Some institutional shareholders and large corporations want the Securities and Exchange Commission to allow certain shareholder requests on workplace issues and labor-sponsored proposals to be included in corporate proxies.
The Council of Institutional Investors, an influential Washington-based organization representing many of the country's largest pension funds, is drafting a proposal that would make the SEC's job of refereeing between companies and shareholders easier by clearly defining workplace issues that companies could keep off their proxies because they constitute ordinary, everyday business matters. The council's proposal also would aim to define for the SEC employee-shareholder proposals stemming from personal grievances or providing "disproportional benefits" to proponents that the agency could let companies scratch off their proxies.
The council's lawyers will begin drafting this proposal soon, said Jon Lukomnik, New York City deputy comptroller for pensions.
The council's effort has been spearheaded by the $55 billion New York City Employees' Retirement System. Earlier this year, the fund lost a nearly two-year court battle over the SEC allowing Cracker Barrel Old Country Store Inc. to omit a proxy proposal on the company's discriminatory employment policy involving gays and lesbians.
Meanwhile, labor unions, incensed by the SEC's decision last year to let Dow Jones & Co. keep what they viewed as two legitimate shareholder proposals off its proxy, also are playing an active role in the council's effort. The proposals had asked the company to link executive pay to that of rank-and-file workers.
"People would be happy with some return to a status quo ante prior to the Cracker Barrel and Dow Jones" cases, said Mr. Lukomnik.
"The current (shareholder proposal) system works fairly well, and in the two narrow areas in which it doesn't work as well as it should, a much narrower, honed medicine was called for," Mr. Lukomnik said.
The SEC's ability to let companies keep shareholder proposals off their ballot was tested again earlier this month. The SEC allowed BE Aerospace Inc. to withhold a proposal fielded by the New York Employees' system asking the company to comply with the MacBride Principles. The MacBride Principles, developed by the Irish National Caucus and the New York City comptroller's office in 1984, ask American companies operating in Northern Ireland to ensure their work force adequately represents minority religious communities and their workplaces are free from displays of sectarianism.
BE Aerospace subsequently agreed to include the proposal on its proxy after the retirement system threatened to sue the company.
"We are ready to go to court to defend our rights as shareholders," said Patrick Doherty, director of investment responsibility at the New York City fund.
Institutional shareholders were particularly incensed by the SEC's decision in the BE Aerospace matter because the agency routinely had permitted such proposals to go on a company's proxy in the past. After the 2nd U.S. Circuit Court of Appeals' ruling earlier this year upholding the SEC's decision in the Cracker Barrel case, the agency now apparently has decided companies may exclude all employment-related shareholder proposals from their proxies. SEC officials declined to discuss the matter.
Plus, proposals on the MacBride Principles have tended to garner about 13% to 14% of shareholder votes in recent years, higher than what other social proposals typically receive, said Kenneth A. Bertsch, director, social issues program at the Investor Responsibility Research Center, Washington.
"This kind of decision is really distressing," said Timothy Smith, executive director of the Interfaith Center on Corporate Responsibility, a New York-based coalition of religious investors. "Whether it is Northern Ireland, or equal employment opportunities in this country, the SEC is saying it's all one thing - it's all employment-related," Mr. Smith noted.
Meanwhile, the council's proposal ends months of contentious debate within the organization on how best to revamp the SEC's shareholder proposal process to allow shareholders greater access to annual corporate proxies.
Council members representing corporate pension funds were willing to give up some of the grounds the SEC can use to let companies keep shareholder requests off of their proxies - those pertaining to ordinary business matters, to issues marginally affecting a company, or grounded in a personal vendetta. But representatives of labor unions and religious groups adamantly refused to agree to a cap of three shareholder proposals in a proxy.
Permitting a broader range of issues to go on corporate ballots would result in proxies looking "like the yellow pages," said Michael Goodman, spokesman for the American Society of Corporate Secretaries, New York. But institutional shareholders saw the cap as an effort to rein in their access to the company's proxy through which they can air their concerns.
Responding to the failure of council members to reach a consensus on a broader overhaul of the shareholder proposal process, SEC Commissioner Steven M.H. Wallman said: "The current system does not work well." The ability of shareholders to present proposals on a whole range of issues that relate to the business of a company, he said, is currently limited by securities rules that permit the SEC to let companies exclude certain shareholder requests off their proxies. "The ability of shareholders to put in proposals on these issues (especially relating to ordinary business matters) is something that I would have hoped shareholders would care the most about," he said.