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PROXY Governance, an independent provider of proxy analysis, automated global voting and US compliance services, will sponsor a forum on whether hedge fund activism is creating long-term shareholder value. The event is free and will be held from 2:15 p.m - 3:15 p.m. on March 31 in the Degas Room of the L'Enfant Plaza Hotel in Washington, D.C., immediately following the closing luncheon of the Council of Institutional Investors (CII) Spring Meeting at the same hotel.

PROXY Governance founder and former SEC Commissioner Steven M.H. Wallman will moderate the discussion. These participants include:

• Jesse Eisinger, writes the Long & Short column for the Wall Street Journal and covers hedge funds and hedge fund activism extensively.
• Sebastian E. (Sam) Cassetta, Executive Vice President and Chief Operating Officer of The Barington Capital Group. Barington is a leader in "activist" investing, and has consistently been ranked in the top 6 in the "Event Driven" category by HedgeFund.Net.
• Andrew E. Shapiro, Founder, President and Portfolio Manager of Lawndale Capital Management, LLC, a hedge fund advisor that employs a unique, highly focused relational investing approach to small-cap companies aimed at creating and unlocking shareholder value.
• Richard Ferlauto, Director of Pension and Benefit Policy forAFSCME where he is responsible for representing public employee interests in retirement and benefit systems.
• David C. Chavern, Vice President and Chief of Staff of the US Chamber of Commerce. Serves as Director of its Corporate Governance Initiative.
• Donald C. Langevoort, Professor of Law at Georgetown University and previously special counsel in the Office of the General Counsel of the Securities and Exchange Commission.

According to Wallman, areas of discussion will include:

• Track record: how effective have hedge funds been in creating long-term shareholder value?
• Does the investment time frame of hedge funds make their interests different from those of long-term shareholders?
• A comparison of hedge fund objectives and tactics with those of other activist shareholder groups. How effective are they in building continuing value for shareholders?
• Have hedge funds produced better managements and corporate governance?
• The impact of hedge funds on the activism styles of other fiduciaries.

The L'Enfant Plaza Hotel is located at 480 L'Enfant Plaza, SW, Washington, DC 20024.
Contact: Susan Assadi or Angela Jamison
Gitenstein & Assadi Public Relations
800-922-8792 or 480-860-8792

Ownership Society

Fortune magazine reminds us that with all the hoopla over the democratization of the stock market and Bush's "ownership society," the latest (2004) Federal Reserve data show that only 48.6% of US households own any stock. Of those who do own stock, the median holdings are $24,300. Two-thirds of all stock market wealth is held by 5% of the population. (A Quiz for Capitalists, 4/3/2006)

Kevin Zeese, director of Democracy Rising, argues that employee-owned businesses should be the future of American corporations as part of an effort to transition the United States to an ownership society – a society where all Americans can share in the wealth of this great nation. Treasury Secretary Snow has suggested that the Employee Stock Ownership Program (ESOP) tax-incentive program be ended. The total worker holdings, according to the National Center for Employee Ownership (NCEO) was $800 billion in 2002 – 8% of U.S. corporate stock. Should we be going backwards?

A 2000 study by Joseph Blasi and Douglas Kruse at Rutgers University, found that ESOP companies grow 2.3% to 2.4% faster than would have been expected without an ESOP for sales, employment, and sales per employee. They also found a 14.8% improvement in productivity. A 1987 NCEO study of 45 ESOP and 225 non-ESOP companies found that companies that combine employee ownership with a participative management style grow 8% to 11% per year faster than they would otherwise have been expected to grow based on how they had performed before these plans.

Zeese reminds us that the importance of all Americans participating in an 'ownership society' goes back to Thomas Jefferson. In his draft of the Virginia Constitution he included a provision that every person of voting age “neither owning or having owned 50 acres of land shall be entitled to an appropriation of 50 acres.” He understood that a democracy based on private property rights required a democratic economy. (Time to Replace Wage-Slaves with Employee Owners, American Chronicle, 3/22/2006)

Suggested sample letters to protest a recommendation by the Advisory Commission on Tax Reform that employee ownership through employee stock ownership plans, or ESOPs, be eliminated.

Active Share Ownership in Europe

EuroSIF, the European Social Investment Forum, released its 2006 European Handbook entitled "Active Share Ownership in Europe" for institutional investors, especially pension funds. The Handbook is to help them manage social, environmental, ethical and corporate governance risks across investment portfolios. Like the Enhanced Analytics Initiative, the aim is to increase extra-financial research.

Asian Americans Face Barriers

Although the US has approximately 5 million Asian Americans in the work force, about 4.4% of the labor force, they hold less than 1% of senior management positions, with Asian American women holding 0.25%. The problem sure isn't lack of education. While 27% of Americans in the workforce have a college degree, 50% of Asian Americans do and 19% have advanced degrees. There are even more Asian Americans in managerial and professional roles, 39.3% compared to 33.2% for whites. Still, they can't seem to break through to senior management.

A survey on American attitudes toward Asian Americans found that 25% have strong, negative attitudes toward Chinese Americans: 23% reveal they would be uncomfortable voting for an Asian American for president, compared to 15% for an African American and 14% for a woman. In Corporate America, 7% say they would not want to work for an Asian American CEO, compared to 4% for an African American and 3% for a woman.

Although 77% of 1,216 Americans surveyed said they believe that Chinese Americans are honest business people, 32% felt that Chinese Americans would be more loyal to China than to the US. Discrimination may lead to a brain drain. In 2004, more than 20,000 Chinese émigrés went home, up from 5,800 in 1995. Up to 1,000 people from different countries, in scientific, medical and technological disciplines, leave the US every day.

To stem the tide, Intel set up a program of behavior seminars, speakers and meetings with management. At GE, CEO Jeffrey Immelt has attended at least four meetings of its Asian Pacific American Forum, a mentoring group. (Fighting the Glass Ceiling, Chief Executive, 1/25/2006)

Shareholders should be advocating for change, since studies show that companies with greater diversity have higher rates of return (for example, see Corporate Governance, Board Diversity, and Firm Performance, by Carter, Simkins and Simpson, March 2002). This might be especially true for Asian-Americans, who might be better equipped to build business connections to fast-growing Asian businesses and economies.

King to Evaluate UN Governance

Mervyn King, who chaired the King committee on corporate governance in South Africa, has been elected chairman of a high-level steering panel to evaluate governance at the United Nations (UN). King’s panel will oversee the work of 30 staff from accounting and auditing firm PricewaterhouseCoopers. It will report by the end of May. King will aim at establishing whether there is a gap between current practices and best international practices and will take corrective measures. (King to tackle UN governance, BusinessDay, 3/24/06)

Blog News Sample

Highlights of the 2005 Directors’ College held October 26-28, 2005, at the University of Delaware have been posted online. Lucian Bebchuk has posted his Letting Shareholders Set the Rules. (Professorbainbridge.com)

The US Supreme Court limited the ability of shareholders to bring so-called "holders" class action lawsuits in state court. (perhaps easier to read at FindLaw.com) Here's the latest advice from a sell side research analyst. (TheCorporateCounsel.net Blog)

Lockheed Martin reports that its top executives were given higher salaries and bonuses to offset performance payments that were not triggered because of the company’s sub par performance. Top execs at North Fork Bancorp will receive a combined $288 million when the bank is acquired by Capital One Financial. Using a compensation benefit called a “tax gross-up,” their taxes owed, as a consequence of their accelerated options, will be paid by the company. (Governance Notes)

CEO pay [in 2004] was 431 times greater than that of the average non-management worker in the United States… Although internationally there has been a trend towards increased executive pay, according to a 2001 report by management consultants Towers Perrin, the same ratio was 25 to 1 in the case of the UK, 16 to 1 in France, 11 to 1 in Germany and as low as 10 to 1 in Japan (as compared to 531 to 1 in the US that same year). (Corporate Governance Leadership Blog)

SEC appears reluctant to issue "no action" letters when the corporation indicates they are implementing a variation of a shareholder resolution unless the matter has been, or will shortly be, put to a shareholder vote. (ISS Corporate Governance Blog)

"Wal-Mart resists efforts in Congress to dramatically tighten port security in the wake of Dubai-ports furor. The company argues examining all containers, or even a fixed percentage of them, could impede shipping and boost costs." Simon Billenness gives Wal-Mart a week or so to weather the ensuing storm of criticism before it issues a public statement of support for better port security. He also expects to complain of being "misquoted" or "taken out of context" by the Wall Street Journal. (Pot of George)

Of the companies currently offering a defined benefit pension plan, 37% are considering a change to their plan, such as freezing it or converting it to a defined contribution or cash balance plan, and more than half expressed concerns about rising PBGC premiums. (NewsDash)

On 17-Feb-06, the Stock Exchange of Hong Kong Ltd (SEHK) announced what it called "minor and housekeeping amendments" to the Listing Rules. Why such an innocuous title? Because it did not go through any public consultation process before making the amendments to roll back the disclosure on large "accounts receivable." (Blackout on Receivables, 3/24/2006)

Publisher's note: When I started this site more than 10 years ago, I could literally search the entire web and read everything new posted on the topic of corporate governance once a week in a few hours. Now, it is nearly impossible to even keep up with the blogs, let alone all other sources. If you see items that should be posted on our news page, especially those with long-term policy implications, please e-mail me. One set of eyes is no longer enough.

Whitworth Joins Sovereign

Sovereign elected Ralph V. Whitworth, a principal of Relational who has been critical of the bank's actions for months, to the board and agreed to renominate him to another three-year term at its annual meeting later this year. It will also elect another independent director selected from a Relational-approved list of five people. (Sovereign Bank Settles Dispute With Shareholder, 3/23/06) (Analysts react to Sovereign's 'win'; Seidman says deal good for other activist investors, SNLi, 3/23/2006) Broc Romanek Editor of TheCorporateCounsel.net interviews Rich Koppes, former General Counsel of CalPERS and now at Jones Day, provides some analysis – and personal experience – regarding the placement of an independent director by investors on a board. (podcast)

Ties that Bind

Since late last year, Amgen, Staples, and Bristol-Myers Squibb have joined PepsiCo, Coca-Cola and Eli Lilly in posting political contributions on their websites. "Risk is important — the risk to shareholders, the risk to companies, the risk to directors," said Bruce Freed, co-director of the Center for Political Accountability, which has championed the cause.

Current campaign finance law allows corporations to make donations in many states and to political committees commonly known as 527s, but not to federal candidates. However, companies aren’t required to disclose political contributions made with corporate funds, leaving institutional and individual shareholders in the dark about what political activities their corporations are supporting.

In the 2004 election cycle, companies contributed more than $75 million in soft money at the federal level. According to the CPA, some of the contributions have gone to political activities that conflict with a company’s publicly stated policies and practices.

Institutional Shareholder Services, whose recommendations can swing votes 20%, will consider supporting political disclosure resolutions at annual meetings this year at more than 40 companies, including Home Depot Inc., General Dynamics, Boeing, Wyeth and Citigroup. In a survey last fall, 65% of investors told Institutional Shareholder Services that they viewed full public disclosure of a company's political contributions as important or very important. (More Firms' Political Ties Put Online, March 20, 2006)

Maybe if corporations had been disclosing contributions to Jack Abramoff, Tom DeLay and Randy "Duke" Cunningham shareholders would have had the nerve to speak out.

Google Launch

Google has beta launched a new financial website that offers news on stocks and mutual funds, quotes, chat rooms, charts and links to blogs. Unlike other established financial news websites, such as Yahoo! Finance and CNN, the new Google financial portal does not publish proprietary information or have its own editorial staff. Instead, it culls information from 4,500 news sources, including Reuters, Hoover's, Morningstar, Interactive Data and Revere Data. Let's hope discussion in the chat rooms is more intelligent than I've seen on Yahoo! and elsewhere.

Bush Administration Claims to Reward the More Productive

Treasury Secretary John Snow recently told the Wall Street Journal the widening gap between high-paid and low-paid Americans reflects a labor market efficiently rewarding more productive people. "What's been happening in the United States for about 20 years is [a] long-term trend to differentiate compensation," Mr. Snow argues. "We've moved into a star system for some reason which is not fully understood. Across virtually all professions, there have been growing gaps."

Defending the administration, Snow argued that after-tax income per person, adjusted for inflation, rose 8.2% from January 2001, when George W. Bush took office as president, through January 2006. Per-person net worth rose 24%, unadjusted for inflation, from early 2001 to the end of 2005. "People have more money in their pocket" and in their bank accounts, he said.

Yet, even WSJ points out that Snow's optimistic presentation relies on averages skewed by big gains among the wealthiest. Census Bureau data show median family income -- half of families have income greater than the median, half have less -- fell 3.6% from 2000 through 2004. Federal Reserve data found median family net worth rose 1.5%, after inflation, from 2001 through 2004, far less than the 17% increase from 1995 to 1998 and the 10% increase from 1998 to 2001. Incomes for the poorest families fell even further. The only group to actually gain during the 2001 through 2004 period were families already in the top 5%. (Snow Defends President's Handling of Economy, WSJ, 3/20/06)

Snow's statistics remind of Robert Reich's famous statement, "every time you hear somebody talk about averages, in this economy, watch your wallet, because the average doesn't tell the most interesting and most important story. The basketball player, Shaquille O'Neal and I have an average height of 6'1." The fact is that Reich is short and most Americans are getting poorer under Bush.

Growth of CEO Pay Slows

Executive pay growth in the US has slowed sharply, according to The Corporate Library, in spite of record profit growth. CEOs took home "only" 11% more money in 2005, compared with a 30% in 2004. Among the 500 largest companies, median total reported compensation rose by just 3.7% in 2005 to $5.2 million.

Pat McGurn, of ISS, said this coming year would prove the acid test for those who argue that improved corporate governance automatically leads to lower executive pay. “The SEC can bring you to the water, but it is up to investors to fix things,” he said.

It is trure that activists, such as those running union pension funds, are shifting their attention, proposing resolutions that will make it easier for investors to nominate directors to compensation committees or vote on approving remuneration, as is common in the UK and Australia. (Executive pay rises show big slowdown in US, FT.com, 3/19/06)

A survey of 100 CEOs by the Business Roundtable suggests that leading corporations are taking corporate governance more seriously. 57% have increased pay-for-performance elements in CEO pay packs, up from 40% in 2004. Nearly all have stock-ownership requirements or guidelines for executives and directors. 91% of the companies have an independent chairman or lead director, up from 71% two years ago.

Charles Elson, director of the University of Delaware's Weinberg Center for Corporate Governance, said the survey shows that companies "have made progress, but we still have a long way to go." Pay-for-performance has long been required. The bigger issue is, how is their pay structured? Governance experts like Elson want to see pay tied to 5-10 year goals, not short-term investment return that is more easily manipulated. (CEOs report stricter rules, USA Today, 3/19/2006)

Elson said companies are improving their governance because of pressure from pension funds, labor unions and regulators, plus court rulings that make directors liable for not policing their firms. Most aren't doing it on their own initiative. Most of the recent SEC reforms have come in the way of increased disclosure. Corporate reforms have frequently been in terms of voluntarily adopted policies. For example, barely 11% in the Business Roundtable survey have split the chairman and CEO positions and even those that have can easily go back to the combined CEO/chair model that still predominates.

McGurn is right, if the SEC rule requiring additional pay disclosures is adopted, that won't necessarily lead to solving the pay problem. However, his statement that "it is up to investors to fix things" implies they have the power to do so, when there still has been no real shift in power. The closest we have come to an actual shift has been the growing movement to require election of directors by majority vote. However, even here, many of the changes have been as a result of a shift in policy, not through binding bylaw amendments. More importantly, even majority requirements only allow Investors to "throw the bums out" in egregious cases. It doesn't allow them to efficiently propose alternative directors.

Majority Vote Update

Majority vote proposals received a 35% vote at Analog Devices, 31% at Ciena, and 45% at Hewlett-Packard; each had adopted a director resignation policy in advance of their annual meetings. The Council of Institutional Investors has received 65 responses to their request for companies to adopt a majority vote standard from companies indicating they had adopted a form of majority voting. Well over 100 said the Council's request would be taken under consideration at an upcoming governance committee or a full board meeting. TheCorporateCounsel.net lists about 75 companies with a pure majority vote standard (that # likely is comprehensive for that category) and another 50 with a director resignation policy. Don't forget about their March 28th webcast: "Practical Considerations: Implementing a Majority Vote Standard."

ISS Webcast on March 21

ISS will offer a complimentary webcast on March 21 at 11 am EST to provide an understanding of how governance practices influence investor perceptions of your company.

Speakers include:

• Jill Lyons, EVP and head of ISS' Corporate Services division, who will share current corporate governance trends at small cap companies.
• John Deosaran, ISS' VP of Corporate Ratings, will provide insight into the corporate governance behaviors that are most important to institutional investors. John will also demonstrate how institutional investors use corporate governance ratings within their portfolio analysis and investment decision-making. (register)

Giving the Money Back

The First Church of Christ, Scientist is making the first voluntary contribution to the SEC's Fair Funds program, created as part of the 2002 Sarbanes-Oxley corporate governance law. The church is donating $2.3 million, which it received as a gift from a follower later charged in an investment scam. The money will now go to victims of the fraud. (Boston Church Returns a Tainted Donation, NYTimes, 3/18/06)

Good Companies Finish First

The Corporate Library researched 2,100 companies and found that stocks of well-governed companies returned an average of 15% for the 18 months that ended Dec. 31, 2005, compared with 12.5% for the overall market. Reshma Kapadia, writing for WSJ, also reports that "companies that treat employees fairly also do well in the stock market, in part because good morale yields better sales per square foot, lower defection rates and higher customer satisfaction." Based on these results, Kapadia recommends PepsiCo, Colgate-Palmolive, Agilent Technologies, and Microsoft. (Stocks Reward Firms' Good Behavior, 3/19/06)

Managing Diversity and Bridging Disparity

The latest edition of Corporate Governance: International Journal for Enhancing Board Performance arrived in my mailbox this week. This small publication plays a big role in highlighting corporate governance and related developments in emerging markets, especially India. I was particularly drawn to the opening article by Madhav Mehra, President of the World Council for Corporate Governance, on the "powder kegs of 2006" and how businesses can build trust.

While the World Economic Forum conference in Davos focused on emerging market opportunities (the flow of investment to emerging markets jumped from $31 billion in 1990 to $167 billion in 2005), especially in China and India, Mehra says business could be in for "shock and awe." Large imbalances between and within countries create breeding grounds for unrest. In 2005, China faced 87,000 riots and demonstrations, in part because rural areas development has been passed over. In both India and China corruption has siphoned off resources allocated for rural uplift.

Madhav looks to global corporations to contribute solutions. "We must change our models of dialogue, debate and democracy. The Socratic model of adversarial debate aimed to demolish opponent’s argument rather than exploration and understanding of each other’s beliefs and perceptions is unsuitable in the complex world of the 21st Century where there may be many aspects of the same truth. We have to move from monologues to dialogue and learn to value dissent, difference and diversity. This is the only way to have constructive engagement with all stakeholders. We have to use transparency and disclosure to rebuild trust with local communities.

While November’s unrest and arson attacks affected many suburbs around Paris, the town of Issyles-Moulineaux to the south capital was largely spared. There, Mayor Andre Santini has bet heavily on technology infrastructure in a successful bid to attract international firms such as Hewlett-Packard and Cisco Systems. He’s also used technology to interact more openly with Issy’s 63,000 residents. Issy was the first French town to start an internet-based local TV service, and last December it held an online election for councillors for Issy’s four districts. Candidates campaigned via their own blog pages and discussed issues with voters through the town’s website. Such measures have bolstered Santini’s local support and he won a landslide victory in the last municipal elections.

Global corporations today have to face new geopolitical realities. It is their neck on the chopping block. Their constituency is global. So they must have global mindsets. They have to become the drivers of both social and political agenda and use technology to co-create entrepreneurial solutions to the intractable problems of peace, poverty and pollution. Having cried hoarse all along for minimising the government role in corporate agenda they cannot bank entirely on the governments. The discontent stemming from inequality and injustice provides a lush recruiting ground for the evil ideologues and can spell doom for the businesses. Their biggest challenge today lies in managing diversity and bridging disparities for their own survival. Alternative is chaos and anarchy."

Chevedden Report: NiSource Prompted to Declassify

NiSource Inc. (NYSE: NI) announced the company will hold its Annual Meeting of Stockholders at 9 a.m. Central Daylight Time on Wednesday, May 10, 2006, at the Inn at the Ballpark in Houston, Texas. The company is proposing an amendment to its Certificate of Incorporation to declassify the board of directors. This change to the company's charter would provide for annual election of all directors. Currently, board members are elected to three-year terms, with approximately one-third of the board elected each year.

If stockholders approve the proposed charter amendment, the annual election of directors would begin at the 2007 annual meeting. If the stockholders do not approve the proposal, the board members would remain in their current three-year staggered terms.The NiSource Inc. (NI) March 13, 2006 preliminary definitive proxy has declassification of the board as company proposal 3. The company proposal was probably triggered by Ray T. Chevedden's submission of a declassify proposal for 2006. Mr. Chevedden's 2005 declassify proposal won a 74% yes-vote at NI. (press release, and communication from John Chefedden)

CalSTRS A: CalPERS F-

Californians Aware, a nonprofit that promotes government disclosure and the First Amendment, recently audited 31 state agencies and found public records violations ranging from illegally requesting information from the public to taking too long to release basic public information.

CalSTRS rated an A in providing information required under the Public Records Act and Political Reform Act. CalPERS got and F-.  Good governance should apply to institutional investors as well.

Just Say No: Just Beginning

Over 120 companies have some form of majority voting in place, according to the Council of Institutional Investors, with 73 of them adding the changes over the past 14 months. Trade unions are targeting another 120 companies during this year's proxy season. Arguing against such proposals appears to be futile (perhaps because Americans really do believe in democratic values). "If you have a proposal, just live with it, adopt it and take the high ground," says Chuck Nathan, an attorney at Latham & Watkins in New York. Nathan adds that compensation committees who approve excessive pay and perks could find themselves targeted. (Boardroom Defenestration, WSJ, 3/16/06)

Nomination committees could also find themselves targeted for rejecting candidates proposed by shareholders under a relatively obscure SEC rule that took effect on January 1, 2004. Disclosure Regarding Nominating Committee Functions and Communications Between Security Holders and Boards of Directors, requires corporations to disclose if their nominating committees have received a recommended nominee from a 5% shareholder or group and the disposition of that request.  Not only could they face "no votes," companies that reject such recommendations are likely to face bylaw proposals allowing for reimbursement of expenses in proxy contests where a dissident shareholder seeks to elect less than a majority of the board. AFSCME's proposals at American Express, Citigroup and Bank of New York will go to vote this year. Under the proposals, dissidents who succeed would be fully reimbursed. Losers could receive partial reimbursement if thresholds are met.

More Split CEO & Chair Positions

Claudia H. Deutsch, writing for the New York Times, reports that 29% of the companies in the S&P have separated the jobs of CEO and board chair, up from 21% five years ago, according to Russell Reynolds Associates. Directors approve, with 59% saying they like the idea which has long been supported by the Council of Institutional Investors.

Splitting the roles "sends a signal to the outside world that the board really cares about governance," Ms. Dunn, the Hewlett-Packard chairwoman, said, "and to the senior-level staff that they are responsible for providing information to the board, not just to the C.E.O." (Fewer Chiefs Also Serving as Chairmen, 3/17/2006)

CalPERS Seeks Environmental Risk Disclosures

The California Public Employees' Retirement System (CalPERS) has announced new efforts to gather information on corporate production of greenhouse gases and other environmental threats, identifying companies in the transportation, utilities, and oil and natural gas sectors that fail to meet minimum standards of environmental data disclosure, according to an Investment Committee report. The $199 billion pension fund said it also will follow a new corporate governance guideline in acting on shareowner proposals for the timely, accurate reporting of environmental risks - especially those associated with climate change. (PlanSponsor.com, NewsDash, 3/1506)

H-P Shareholder Declares Partial Victory

Nick Rossi's submittal of the following proposal on the H-P March 15 annual meeting ballot triggered H-P to adopt the Recoup Unearned Management Bonuses Policy listed below Nick Rossi's proposal. Nick Rossi's proposal 5 is still relevant because it calls for a higher standard than the new company policy.

Alternate contact at the March 15 H-P meeting: John Chevedden 310-371-7872

Stockholder Proposal 5—Recoup Unearned Management Bonuses
Resolved: Recoup Unearned Management Bonuses. Shareholders request our board to adopt a policy whereby, in the event of a significant restatement of financial results or significant extraordinary write-off, our board will review all bonuses and any other awards that were made to senior executives on the basis of having met or exceeded specific performance targets during the restatement period and will recoup for the benefit of our Company all such bonuses or awards to the extent that the specified performance targets were not achieved and focus on those employees most responsible. This would include that all applicable employment agreements adopt enabling text in an expedited manner as soon as feasibly possible and/or retroactively.

In response to Nick Rossi's resolution and upon the recommendation of the HR and Compensation Committee, the Board has implemented a policy that accomplishes many of the underlying goals raised by the proposal. In particular, the policy provides:

In the event of a significant restatement of financial results, our Board will review all bonuses that were made to senior executives on the basis of having met or exceeded specific performance targets for performance periods beginning after December 31, 2005 which occur during the restatement period. If such bonuses would have been lower had they been calculated based on such restated results, the Board will, to the extent permitted by governing law, seek to recoup for the benefit of our company all such bonuses to senior executives whose fraud or misconduct resulted in such restatement, as determined by the Board. For purposes of this policy, the term "senior executives" means executive officers for purposes of the Securities Exchange Act of 1934, as amended, and the term "bonuses" means bonuses and awards
under the Pay-for-Results Program and the Long-Term Performance Cash Program. (From page 31 of the H-P annual meeting proxy booklet)

ABA Committee Issues Majority Vote Report

I found it reported first, like many other important corporate governance news items, on Broc Romanek's daily blog. The ABA committee released its report containing proposed amendments to the Model Business Corporation Act. The Committee concluded that “failed election” consequences make it unwise to change the statutory plurality default rule. Instead, they recommend a statutory framework to facilitate individual corporate action.

Under the proposal, shareholders or directors would adopt a bylaw providing for a form of majority voting, which would have the effect of not seating, for more than a 90-day transitional period, a director whose election or reelection has effectively been rejected by a majority of votes cast. The Committee proposes a statutory method to facilitate and enforce resignations tendered by directors.

The blog includes links to the report. ThecorporateCounsel.net, which Broc edits, is also sponsoring an upcoming webcast - "Practical Considerations: Implementing a Majority Vote Standard" - whose panel includes the Committee Chair Norman Veasey.

Pay Disclosures Won't Change Compensation

According to a poll conducted by Watson Wyatt, 70% said they do not plan to change their compensation programs in response to the SEC proposal, which would take effect with the 2007 proxy filings. Additionally, 48% don't intend to change their proxy disclosures this year. Watson Wyatt polled 112 compensation and human resource executives at large publicly traded companies in February.

"We believe many companies are taking a wait-and-see approach to the proposed rules," said Ira Kay, global director of compensation consulting at Watson Wyatt. "While some companies recognize their disclosures are inadequate, most want to see what the final rules entail and how other companies respond."

According to the poll, 61% think the rules will not improve corporate governance; 82% think their current compensation committee disclosures do not fully provide the information required under the proposed SEC rules; 71% believe the value their employees realize from stock options is less than their accounting costs. The SEC's proposal requires use of a company's accounting cost for stock-based compensation as the basis for disclosing the value of grants made during the prior fiscal year. (Press release, 3/14/06)

The Corporate Ethics Monitor

CorpGov.net has added The Corporate Ethics Monitor to our Stakeholders page.  Vincent di Norcia, a semi-retired Emeritus Professor of Philosophy from the University of Sudbury, who edits the publication, offers the following advice regarding corporate pensions in the January-February 2006 edition:

A major reform that responsible businesses should seriously consider is to vest ownership and trusteeship of the funds jointly in employees and the company. This means that each plan would have a joint employer/employee Pension Oversight Committee (POC), with elected employee/union reps.

Another answer is more detailed annual reporting on the state of the pension plan to employees and beneficiaries, including responsible investment practices and sustainability. The oversight committee could also offer financial education for employees as they approach retirement and for retirees.

Companies would have to negotiate with their POC for access to pension funds to help improve the company’s financial position. Executive compensation packages should moreover be treated the same as employee wages, and not be specially protected from creditors.

Businesses might also work with governments to ensure that employee pensions are easily transferable so as to support labour mobility, and to create a central Canadian Pension Regulatory Board, like the U.S. PBGC, to more effectively monitor and protect employee pension plans.

Firing for Cause Expands

A handful of big companies are making it easier to dismiss their CEOs without handing over big bucks. Walt Disney, ImClone Systems, and NCR Corp., among others, have devised new reasons they can fire their CEOs for cause. A leader terminated for cause usually can't collect severance.

But wait, what are the new causes? According to the Wall Street Journal "the additional grounds for dismissal often are relatively modest -- indictment for certain felonies, for example, instead of the more typical clause requiring that a CEO be convicted first." Yet, it is a step in the right direction says Nell Minow. "We're getting closer to the time when poor performance will be grounds for terminating for cause."

CEOs in 80% of the companies in the Standard & Poor's 500 have employment contracts or severance plan. They typically let directors dismiss a chief for cause in cases of deliberate neglect of duties, gross misconduct, a felony conviction or company-related fraud. However, WSJ points out the absence of a contract doesn't mean a deposed CEO will leave empty handed. They cite Joseph Galli Jr., who quit Newell Rubbermaid after failing to turn the firm around. Rubbermaid agreed to $4.6 million in separation payments. (Just Cause:Some Firms Cut Golden Parachute, WSJ, 3/13/2006)

Globalization, Governance and Terrorism Top Risk Concerns

Fund managers are increasingly factoring environmental, social and corporate governance (ESG) risk concerns into their investment decisions, according to Mercer Investment Consulting.

Globalization and corporate governance ranked as the top issues for almost two-thirds of 157 fund managers surveyed. Terrorism ranked third overall in issues of concern, with 41% citing it as a relevant factor in investment analysis. Australian fund managers were most concerned about terrorism with 67 per cent citing it as an issue, compared with 43% of US managers and 37% of UK managers. (Governance pressure grows, FT.com, 3/13/06)

Ethical Handicaps

Landon Thomas Jr. presents more evidence of the need to allow shareholders to place the names of their director nominees on the corporate proxy in A Path to a Seat on the Board? Try the Fairway. (NYTimes, 3/11/06) Golfing buddies who allow the CEO to finish a hole without a last short putt are the same "independent" directors who award golden parachutes for poor performance. Requiring a majority vote is a step in the right direction but it doesn't prevent the substitution of one bad candidate for another. We don't need independent directors; we need directors who are "dependent" on the approval of shareholders. 

According to Les Greenberg, of the Committee of Concerned Shareholders, this is a blatant example of a CEO "recruiting" his own BOD members --- the persons who are supposed to supervise him on behalf of Shareholders.  Ethical handicaps seem to extend beyond the fairways.  The Boardroom has become the new 19th hole for good cheer and fellowship.  The word to Shareholders is: "Four!"

Democratic Governance Reversal at WFMI

Bill Baue wrote the definitive article for SocialFunds.com on the debacle at the Whole Foods annual meeting. (Market Gags Shareowners at Annual Meeting, 3/10/06)

The decision by Whole Foods (WFMI) to prohibit presentation of resolutions placed proponents in a double bind. By SEC rules, they have to present their resolutions or be barred in subsequent years. Yet, WFMI denied them the ability to comply with this law.

Also offensive was CEO John Mackey's response to a resolution proponent that "if he didn't like it, he should buy stock in a different company." The Wall Street Walk is widely rejected by investors who think a company has potential. Investors, especially large institutional investors, are not about to cut and run when selling will drive the price down and certainly many believe WFMI has value. They will use their power to make changes...if they see a reasonable likelihood of success.

According to WFMI's Declaration of Interdependence, "It is our dissatisfaction with the current reality, when compared with what is possible, that spurs us toward excellence and toward creating a better person, company, and world." Those values have long been attractive to SRI funds. I've been a shareholder since 1993.

The Corporate Library, which assesses corporate governance, recently downgraded Whole Foods from "A" to "C" on its Board Effectiveness Rating, which covers "shareholder responsiveness." ISS says WFMI's corporate Governance Quotient is better than 64% of S&P 400 companies. Will this action bring down that score as well?

If WFMI is no longer a leader in responding to its shareholders, how long will they continue to be responsive to employees and shoppers?

WFMI is now in the Fortune 500. Its largest owners are mutual funds, banks, and capital management groups with little or no commitment to these values. The question shareholders must now ask is, do WFMI's recent actions represent a fundamental shift in the values that made this company great?

Shareholder Democracy May No Longer Be An Oxymoron, Says Fortune Writer

Marc Gunther chronicles progress toward democratic corporate governance in Fixing corporate boards. (Fortune, 3/9/06)

"Meaningless elections, where the outcome is decided in advance, fell out of favor after the collapse of the Berlin Wall -- except in corporate America. While shareholders get to vote every year for directors at the companies they own, their votes haven't meant a thing. That's now changing, and not a moment too soon." He then explains the growing shift to require that directors be elected by majority vote.

"Once directors know they can be voted out of office -- not to mention embarrassed -- by disgruntled shareholders, it stands to reason that they will do a better job than they have in the past of representing the interests of corporate owners. Who knows? They might even start to curb runaway CEO pay."

"Now voting against a director could have consequences -- especially if more institutional investors can be persuaded to take their oversight responsibilities seriously." It is a nice optimistic overview and the fact that it appears in Fortune is good. Yet, even if all corporations adopt majority vote requirements, we still have a long was to go to achieve anything approaching shareholder democracy. It would still be vote for the board/management candidate or vote them down. If shareholders vote them down, another board/management candidate takes their place.

However, combine majority vote requirements with AFSCME's campaign to amend bylaws to allow "for reimbursement of expenses in proxy contests where a dissident shareholder seeks to elect less than a majority of the board" and we really are making progress.

Kudos for CorpGov.net

Corporate Board Member named CorpGov.net as one of "20 Websites Every Director Should Bookmark." Apparently, they were taken with what can be found on our Links page.

Proxy Access, No; $ Access, Yes

American Federation of State, County and Municipal Employees (AFSCME) proposals to amend bylaws to allow "for reimbursement of expenses in proxy contests where a dissident shareholder seeks to elect less than a majority of the board" at American Express, Citigroup and Bank of New York will go to vote. Under the proposals, dissidents who succeed would be fully reimbursed. Losers could receive partial reimbursement if thresholds are met.

The SEC refused to issue "no action" letters. Rich Ferlauto, director of pension and benefit policy at AFSCME, says that, "In lieu of proxy access, reimbursement for solicitation expenses will give shareholders a needed leg up in the board room when it comes to confronting unresponsive and unaccountable boards." (Contested Election Reimbursement Proposal Clears SEC Hurdle, ISS Corporate Governance Blog, 3/9/06)

I have been pushing pension and SRI funds to utilize a relatively obscure SEC rule that took effect on January 1, 2004. Disclosure Regarding Nominating Committee Functions and Communications Between Security Holders and Boards of Directors, requires corporations to disclose if their nominating committees have received a recommended nominee from a 5% shareholder or group and the disposition of that request. 

Most have rejected use of the rule because, although the expense of assembling a group and choosing a candidate may be fairly minimal, so is the likelihood of success. AFSCME's binding resolution could offer just the hammer needed to provide nominating committee the inventive to cooperate. Short slate contests could be much more popular in just a few years. Corporate costs could be much greater than under a simplified rule that could have provided shareholders with access to the corporate proxy. This is BIG!

HP Sued

The Indiana Electrical Workers Benefit Trust and three funds run by the Service Employees International Union have sued the directors of Hewlett-Packard. They believe the severance package paid to ousted CEO Carly Fiorina, valued at $21.4 - $42 million, exceeded the maximum allowed under a 2003 board policy without shareholder approval. (HP shareholders want part of Fiorina's severance returned, CNNMoney.com, 3/8/06)

"The crux of the case depends on how one defines the bonus that Ms. Fiorina received under what Hewlett calls the long-term performance cash program. The three-year incentive plan, approved by shareholders in May 2003, provided bonuses to executives if certain financial targets were met. However, the plan stated that executives who were fired would not receive the bonuses." (Hewlett-Packard Sued Over Severance Pay, TheCorporateCounsel.net Blog, 3/8/06)

WFMI Aftermath

As expected, Whole Foods did not resolution proponents or their representatives an opportunity to present their proposals during the formal agenda.  In addition, Whole Foods did not announce percentage votes for any proposals.  They merely announced "passed" or "failed."  Needless to say, the three shareholder-sponsored proposals failed, although a company supported was something of a knockoff of John Chevedden's proposal 6 – so he is able to declare a small victory.

During the Q&A session, the Green Century representative made a statement expressing disappointment with the way the company was running the meeting.  In response, he was told that if we didn't like it, he should by stock in a different company, that they did this because they didn't want "a big circus" and that there was nothing unusual or unethical about it.

So there you have it.  Whole Foods is leading the fight for whole foods, whole people and a whole planet but against corporate democracy. At their annual meeting they essentially told investors they have no role in governing the company. Other than Phyllis Plitch's article for Dow Jones Newswires and coverage here, we have seen nothing. It would appear corporate governance practices only get attention when a stock goes into the tank.

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Corporate Governance to Rock West Coast

Stanford Law School will launch the Arthur and Toni Rembe Rock Center for Corporate Governance with a $10 million donation from venture capitalist Arthur Rock and his wife, Toni Rembe. According to reports, the gift is the largest of its kind.

As a venture capitalist, Rock funded Apple Computer, Fairchild, Intel and others. Rembe was the first female partners of the law firm, Pillsbury Winthrop, and is director at AT&T and Aegon and has been president of the Commonwealth Club and of the American Conservatory Theatre. "Investment is about trust,'' Rock said. "It's about knowing that the people investors entrust with their money are running ethical, transparent and effective businesses.''

The Rock Center will sponsor a series of programs to deepen the understanding of the governance process, enhance the quality of governance-related education, and improve the practice of governance around the world. The first of these programs, the "Governance and the Regulators" conference series, is scheduled in Washington, D.C., on April 3, and addresses the SEC's proposed executive compensation disclosure rules.

Among the Rock Center's other early initiatives are:

• A series of research programs designed to bridge the gap between theory and practice by, for example, studying the ability to predict the incidence of fraud, examining international trends in corporate governance, and exploring the future of the audit industry;
• A series of conferences for the press and judiciary on matters related to corporate governance;
• The creation of new teaching materials designed for business schools and practicing executives that emphasize the importance of compliance with the law in addition to more traditional materials relating to business ethics;
• The launch of an open source database that will provide timely, detailed, and sophisticated information about the governance characteristics of all major publicly traded corporations, including an ability to generate a wide variety of "governance scores," all of which will be transparent to users and offered at no charge to the public.

Stanford law professors Robert Daines and Joseph Grundfest will direct the multidisciplinary center, drawing on law, business, political science, economics and communications. Daines is a former investment banker at Goldman Sachs. Grundfest was a commissioner of the SEC from 1985 to 1990. He also currently serves as a director of Oracle and is a co-founder and director of Financial Engines, an investment advisory firm. (Stanford Law starts corporate governance center, SJMercury News, 3/6/2006; Stanford Launches the Arthur and Toni Rembe Rock Center for Corporate Governance, press release, 3/6/2006)

Women to Gain in Spain

The Zapatero administration's proposed Equality Act, passed on Friday by the Cabinet, guarantees a "balanced presence," no less than 40%, of women on electoral lists, in high government posts, and on corporate boards of directors. (Equality Act requiring 40% women corporate directors, The Spain Herald)

Dow Jones Coverage of WFMI

Whole Foods Market Inc. (WFMI) has developed a reputation as a green, progressive company but "has irked so-called socially responsible investors with a warning that they can't formally present shareholder resolutions during Monday's annual meeting," writes Phyllis Plitch in an article for Dow Jones (Stockholders Irked By Whole Foods' Stance On Presentations, WSJ, 3/6/2006).

Plitch quotes resolution proponents several times, as well as the e-mail I quoted several days from Erica Goldbloom, executive assistant in shareholder services denying proponents time to present during the formal business portion of the meeting "to improve the efficiency" of the meeting.

What also has some securities lawyers baffled is that Whole Foods' policy seems to be out of sync with federal securities regulations. Under the Securities and Exchange Commission's proxy rules, the proponent of a shareholder proposal or a representative "must attend the meeting to present the proposal."

Plitch was unable to get a response from WFMI either. They "didn't return e-mails or calls for comment Friday to confirm the policy or discuss how the meeting would be handled."

Check-Box to In-Depth Analysis

Stephen Davis and Jon Lukomnik write that a "New Era Era of Investing Could Change 'Factory Style' Voting." Most diversified institutional investors currently use a nearly standardized check-box model to vote thousands of proxies. Yes, hedge funds are different, usually focusing more on fundamentals, but Davis and Lukomnik hint of a new model on the horizon.

According to the authors, Hermes has the largest employer of corporate governance experts in the world, with 50 serving as resources. Hermes Equity Ownership Services offers a comprehensive and unified corporate governance overlay. From the Hermes website:

The premise underlying EOS is that companies with informed and involved shareholders are more likely to achieve superior long-term performance than those without. Being an involved shareholder is not about micro-managing or meddling in matters rightly the domain of the directors. Nor is it about compliance with a set of rules or box-ticking. Hermes aims always to represent to directors a shareholder's perspective on the company's financial and governance performance and to frame its discussions with companies in terms of long-term value creation and the pragmatic application of best practice guidelines.

The newest service provider, Governance for Owners (GO) - founded by former Hermes directors Peter Butler and Steve Brown, touts itself as "an independent partnership between major financial institutions, shareholders and executives dedicated to adding long-term value for clients by exercising owners’ rights." From their website, "there are two main product offerings:

The GO European Focus Fund invests in European public companies where value can be added through exercising owners' rights to address key structural or strategic governance weaknesses that have impaired company performance.

The GO Stewardship Service offers voting and underlying engagement services covering 700 European and 500 US quoted equities, combined with a more intensive programme of enhanced-value engagement on a conceptual 'portfolio' of clients’ investments.

Governance for Owners Group’s board members include an impressive lot, including founders Butler and Brown, Robert AG Monks (Chairman), and investor appointee Ronnie Armist. Monks is also Chairman of Governance for Owners USA Inc, where William Crist is Deputy Chairman and Peter Clapman is Chief Executive.

Davis and Lukomnik speculate that a "newfangled 'ownership industry" could perhaps one day "replace the factory-style investor voting so scorned by corporate executives. But be careful what you wish for this holiday season. It may ultimately be easier to identify and communicate with the proxy experts at funds that embrace this fresh style of high-touch engagement, but companies may have to work a lot harder to persuade them." (Compliance Week, January 2006)

My concern is that even these models, which I have little doubt will be successful, cannot capture all the benefit of their work. As GO indicates, "many investors do little in relation to their ownership responsibilities because they can ‘free ride.’ GO and its clients take ownership responsibilities seriously because they believe acting as an owner is a key driver of long-term equity returns. Essentially, the GO team involved in these relational share owner engagements includes experienced business executives who have credibility at public company board level."

Mark Latham describes the free rider problem, as it relates to proxy analysis, in his May 2005 working paper "Vote Your Stock" and the advantages of paying advisors with corporate funds, possibly based on a Proxy Advisor resolution.

Comprehensive analyses of proxy issues and complete vote recommendations for more than 10,000 U.S. companies are delivered by ISS's seasoned U.S. research team consisting of more than 20 analysts.” We can thus estimate about four hours of analysis per proxy, costing perhaps $2000 including ISS infrastructure costs. Considering the amount of money we shareowners pay CEOs and boards of directors who are elected and compensated based on our voting, and the amount of capital at stake in the typical company they manage for us, we should be spending more than $2000 to guide our voting.

All shareowners of a company can solve the free-rider problem by paying for voting advice as a group instead of one investor at a time. If we can pay with company funds, then all are paying together in proportion to the number of shares owned, thus in proportion to any benefit in share value from improved voting. We can thus balance total cost and benefit, and choose to spend much more than $2000 per proxy.

We can bet GO will spend substantially more than $2,000 andpartners will have a considerable stake in the companies with which they engage. However, think how much more could be accomplished if shareholders voted to hire a comprehensive service like GO, paying for analysis and advice with corporate funds. By joining together, shareholders could deny the free ride and reduce per stock costs for value-enhancing corporate governance reform.

Implementing a Majority Vote

Coming to a corporation near you, majority vote requirements for directors. Get prepared by listening to Practical Considerations: Implementing a Majority Vote Standard, presented by thecorporatecounsel.net on Tuesday, March 28, 2006, 2:00 – 3:00 pm, eastern time. This webcast will focus on the practical considerations and consequences of implementing a majority vote standard or director resignation guideline. Learn from companies that have faced majority vote issues and lawyers that have parsed all the relevant issues, including the Chair of the ABA’s Director Voting Task Force.

It Takes a Village

I Didn't Do It Alone: Society's Contribution to Individual Wealth and Success, spotlights successful entrepreneurs and concludes that the myth of self-made success is destructive to the social and economic infrastructure that fosters wealth creation. Selected quotes follow:

The mythology of self-made success would not be such a problem if it were a matter of simple personal self-delusion. But this worldview, held by many who hold great power and influence in our society, has serious consequences for the kind of society we have, and for our commitment to equality of opportunity.

The notion that wealthy individuals might have an obligation to pay something back to society is a radical departure from today’s individualistic, anti-government ethos.

A regulated global marketplace, with rules governing disclosure and accounting practices, is what gives investors the confidence they need to part with their money. The wealth possibilities depend on social institutions maintaining the investors’ trust.

Shame Doesn't Work

Writing for the NYTimes, Daniel Akst cites two recent developments. First, the Securities and Exchange Commission announced plans to make corporations more fully disclose executive pay. Second, a study by Mercer Human Resource Consulting found that more companies were imposing performance targets on the stock and options they granted to CEO's.

Akst believes, "any benefit from shining the cleansing light of day on executive greed will probably be outweighed by the inflationary effect of additional disclosure, which will provide more ammunition for executives and consultants seeking to justify additional increases." On pay for performance, "boards will find ways around the requirements if performance isn't up to snuff, and they will continue to bid irrationally for unduly coveted executives."

Lucian A. Bebchuk of Harvard and Yaniv Grinstein of Cornell found that from 2001 to 2003, pay for the top five executives totaled 10% of corporate profits at public companies. "It's a bizarre twist on the tradition of tithing, one that benefits the rich instead of the needy and conscripts America's shareholders as involuntary donors."

Akst ends by noting that shame doesn't seem to work anymore. "By offering lavish pay and perks that would make royalty blush, corporate directors today are perhaps unwittingly selecting CEO's for shamelessness and egotism rather than leadership." (Why Rules Can't Stop Executive Greed, 3/5/2006)

Perhaps this is symptomatic of our avoid taxes, take everyting you can get society. A 1999 survey by the Consumer Federation of America and financial services firm PrimericaSymptomatic. Overall, 27% of respondents said that their best chance to gain $500,000 in their lifetime is via a sweepstakes or lottery win.

Annual Meeting: Are You Ready?

Ralph Ward's Boardroom Insider warns, "Don’t be shocked if a shareholder walks up to the mike and asks the comp committee chair to explain the board’s compensation strategy this spring." He suggests companies shape a short presentation on the number of times the committee met and how pay is linked to performance. The chairs of audit, nominations/governance, and other key committees should prepare similar speeches. All board members should be present or expect harm to investor relations. (Q&A: Annual Meeting Spotlight For Committee Chairs?, March 2006)

With what appears to be happening at WFMI, I would also add, don't deny shareholder's their rights "in order to improve the efficiency of our annual meetings." Remember, shareholders own the company and should be treated with respect.

WFMI Denial of Rights Stirs Investor Attention

Whole Foods Markets stirred up a hornets nest when they informed proponents that they will not be able to present their resolutions that appear on the proxy at the annual meeting until the Q&A session, normally held after the vote is taken. Rule 14a-8(h)(3), requires that a proponent or representative of a resolution contained in the company proxy must not only attend the annual meeting, but must actually present the proposal.  If they do not, that proposal is barred from being presented again for a period of three years.

WFMI's annual meeting of shareholders is Monday, March 6, 2006 at 9:00 AM (CST) at the Austin Hilton Hotel. There has been a great deal of discussion, especially within the SRI community, which has a fortune invested in WFMI, about the need to stand up for shareholders.

Larry Dohrs, Vice President of Newground Social Investment, e-mailed that "company management has told shareholders -- the owners of the company -- that it is 'too busy' to allow a shareholder-sponsored resolution to be formally presented.  Is the senior management of Whole Foods really 'too busy' to allocate 180 seconds of time once a year to listen to a legally filed shareholder resolution, which has:
 
• Passed SEC scrutiny,
• Was printed at shareholder expense in tens, if not hundreds, of thousands of proxy booklets, and
• Which was mailed (also at shareholder expense) all around the world to every single shareholder?

WFMI's action "undermines the daily efforts of Whole Foods employees to promote and enhance the good name and reputation of our company.  It undermines the considerable and valuable good will that our company achieves through its promotion of socially responsible practices such as the encouragement of organic food production in this country. As investors and fiduciaries, we cannot stand by while this happens.  It is critical that our company employ the best corporate governance practices, not the worst."

Another prominent member of the SRI community, Bruce T. Herbert, President of Newground Social Investment e-mailed "even if the Q&A happened to be before the formal vote, throwing a proxy-item discussion into the Q&A (a) does not recognize the topic as a proxy item distinct from any idle curiosity expressed by a casual shareholder nor (b) properly acknowledge that the topic weathered a legal process that often (if not usually) included a challenge before and validation by the SEC."

I would not be surprised to see the number of resolutions on next year's WFMI proxy double. I, myself, would favor proposals that focus on enabling the ability of shareholders to hold directors accountable (majority vote) and at educating shareholders on proxy issues and good governance practices (proxy advisor). I submitted a proposal on hiring a proxy advisor in 1999, which received about 9% support. I believe such a proposal would fare much better next year, especially if WFMI goes ahead with its unprecedented procedural challenge to its current resolutions. Learn more about proxy advisor resolutions and "turbo democracy" at the Corporate Monitoring Project and Turbo Democracy.

Every e-mail I got on WFMI's action from shareholders (there were dozens) indicates they are determined to educate WFMI on good governance practices. None want to sell their stock and move on. All appear to believe engagement will make their good company even better. Perhaps WFMI's Declaration of Interdependence says it best: "It is our dissatisfaction with the current reality, when compared with what is possible, that spurs us toward excellence and toward creating a better person, company, and world."

Disclosure: The publisher of CorpGov.Net is a WFMI shareholder.

Ketchup Gets Shake

Fresh from success at Wendy's International, billionaire Nelson Peltzthe, has nominated a slate of five directors for the 12-member H.J. Heinz Co. board. Peltz gained credibility when Wendy's announced it would expand its board to include three directors nominated by Trian Partners and explore a sale of its Baja Fresh restaurant business. Trian Partners' stated goal is to invest in undervalued public companies and to work with management for improvement. Trian has not filed information disclosing how many Heinz shares it owns. (Billionaire attempting to shake up Heinz board, Pittsburgh Post-Gazette, 3/4/2006)

Boeing Victory for Shareholders

Investors have scored a huge victory. Boeing announced that two shareholder proposals have been adopted by the board. Tom Finnegan, Olalla, WA and Edward P. Olson, Long Beach, CA,
sponsored respective shareholder proposals for annual election of each director and removal of supermajority vote provisions for the 2005 and 2006 Boeing annual meeting ballots.

"It's great news," said John Chevedden, a Boeing shareholder activist. "They've resisted these changes very strongly in the past." Boeing had argued that putting about one-third of its 11 board seats up for election each year for three-year terms promoted stability and long-term strategic planning.