareholder proposals to declassify the boards at each company received a majority of the vote.

    Such examples, however, aren't enough to convince the working paper's author that shareholders have any more power today than before the access proposal was made.

    "Shareholders don't have the power to initiate corporate governance change," Lucian Bebchuk, director of the corporate governance program at Harvard Law School in Cambridge, Mass., said at a mutual fund conference in Baltimore last month.

    In his paper, he acknowledged that efforts to give shareholders greater access to the proxy nomination process are a positive step, but he doesn't think they address the true problem.

    "While I support making shareholder power to replace directors more viable, I argue that substantial attention should also be given to the possibility of increasing shareholder power with respect to issues other than the election of directors," Mr. Bebchuk wrote in the paper.

    One way to increase shareholder power would be to give shareholders, under certain conditions, the power to adopt provisions that would permit them to pass binding resolutions with respect to specific business decisions, he said.

    But giving shareholders more access to the proxy nomination process isn't enough, Mr. Bebchuk said. "A vote to replace directors with a rival team that promises to initiate a given rule change is a highly imperfect instrument for achieving the desired change," he said.

    Until that happens, shareholders will always run the risk of being ignored.

    As evidence, Mr. Bebchuk's paper showed that shareholder resolutions asking to repeal staggered boards that were approved during the past few years, including years in which companies should have been aware of the proxy nomination proposal, had yet to be implemented by this fall.

    For example, shareholders passed 33 resolutions to do away with staggered boards last year, but 69.7% hadn't been implemented by this fall.

    Resolutions that would dispense with staggered boards totaled 32 in 2002, but 65.6% hadn't been implemented by this fall.

    Who's right?

    For the most part, socially conscious investors said they aren't sure who is right.

    "It's impossible for me to make a generalization, because it's company by company," said Anita Green, vice president of social research at Pax World Management Corp., Portsmouth, N.H.

    But even if Mr. Bebchuk is correct about the tendencies of companies to ignore majority-passed shareholder resolutions, she disagrees that shareholders have no power to effect change.

    They may not have any legal power, Ms. Green said, but shareholders, especially institutional shareholders, have been successful at working behind the scenes to resolve issues at companies before those issues are brought up as resolutions.

    Bruce Goldfarb, senior managing director of proxy solicitation service Georgeson Shareholder Communications Inc., New York, agrees.

    "Our findings are that shareholders can have significant power, but it's power that is not necessarily exercised through the shareholder resolution process," he said.

    Timothy Smith, senior vice president of Walden Asset Management in Boston, added that if an issue is brought up as a resolution, it generally means the communication process between a company and its shareholders has broken down.

    "It tends to be a last resort when a resolution has to go on the ballot," he said.

    That usually doesn't bode well for shareholders, said Mr. Smith, who is also president of the Social Investment Forum in Washington.

    David Hoffman is a reporter with InvestmentNews, a sister publication of Pensions & Investments.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    Gender diversity is improving on FTSE 350 boards
    Gender diversity is improving on FTSE 350 boards
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    The Future of Infrastructure: Building a Better Tomorrow
    Fulcrum Issues: Equity Returns and Inflation — Choose Your Own Adventure
    What Matters Most in Considering a Private Debt Strategy
    Why pursue direct lending in the core middle market?
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing