Shareholder activist John Chevedden detects a trend this year (2000) for the SEC to uphold company exclusions of shareholder resolutions on corporate governance matters on narrow grounds. These exclusions may fit the letter of the law, but they often fly in the face of good governance and shareholder rights.
For example, according to Chevedden, at American Airlines’ parent AMR, the SEC ruled that since AMR already had a (weak) standard of independence for directors on key committees, a proposal to adopt the higher standard of the Council of Institutional Investors could be excluded. At Boeing, the SEC ruled a similar proposal could be excluded because the company claimed it was beyond the power of the board to implement.
At Southwest Airlines, the SEC ruled that a proposal submitted by two separate co-sponsors could be excluded because one of the co-sponsors did not have good cause for failing to present a proposal at the previous annual meeting. The second co-sponsor was not involved in any way with the previous year’s proposal. Chevedden believes the cure should have been to remove one co-sponsor and allow the proposal to go forward on shoulders of the second co-sponsor.
At Northrop Grumman—what is it about aviation companies?—the SEC excluded the resubmission of three resolutions that received 49 percent, 63 percent and 64 percent shareholder approval in 1999. The SEC ruled that because the resolutions contained a few words before "RESOLVED," all three resolutions could be excluded. This issue could have been settled by giving the proponents seven days to reduce the word count.
At TRW, the SEC completely excluded a proposal for annual election of all directors because a supplementary part of the resolution, concerning reinstatement of a staggered board, could violate state law. The resolution could have been cured by replacing three words. Moreover, the SEC had dismissed the same argument from TRW and ruled the supplement acceptable for the 1999 proxy.
Chevedden’s key point is that the SEC should allow such resolutions to be cured, rather than allowing their total exclusion. I couldn’t agree more and have had similar experiences.
with the Corporate Governance NETwork!
Contact: 
jm@corpgov.net
All material on the Corporate Governance site is copyright © since 1995 by Corporate Governance and James McRitchie except where otherwise indicated. All rights reserved.
Back to the top