Are you a pension fund trustee who’s counsel keeps saying you can’t do that when you suggest socially responsible investing strategies? Yes you can. Read “What Trustees Can Do Under ERISA” (the Employee Retirement Income Security Act) – A study of permissible trustee activism. Let Kirsten Snow Spalding and Matthew Kramer guide you.Fiefdoms to Continue
Earlier this month I reported that the founder of Hyundai had announced that neither he nor his sons would continue to serve on the board. “The three of us will watch over the company management only as shareholders,” said Chairman Chung at the end of June. Later in the month, I suggested the Ford family could take a lesson from Chung. More recently, the Wall Street Journal (Hyundai Resists South Korea’s New Economic Ways, 7/25) reports that one of the sons, Mong-ku, reversed himself and is now determined to defend his control of Hyundai Motor. In addition, Hyundai Heavy Industries continues to be controlled by another son, Mong-joon. Fiefdoms aren’t easily converted to democracy, either in the US or Korea.
Shanghai Conference On Sweatshops
Domini Social Investments, Ethical Funds, Calvert, and Walden Asset Management are sponsoring Verite’s Third Annual Supplier’s Conference in China. The conference will develop the capacity of factory managers to establish workplace conditions that meet internationally agreed upon human and labor rights standards. “Independent monitoring and verification are crucially important for addressing the problem of workplace standards that violate internationally agreed upon human and labor rights,” said Heather White, Verite’s founder and executive director. “Without credible independent monitoring, vendor standards and corporate codes of conduct are justifiably regarded as nothing more than public relations fluff.” (see Business Wire press release, 7/20)
Corporate Governance Issues Impact Cross-Border Mergers
Corporate governance issues can have a significant influence on cross-border mergers, according to a report, “Corporate Governance and Cross-Border Mergers,” released by The Conference Board. Europe alone has had more than $400 billion worth of hostile deals since the beginning of 1999. “Key corporate governance decisions in M&A transactions are not necessarily about corporate governance,” says author Lucy Alexander. “They are consequences of other decisions, such as where the company will be headquartered, and are influenced by other issues such as tax, politics and the relative strength of organizations. However… corporate governance issues may have a direct impact on whether deals happen or not and certainly on the price at which they occur.” (for press release go to the Conference Board site, click on “Our Expertise,” then on “global corporate governance,” then scroll down to press releases.
Virtual Meeting Law
The 7/21 ISS Friday Report carried additional reactions to newly adopted Delaware law which allows corporations to hold shareholder meetings solely in cyberspace. Dwight Mater of Bell & Howell says “it’s easier for shareholders.” Karen Hampton of Ford says webcasting of meetings will increase. Charles Elson, of the Center for Corporate Governance at the University of Delaware, indicates he likes to “see people eye-to-eye. Yet the world is changing.” Larry Hamermesh, a law professor at Widener University says meetings could get out of control “if you have 5,000 people online who all want to be heard.” (ISS Friday Report, 7/21)
Many seem to miss the point. I don’t know of anyone who opposes Internet broadcasting of the meetings or voting online. Of course it’s easier for shareholders to attend online and all companies should facilitate access. Professor Hamermesh comes close to the point. However, the problem isn’t that meetings will get “out of control.” By meeting solely in cyberspace it will be much easier for management to ensure there are no unexpected or embarrassing questions, no surprises. When 5,000 shareholders online want to be heard someone will need to select which questions will be addressed. Prescreening and prescripting become much more likely. The problem is that management will be more in control of the process than ever before.
Back to the topCheney Nomination May Help EDS Shareholders
The nomination of Dick Cheney to be George Bush’s running mate may help put the spotlight on poor corporate governance practices at Electronic Data Systems where Cheney serves as a member of the board. On May 23rd, 61% of shareholders voted in favor of allowing shareholders to vote on the adoption of poison pills. According to shareholder activistJohn Chevedden, EDS governance suffers a number of shortfalls:
- No annual election of all directors.
- Director James Baker’s law firm bills EDS substantial fees, which go undisclosed by EDS.
- The American Bar Association discourages directors from sitting on boards of companies from which they take additional legal fees.
- Directors with financial links to the company sit on Audit and Nominating Committees.
- Directors Brown and Gray own only a nominal number of shares.
- Directors Gray and Groves are overextended with 7 outside board seats each.
- EDS has no provisions for confidential or cumulative voting.
- An 80% shareholder vote is required on certain key items (equals a 100% requirement when only 80% of shares are voted).
Who Does ICI Represent?
The Investment Company Institute is paid by companies in the industry, but half of the dues come out of shareholders’ pockets, according to a lawsuit filed by Linda Rohrbaugh and Richard Krantz. Their suit seeks a return of money paid for representation because, according to the plaintiffs, ICI represents fund companies, not shareholders. A commentary by Lewis Braham, Staff Editor for BusinessWeek, says “ICI should either increase representation for shareholders or give them back their money.” Currently, 39 of the 45 members of ICI’s governing board work for fund-management companies. The other six are “independent directors” of member funds. Yet, ICI’s code of best practices says 2/3 of a mutual funds directors should be independent.
Braham reports that after shareholders scored a victory in 1997 with a ruling that the independence of directors could be questioned because they served on several boards in the same fund family, ICI successfully lobbied the Maryland legislature to nullify the judge’s ruling. ICI also tried to make it more difficult to get shareholder proposals on proxy statements and sought to prohibit proposals to fire advisers or buy back shares of closed-end funds. Clearly, Braham is right in his assessment. (see A Raw Deal for Fund Shareholders, BusinessWeek, 7/31, requires subscription) See also Conflict Of Interest?
Indian Families Remain In Charge
Manjeet Kripalani, Bombay bureau chief for BusinessWeek wrote a commentary with a familiar complaint; too few Indian executives are ready to walk the corporate governance talk. Ratan Tata, of the $8 billion Tata Group gave notice that in two years he will step aside and let the board appoint his replacement but few are following his lead. The new corporate governance code requires ownership disclosures, global accounting norms, independent directors, audit and shareholder grievance committees. The Securities & Exchange Board threatens fines and delisting for errant companies but “few believe it.” “Families continue to control 90% of publicly listed companies. And they have plenty to hide–not least intragroup loans and investments set up to minimize taxes, misappropriate funds, and cover up losses.” (see Commentary: India: Paying Lip Service to Corporate Disclosure, international edition of BusinessWeek, 7/24)
Shareholders Protest Ma Bell’s Porn
Twenty-seven religious and socially concerned institutional investors controlling over 2.8 million shares of stock are calling upon AT&T to reconsider its recent decision to partner with The Hot Network, which distributes sexually explicit material for broadcast on cable television systems. (see letter to AT&T) Jerome Dodson, of the Parnassus Fund, plans to enlist other AT&T investors in drafting a shareholder resolution voicing opposition to the Hot Network. If enough shareholders support the resolution, the measure will be voted on at AT&T’s next shareholder meeting. (Shareholders Fight AT&T Porn Channel, AP, 7/19)
Ford Protects Family Voting Power
Institutional Shareholder Services joined New York State Comptroller Carl McCall, TIAA-CREF and the California Public Employees’ Retirement System in opposing Ford’s plan which allows Ford family members to take cash out of the company by selling their new common shares without diluting their voting strength. When set up in 1956, class B shares allowed the Ford family, with 5.9 percent of the economic interest in the company, to control 40 percent of the voting power. Under the new plan, to be voted on at a special shareholder meeting on August 2, the family will have 7.1 percent of the economic interest and 41.8 percent of the voting power. (Reuters, 7/19) However, the Investor Responsibility Research Center reported the Ford family might retain 40% of voting power, although their class B holdings would decline from 5% to 3.6%, according to CalPERS. IRRC also reported the Council of Institutional Investors opposes the proposal as well. (Corporate Governance Highlights, 7/21)
Ford could soon be learning a lesson from the recent turmoil at Hyundai. (see below)
Good Governance Still Needed in Southeast Asia
John J. Brandon, assistant director of The Asia Foundation, says foreign investment will return to Southeast Asia as memory of the crisis of three years ago fades, but “countries that can make the most rapid progress on reforms in a transparent and accountable manner stand to benefit the most.” “Good governance and corporate reform are critical in order to achieve sustainable economic development. The pay-off, over time, should be better jobs, higher economic growth, and a brighter future for Southeast Asia. Weak legal systems, corruption, unaccountable government, and poor corporate oversight cannot factor into the equation. (for full opinion see “The wobbles in Southeast Asia’s rebound,” Christian Science Monitor, 7/19)
Back to the topAustralian Rules Regarding Extraordinary Meetings May Change
A report to the Federal Government has outlined changes to the Corporations Law so that only shareholders who collectively hold at least 5 per cent of voting capital would have the power to request a general or extraordinary meeting, instead of the current threshold of 100 shareholders. (Sydney Morning Herald, 7/17/00)