Archives: May 2000

GE Workers Demand More Control of Pension
General Electric’s pension fund now has $2 for every $1 it expects to pay out. Who should benefit?

BusinessWeek (6/5) carries an article entitled, “GE’s Pension Fund Runneth Over. So Do Tempers: Refusing to share more of the riches with workers sparks revolt.” GE’s pension fund has grown to the point that it now has $2 for every $1 it expects to pay out. Workers want a share of the growing profits. They’re demanding regular cost of living increases and a seat on the pension board.

GE tried to neutralize the issue with its workers and unions by increasing some retiree benefits just nine days before its annual meeting but workers weren’t satisfied. Excess pension income adds directly to GE’s bottom line and allows it to buy other companies whose own pensions are underfunded, but GE can’t invest the surplus or the income generated in other businesses.

Who should benefit from excess pension income? Under ERISA, the primary responsibility of fiduciaries is to run pension plans “solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses.” Keeping profits up or to making it easier to buyout companies with underfunded pensions isn’t a legally acceptable purpose of the fund by law.

I agree with the Coalition for Retirement Security, current and future retirees need pensions that are portable, insured, adjusted for inflation whenever possible. They also deserve plans that give them a say in how their pension money is invested. Giving workers representation on corporate boards could substantially increase corporate monitoring and efficiency.

Pension funds own about 25% of the market. Since 1988 the Department of Labor has held that corporate governance and, specifically proxy voting can add value. Therefore, voting rights are subject to the same fiduciary standards as other plan assets and must be voted solely in the interests of participants and beneficiaries. However, although DOL has done three studies demonstrating that many funds cannot document how they voted in corporate elections, DOL has never taken disciplinary action against a fund for failing to act in the interest of beneficiaries.

If more workers were represented on pension fund boards it seems likely that pensions would be more active players in corporate governance…maybe not to the extent of eRaider or CalPERS but at least there would be more open debate about how votes in corporate elections may impact plan participants. That would be a great start.

Daniel Szente Named CalPERS CIO
Daniel M. Szente, 52, will manage the nation’s largest public pension fund. He comes from Pennsylvania-based McGlinn Capital Management, where he was Executive Vice President and Director of Research. He has more than 16 years’ investment policy and management experience in the public sector, serving as Assistant Director of Investments of the State Teachers Retirement System of Ohio. Szente holds a Bachelors of Science degree, a Masters in Business Administration from Ohio State University. see press release

Gary Cooper of Governance?
That’s what BusinessWeek calls governance activist investor Andrew Shapiro in their 5/29 edition. I didn’t quite get the connection. Maybe its that Shapiro charisma or that frontier mystique with a worldly polish. Regardless of his relation to the film star, the article pointed out Shapiro’sbylaws, which he put in place at Quality Systems, are “fast becoming a template for other investors looking to create change. Early this year, Palo Alto Investors, a $200 million hedge fund, used a proposal modeled on Shapiro’s to get the board to make changes at Embrex Inc., a Durham (N.C.) biotech company.” (see The Gary Cooper of Governance, requires subscription)

Japanese Court Sides With Shareholder
Nara district court nullified a routine vote to award retirement bonuses to directors because Nanto Bank failed to adequately answer a question posed from the floor of the annual meeting seeking disclosure of the amounts. Nanto Bank is appealing the court’s decision. If upheld, Japanese shareholders would win a dramatic victory. IRRC’s Corporate Governance Highlights, 5/12

Results in for First International Proxy Campaign
A union led contest to change the board composition and labor practices at Rio Tinto PLC won about 20% of the vote as reported by Businesswire.Results of Voting At 2000 Annual General Meetings of Rio Tinto plc and Rio Tinto Limited

Takeover Defenses Up
IRRC reports that almost 59% of 1,900 firms studied have classified boards (directors elected on a staggered basis, usually for three-year terms). Poison pills (which increase the cost of takeover typically via redemption rights or new issues) are maintained by 56% of the companies, compared with 52% in 1997. To order a copy of Corporate Takeover Defenses contact Heidi Salkeld at IRRC at 202-833-3555 or email heidi.salkeld@irrc.org.

Labor’s Money
A Newsletter for the Taft-Hartley proxy Voter produced by IRRC is now available for free online. The May-June issue discusses the AFL-CIO’s Key Votes Survey, AFSCME’S New Activism, Building Trades Initiatives, Mueller/USWIA Lawsuit, and more. Jointly-trusteed funds won more shareholder proposals in 1999 (15) than any other group of investors. IRRC’s newsletter is a welcome addition to news sources on the cutting edge of corporate governance. Register for Labor’s Money.

Korn/Ferry Finds e-businesses at Stage 1 of Corporate Governance
Korn/Ferry International researched the proxies of the Fortune e-50 found smaller boards with fewer women and minority directors, dominated by insiders. More than half are paid solely with stock or stock options. see Businesswire, It’s a Look Back to the Early 1980’s for New Economy Boards, According to Korn/Ferry International Study

Proportion of Investing Public Drops
A May 5-7 Gallup poll found that about half of all households (54%) have money invested in the stock market right now, a drop of seven percent from a similar survey conducted at the beginning of March. Among these investors, 28% have heard of “socially responsible” investing. Only 11% of all investors have consciously made such social investments. see One in Nine Investor Households Have “Socially Responsible” Investments

eRaider Invents Unproxy
eRAider, the activist fund for the rest of us, invented the “unproxy” to get its point across in its current battle against a poison pill at Employee Solutions. see Send In Your UnProxies

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CalPERS: Heritage Foundation v Freedom House
Will largely public union-based CalPERS take its international investment advice from the anti-union conservative Heritage House over liberal think tank Freedom House? CalPERS staff cited several studies showing “linkages between political and electoral freedom and future growth are weak or do not exist at all.” Therefore, CalPERS should favor dictatorships over democracies? I don’t think so. Maybe a long term investor such as CalPERS ought to be looking toward something like the Global Reporting Initiative when they take up this issue again in August. See San Francisco Chronicle, 5/16, CalPERS Postpones Decision on Investments in Developing Nations: Board wants staff to revise plan to add human rights criteria.

Improving Corporate Boards : The Boardroom Insider Guidebook
One of the most frequent requests from readers of CorpGov.Net is for a book on how to improve their board. Finally I can recommend a book that doesn’t read like a dry academic text and is built on real life examples. Ward presents a clear guide to solving the most common problems facing boards. Each chapter provides a concise overview of a problem or focus area, several real life examples, internet resources, advice from various experts and a checklist summary. CalPERS should consider sending Mr. Ward’s book to each board member of the companies on its focus list.

The Internet Will Drive Corporate Monitoring
Mark Latham’s paper on the clickable voting revolution will appear in the June edition of Corporate Governance International. When online brokers or others offer individual investors an automated voting function on the same websites where they now trade or track their stocks, the corporate governance revolution will get another large boost. Latham has also put forward a draft paper entitled Internet-based Stock Voting Advice Systemswhich goes into greater detail about the mechanics of such a system. The system makes so much sense and could probably be made so profitable that I can’t understand why you’re still reading this instead of building it. I hope someone keeps me posted of their progress; I want to be one of the first users.

Asian Shareholder Revolution Held Back By US Practice
The Asian Wall Street Journal argues companies aren’t living up to the shareholder value mantra. A contributing factor is US Broker voting.

A May 19th Asian Wall Street Journal commentary, “A Corporate Governance Revolution,” argues Asian companies had to bend to the demands of new investors in order to get the fresh capital needed to survive. “Now they repeat the shareholder value mantra, even if they don’t quite live up to it.”

I was recently on a speaking tour of Korea and Japan, sponsored by the State Department, to discuss foreign direct investment. My focus was on the impact of the Internet on shareholder activism. I found many businesses hoping to follow the example of Indian software company Infosys in raising funds on the Nasdaq. However, the shareholder activists I met with, particularly Hasung Jang with the People’s Solidarity for Participatory Democracy (PSPD), are increasingly frustrated with the poor voting record of individual investors from the United States.

Broker voting rules in the US make it extremely difficult for US investors whose shares are held in “street name” to vote with shareholder activists. If they haven’t voted within ten days of the meeting, their broker exercises “discretionary” voting rights in support of management’s proposals. This practice unfairly stacks the deck against shareholders everywhere, but is particularly egregious in Korea and Japan where proxies are typically sent out only 14 days prior to the annual meeting.

It’s ironic that a significant barrier to good corporate governance in Asia is an undemocratic practice that originates in the US.

AutoZone Dispute Goes Public
Board member Edward Lampert has taken his criticism of the company’s shareholder rights plan public. Lampert, who represents the automotive parts retailer’s largest investor, threatened to solicit support of shareholders to have the board removed. (Investor Relations Business, 5/15/2000)

EDGAR Opens to HTML
New rules, effective 5/30/2000, will allow corporate filings, such 10-Ks and 10-Qs, to be made in HTML (PDF is so far unacceptable). The SEC expects HTML filings, which will allow limited graphics (no animation) and hyperlinks within documents and to filings already in the database, to constitute the vast majority of filings within a short time. (Investor Relations Business, 5/15/2000)

Hermes Lens to Launch in Europe
Hermes Lens is set to launch a continental European version of its $683M Hermes Lens UK Focus Fund which attempts to make money by investing in and turning around poorly performing firms through corporate governance activism. The 5/15 edition of Pensions & Investments indicates the 18 month old fund is so successful it may soon close to new investment to “pause for breath.” Hermes Chief Executive Peter Butler expects their first investments to be in Germany and France. Butler described their strategy as taking 18 months to 2 years to turn a company around.

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Global Governance Partners and Napalm
Forbes Magazine picked right up on Guy Wyser-Pratte’s message to sleepy managers in Europe who resist change: “Wake up and smell the napalm.” Wyser-Pratte’s recent successes in Europe have led him to launch a $200 million fund, Global Governance Partners. With a staff of just 12 in New York, the new fund will limit itself to ten positions in underperforming companies around the world. “Helping out will be a network of analysts, versed in the arts of arbitrage and shareholder activism, that Wyser-Pratte has built in 22 cities around the world, including Tokyo, Milan and Johannesburg.” (see also, Business Week, The Raiders are Coming! The Raiders and Coming!, 4/24, p. 138.)

Convergence
A survey of institutional investors by Russell Reynolds Associates found them moving away from small, venture capital dominated boards. In the other direction, 2/3 said every board should have a formal internet committee and almost as many believe every board should have at least 1 technology expert. A majority steered away from companies with unsatisfactory corporate governance. (The Economy Is New, but Not the Standards, NYTimes, 5/14/2000)

Jumping in With Both Feet
New York Times article notes that “most mutual funds keep their distance from companies on matters of corporate governance, but the $3 million Allied Owners Action fund, introduced on March 10, jumps in with both feet.” They are already having an impact on their first investment, Employee Solutions. For example, Employee Solutions recently announced that Quentin Smith, its president, chief executive and chairman, would relinquish the chairman’s position. (A 2-Month-Old Fund, Carrying a Big Stick, NYTimes, 5/14/2000)

Pay Disclosures Spreading
Johannesburg Stock Exchange (JSE) has proposed that listed companies be compelled to disclose each individual director’s salary, bonuses and other forms of remuneration each year. The King code currently requires disclosure of overall remuneration for executive and nonexecutive directors, rather than individuals’ packages. See Controversy Is Likely Over Fat Packages For Directors, Africa News Online, 5/15/200.

CalPERS Changing Directions?
Recently the Los Angeles Times ran an article about State Treasurer Phil Angelides’ proposal to direct more CalPERS money to “narrow California’s wealth gap.” Will he succeed?

California Treasurer Phil Angelides unveiled a plan to narrow California’s wealth gap by investing more than $8 billion in low-income communities. The plan calls for 2% of the state’s pension fund portfolios to be directed toward impoverished communities in California rather than risky overseas markets. CalPERS already has $150-million invested in “Magic” Johnson’s theater developments much more in affordable housing. The system suffered steep losses in Indonesia and Malaysia.

Will Angelides succeed? Chances may be good investments that can pass fiduciary standards. The recent board appointments of San Francisco’s mayor Willie Brown Jr. and Sean Harrigan, a United Food & Commercial Workers official have strengthened CalPERS’ pro-labor voice. Like politicians on the Board, many of the labor based members will be looking for the double benefit of good returns for future beneficiaries and economic benefits to California’s economy today.

The recent replacement of Charles Valdes with Michael Flaherman, as chairman of the powerful investment committee may further this shift, even though Mr. Valdes’ roots are in labor, whereas Mr. Flaherman’s are not. Flaherman appears more open to considering social issues, such as divesting tobacco stocks. Valdes has been a strong voice against social screens.

While I expect a shift, CalPERS won’t suddenly switch to a strategy of selecting investments based on politics, which then searches for investment theories to justify them. The six Board members elected by CalPERS members are unlikely to favor any Angelides plan that narrows California’s wealth gap at the expense of those who elect them. However, there is no reason why CalPERS can’t move further in serving its members, not just when they retire, but on a day-to-day basis while they live and work in California.

After three hours of debate, the Board approved a motion that would allow the CalPERS investment staff and the treasurer’s office to work together to try to come up with a compromise agreement by August. (see also Rough reception given Angelides’ CalPERS vision, Sacramento Bee, 5/16/2000)

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eRaider Becomes Gathering Place
The Allied Owners Action Fund is still working out what action to take to increase the value of its first target investment, Employee Solutions. Discussions on its affiliated internet site, e-Raider, are now getting more sophisticated as discussants move to specialist eRaider boards such asAccounting to delve more deeply into the issues being raised. In addition, although suggestions by posters to go after Homebase (HBI) next has apparently been rejected, shareholders have been encouraged to gather on the site to organize and plan action.

NACD Viewpoints
Jon Masters notes that while the McKinsey study indicates institutional investors say they would pay a premium for stock of companies with good corporate governance, a recent Columbia Business School study based in detailed interviews concluded: “Except in highly publicized cases involving allegations of excessive executive compensation, dysfunctional boards, or fraud, it is generally only after firms are identified as troubled or long-term underperformers that governance practices are given more than routine scrutiny.” Masters argues that if we truly believe good governance enhances value, it needs to be factored into the investment process. To do so, we’ll need more meaningful public information.

In the same Viewpoints section of April Director’s Monthly, attorney Lewis Black Jr. discusses the escalating tug of war between directors and shareholders. Binding bylaw resolutions have upped the ante. Directors view them as an effort to micromanage. Black appears to sees a backlash building against vote no campaigns. “An increasing number of corporations are issuing shares to the public with reduced voting rights.”

Infosys CEO Interviewed on Corporate Governance
The Hindu carried an interview with Naryana Murthy who heads software firm, Infosys. Murthy speaks of values: “public good ahead of private good; of not using the corporation’s resources for personal benefit.” He voices the need to align the Indian Generally Accepted Accounting Principles (GAAP) much more with international standards and improve disclosure standards for financial statements. “Critical shareholder resolutions need to be debated by as many shareholders as possible…we have to create trust among our shareholders, especially the minority shareholders. That comes from disclosure, transparency and fairness.”

Murthy speaks favorably of ESOPs but warns, “first of all there has to be a mechanism to reward those who are wholly meritorious. ESOPs cannot become a mechanism of patronage. Second, they cannot be used to reward the cronies of promoters and enhance the shareholding of promoters.” SeeCorporate governance a question of value systems.

How Important is Your Internet Site?
First Federal Savings & Loan Association of East Hartford didn’t make its corporate filings available online. In a recent Wall Street Journal article, Richard Lashley says it’s a “little thing,” but it’s indicative of how First Federal views shareholder relations. It also appears to be at least one important reason why he supported a dissident slate headed by Josiah Austin of Pearce, Arizona. Austin will push for First Federal to hire a new investment banker to review how the S&L might achieve higher profits under more-aggressive management. Mr. Austin may have won control two of 10 board seats — not a majority, but enough to begin exerting pressure. (WSJ, Heard in New England: Dissident Says He Won Fight For S&L Seats, 5/10/00)

ECGN Update
The European Corporate Governance Network, which does about the best job of keeping corporate governance codes online updated, reports the following have been added to their codes page:

• the EASD Corporate Governance Principles and Recommendations released last week;
• a local download option for the Preda code from Italy;
• the “Urgent Recommendations Concerning Corporate Governance” from Japan (in draft form since 1997);
• Guidelines of the Swedish Shareholders’ Association;
• Guidelines of the European Shareholders’ Association;
• the Turnbull Report from the U.K.;

Shapiro Touts QSI Template
The Corporate Board (5-6/00) carries a conversation with Andrew Shapiro, “Making Governance a Proxy Issue,” where Shapiro discusses mandating corporate governance reform at target companies. “The Lawndale proxy sought to impose one of the toughest definitions for outside director independence ever seen, including strict director tests for company employment or consulting income, and board interlocks. Wholly independent audit nominating and compensation committees were also demanded.”

Shapiro’s tactic seems to be working. He launched his campaign at Quality Systems (QSI) in the spring of 1999 when Quality Systems was around $4/share. By March of 2000 it was $15/share. Although with the recent sell-off in dot.coms, the price has slipped to around $10/share. Recently, Shapiro won a similar agreement at ELot which has been selling at about $3/share. “We plan on using this proposition and more advanced versions at other companies to force positive changes.” (see disclaimer)

CalPERS Honors Contributions
CalPERS will honor Apple Computer for improved corporate governance, the Texas Instruments’ board for its dedication to shareowner interests, and Time Warner CEO Gerald M. Levin for his commitment to the principle that CEOs are responsible to shareowners and accountable to the Board of Directors. Award recipients will be honored at a dinner on May 15, 2000 at CalPERS headquarters in Sacramento, California. (see press release)

Corporate Governance Week
I’d never heard of it, but then I’d never heard of the Leading Corporate Governance Indicators^TM until I started getting e-mail from Stephen Davis, editor of Global Proxy Watch. Davis is certainly prolific and on target. The April 29th edition of The Economist features his rankings in a comparison of 1996 and 1999. Britannia still rules the Indicators but Germany is picking up while the US and France stand idle. However, Michelle Edkins of Hermes recently noted the information contained in many UK reports appears to come from one template…actual disclosure may lacking. Perhaps further refinements in the Indicators is warranted. Back to “corporate governance week.” Here are two main events.

On 10-11 July the World Bank, Commonwealth Association for Corporate Governance, Asian Corporate Governance Association, Davis Global Advisors and others are sponsoring “The Shareholders Role in Corporate Governance in Emerging Markets and Transition Economies.” The conference is being held in New Haven, Connecticut USA. For an e-program, please contactsmd@davisglobal.com.

Later that same week is the sixth annual conference of theInternational Corporate Governance Network, scheduled for 12-14 July in New York City. The event is the largest global corporate governance event of the year. Sponsors for the 2000 conference include the New York Stock Exchange, Nasdaq, and host TIAA-CREF, the world’s largest pension fund system. Program information and registration materials may be found on their conference page.

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Delaware Premium
Research by Robert Daines, an associate professor of law at the New York University, finds that Delaware law appears to improve firm value. “On average and over time, investors pay more for the assets of publicly held firms governance by Delaware corporate law.” He offers two explanations. First, Delaware takeover law is relatively less entrenching, reducing the cost of acquiring (selling) the company. Second, because companies typically lack operations in Delaware, managers and employees are prevented from gaining political influence and cannot defeat takeover efforts through political influence. In addition, Daines argues that Delaware’s specialized judicial system “may effectively deter managerial or control shareholder opportunism.” He speculates the premium for incorporation “might be even bigger if Delaware law were less protective of incumbent managers intent on resisting an uninvited bid.” (The Corporate Board, 5-6/200, pp. 22-25)

Whitworth Urges Investors to Step Up to the Plate
Speaking at the spring meeting of the Council of Institutional Investors, Ralph Whitworth said his first order of business as a new member of Matell’s board would be to have the company come out with a new bald “Ken” doll. After telling the story of how he got asked to serve on the board, he pointed out that 1 member on a 10 member board can make a difference, particularly if they have the focused interest of a large shareholder. “As issues come up, the heads turn down to look at the major shareholder,” he indicated. Whitworth urged council members to step up to the next level of activism and present names of board candidates to nominating committees. (IRRC, CG Highlights, 3/31/00)

Strengthening Shareholder Relations in the Privately Held Company
Recognizing that private companies need to address many of the same fundamental issues of governance, ownership and control as public companies, consultant Thomas Bakewell offers advice to family businesses and others. Bakewell sets out various considerations for developing private company boards, pointing out that empirical evidence has shown a significant positive correlation between the boards contribution to strategic planning and growth of the firm, with outside members being more critical to growth. Another focus of the article is shareholder agreements and the need to address ownership and control issues upfront. The article also provide a useful case study of a closely held businesses which was able to maintain its goals by addressing such issues before it was acquired by a larger firm. see NACD’s Director’s Monthly where you can download the article (4/2000)

The issue also contained a helpful analysis of the new SEC audit committee regulations which was compiled by KPMG’s Audit Committee Institute. The Institute site has a wealth of information and links to serve and educate committee members. We’ve added a permanent link to their site from our Links page under Audit Committees.

Coalition for Retirement Security Pushing COLAs
Faced with demonstrations, publicity campaigns, the backing of institutional investors, and use of the Internet to rally employees with the possibility increasing the purchasing power of their pensions by pressuring pension funds with huge surpluses. (More activist retirees put squeeze on companies, The Christian Science Monitor, 5/1/00)

CalSTRS Board Hopes to Up Benefits
California teachers scored a victory when their pension fund endorsed a record $15.3 billion in new retirement benefits for K-12 and community college educators in California. Now, it’s on to the Legislature. (seeSacramento Bee, 5/5/00)

India to Curb Fraud
Dr. P.L. Sanjeev Reddy, Secretary, Department of Company Affairs, announced that his Department is working out a caution list of defaulting companies, with the idea of putting it on their website. He also announced that his Department and the Reserve Bank of India are working out measures to deal with Non-Banking Financial Companies which have siphoned off money from stock exchanges and individual investors. (Northerlight)

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Rio Tinto Resolutions Gain Support
Institutional investors with more than $44 billion in assets are supporting two union-backed resolutions demanding changes at Rio Tinto Plc. The resolutions demand that Rio Tinto adopt International Labour Organisation conventions on human rights at work and appoint a single, independent non-executive deputy chairman to make the board more accountable to shareholders. (Investors back union call for changes at Rio Tinto, Reuters, 5/4/00)

Internet Boards Lacking
Internet company board are under-experienced, underpaid, and understaffed, according to a survey of 100 leading Internet companies just released by Manhattan-based Spencer Stuart. Nearly 1/3 of members are insiders, compared to 1/5 of the Standard & Poors (S&P) 500 companies and many outside members are probably venture capitalists with a financial stake in the company who may have a short-term perspective. The boards are younger too and may not have the experience necessary to “successfully guide companies through difficult times.” They are also 97% male, about 1/2 the size of S&P 500 counterparts and rely heavily on options. Spencer Stuart believes survivors will begin to look more like their S&P 500 counterparts. (Internet Boards Of Directors Not Top-Notch, Newsbytes, 5/5/00)

Calvert Social Index to Post Votes
Following the lead of Domini Social Investments, Calvert’s new fund has announced it will post its proxy votes starting in 2001. We applaud this most important step in keeping investors informed. How can we ever hold our fiduciaries accountable if we don’t know how they vote? When will we see Fidelity posting their votes? They say, “we help you invest responsibly” but how do we know they’re voting responsibly? I’d like to report Fidelity will be next but I’d place bets on Citizens Funds to start posting long before Fidelity. Is voting only a concern for “socially responsible investors?” I’ve never liked that label but I do believe that socially responsible investing begins with good governance. If your fund hasn’t announced they will report their votes, I suggest you request that they do so.

Boardroom INSIDER Features Adaptive Broadband
Ralph Ward’s Boardroom Insider caused us to take another look at Adaptive Broadband’s corporate governance guidelines which appear to be a good baseline any high tech firm. With 21 key points. I particularly like the pledge not to reprice stock options even if they are significantly “under water” and the requirement that all execs (42 persons) must buy and hold outright stock of the Company valued at one-half to two times base salary, depending on their positions. One minor criticism, put the full text up on the Internet in a more readable format. I also see Ward’s new book,Improving Corporate Boards: The Boardroom INSIDER Guide, is now available. I’ve only got an unbound preprint but highly recommend it! It contains the kind of practical advice most boardmembers only accumulate from years of experience…by the time you get that, it may be too late.

Shareholders Vote for Choice
Preliminary results reported by IRRC (4/21) indicate that 12.7% of First Union shareholders voted to require the nominating committee to nominate two candidates for each board position. The resolution also called for statements by candidates on why they believe they should be elected were also to be included with future proxies. We understand opposition to the resolution which would certainly put the board in an awkward position. How do you tell a candidate you’ve requested to run that the board has listed them as their second choice. However, the vote shows a growing uneasiness with the current system which locks shareholders out of the nominating process unless they are prepared to do an expensive proxy solicitation. Although I personally don’t see Richard Dee’s proposal as a realistic solution to the problem, I certainly voted my First Union shares in favor. At least it’s a start in nibbling away at SEC rule 14a-8(c)(8) which prohibits proposals relating to “an election to office.”

Canadian Business Corporations Act to be Amended
Changes may allow shareholders to communicate more easily with regard to voting intentions but also proposed is that corporations can refuse resolutions which are for the “primary purpose” of promoting general economic, political, racial, religious, social or similar causes. Relaxation of residency requirements is called for as is a prohibition against loans to directors which are likely to put the firm on the road to insolvency. Also reported in the 2-3/00 edition of Corporate Governance Review, several Canadian firms are seeking to lower their quorum requirements. Two firms have proposed reducing to levels at or near those held by a single shareholder. Author, Bess Joffe argues corporations should seek levels that balance “the conflicting interests of maintaining sufficient shareholder representation while not putting the company in a position where it is unable to carry on business.”

Virtual Recruitment for Boards
Another landmark for corporate governance via the internet was achieved in March when UK’S Net Resource Services Ltd. launched a site designed to help companies find suitable candidates for non-executive directorships. According to Managing Director, Peter Coppard, the site is ideal for those with management experience embarking on a second career and will open up opportunities for companies to easily sort through candidates and qualifications at minimum cost. See Non-Executive Director.

Non-Financial Issues to Play Larger Role
An editorial in the 2/00 edition of Governance predicts that with institutional holdings peaking (see Institutional Investor Stakes in Largest 1,000 Corporations have Peaked), social activism will be on the rise because individual investors have “shown a tendency to use their power as consumers to support their social or ethical concerns,” such as human rights, employee relations, community responsibility and pay inequity. “A second stage of governance development is underway that will see corporations becoming more sensitive to the concerns of society as a whole, and make institutions more accountable to their beneficiaries. We heartily agree and believe the Internet will be the main venue for coordinating shareholder issues. Included in the same issue is an interview with South Africa’s Mervyn King (link to older interview), who reiterates that the key role of non-exec directors is to help the board make correct business judgment decisions, and a discussion of TIAA-CREF’s global governance standards.

Contradictions at TIAA-CREF?
Governance also acknowledges the Social Choice for Social Changecampaign to get TIAA-CREF to use 5-10% of the Social Choice Account’s assets for “positive investments” in companies that are models of responsibility. I understand from Neil Wollman and Abby Fuller they have started an every Monday call-in to CEO John Biggs. So far, no change from media-relations director, Tom Pinto’s position that we “can’t just introduce a fund at the whim” of some of its two million investors. We applaud TIAA-CREF for its effective work executive pay disclosure, its campaign against dead hand poisson pills and its new global guidelines. However, we do think they should also pay attention to the wishes of their own shareholders.

Railroads & Clearcuts Campaign Wins Resolutions
According to the April 28th ISS Friday Report, the group scored majority votes in calling for annual director elections at Weyerhaeuser and Boise Cascade. On the Railroads & Clearcuts Campaign site Rachael Paschal, president of the Western Land Exchange Project, is quoted saying “Improving accountability of corporate management to investors will improve the ‘double bottom line’: profits and environmental quality.” Social activists are getting the message that their long term social goals can best be achieved by first winning good corporate governance. Also published on the site is Bart Naylor’s excellent guide, Change Corporate America For 33 Cents: A Self-Help Guide to Shareholder Activism.