A group of institutional investors is pressing the Securities and Exchange Commission to reconsider letting companies omit shareholder proposals relating to workplace issues from their proxies.
The SEC, in an informal ruling, allowed such proposals to be omitted, claiming all workplace issues but executive pay are ordinary business matters.
But the group submitted a formal petition to the SEC, asking the agency to rewrite its rules its rules so companies cannot exclude from their shareholder ballots any request "with significant policy, economic or other implications ..... solely on the grounds that it relates to the employment practices of the company."
The Interfaith Center on Corporate Responsibility, a New York-based coalition of religious investors, the Calvert Group Ltd., a Bethesda, Md.-based mutual fund company, and New York Comptroller Alan G. Hevesi, are spearheading the effort. More than two dozen other institutional investors signed the petition.
At the SEC, the division of corporation finance will make a recommendation on the group's request; the full commission then will take up the division's recommendation, said Beth-ann Roth, associate general counsel at the Calvert Group, who drafted the petition.
The investors' petition stems from the SEC's decision more than two years ago letting the Cracker Barrel Old Country Store Inc. exclude a shareholder proposal from its proxy on the company's discriminatory employment practices. The New York City Employees' Retirement System lost a court battle earlier this year attempting to overturn the SEC's ruling in that case.
Members of the Council of Institutional Investors, an influential Washington-based organization representing many of the country's largest pension funds, also want the SEC to more clearly define the workplace issues companies can exclude from proxies.
Because of corporate management efforts in the past to limit debate over issues shareholders consider to be important, the SEC has, in the past, ruled companies may not exclude shareholder proposals under the rubric of "ordinary business" if they deal with issues of significant policy, economic or other implications.
But the SEC's go-ahead to Cracker Barrel to exclude a shareholder proposal on hiring policies reversed that policy, Ms. Roth said. And the agency recently allowed BE Aerospace Inc., Wellington, Fla., to exclude a shareholder resolution following its victory earlier this year in the legal dispute with NYCERS.
The petition now seeks to ensure the SEC reverts to that earlier standard when evaluating shareholder proposals on workplace issues.
In its petition, the group suggested the SEC "acted improperly" in curtailing proposals dealing with workplace issues.
"The increased shareholder activity (in recent years) suggests that there are indeed significant policy issues at stake with respect to corporate employment practices," the petition states.
The group suggested the SEC either require companies to include all shareholder proposals dealing with workplace issues in their proxies or refuse to give companies advice on which proposals they can exclude.
And for companies, the cost of including shareholder proposals on workplace issues in their proxies would cheaper than having shareholders sue them to force inclusion of those proposals, the group's petition states.
This is not the first time institutional investors have recommended the agency change its rules governing the proxy process. In the early 1990s, the California Public Employees' Retirement System and the United Shareholders of America successfully petitioned the SEC to change rules letting large shareholders discuss proxy voting strategies among themselves without formally notifying the SEC first. The giant pension fund's efforts also resulted in an overhaul of executive pay disclosures companies must make in their proxies.
