Archives: January 2001

Double Nomination Approach Gains Ground

Richard Dee submitted six shareholder proposals last year requesting that companies nominate two candidates for each board seat. Four proposals came to a vote, averaging 8.1 percent support. Bart Naylor submitted a similar resolution at General Motors, receiving 6.9 percent of the votes cast. This year, Naylor plans to submit the double nomination proposal to AT&T, Coca-Cola, Intel, SBC and others. The first vote in 2001 on this type of proposal will come up at the

New Bulletin Board

We’ve moved our Bulletin Board to Yahoo! After five years, many of the old postings were growing stale. This version will be easier to search and will be easier to maintain. Try it out for your corporate governance announcements.

How Many Directorships is Too Many?

The January 23rd edition of the Wall Street Journal looked at that question in an article entitled “Companies Crack Down on Number Of Directorships Members Can Hold.” The Journal reports that more companies are setting guidelines. For example, Nuevo Energy Corp.’s limit for its CEO is two other boards. The article provides several examples of directors who have cut back the number of boards on which they serve in recent years.

Outside directors of the 200 biggest industrial and service concerns have seen their compensation rise to an average of $137,410 in cash and equity awards per directorship last year, from $70,528 in 1995. “About 61% of that compensation came from stock, compared with 28% in 1995.” The following are listed as the 10 directors with the most seats:

  • Ann D. McLaughlin, Chairman, Aspen Institute (9 boards)
  • Vernon E. Jordan, Senior managing director, Lazard Freres (8 boards)
  • John L. Clendenin, Former chairman, president and CEO, BellSouth (7 boards)
  • Willie D. Davis, President and CEO, All Pro Broadcasting (7 boards)
  • Martin D. Walker, Principal, MORWAL Investments (7 boards)
  • H. Jesse Arnelle, Counsel, Womble Carlyle Sandridge & Rice (6 boards)
  • Edward A. Brennan, Former chairman, president and CEO, Sears (6 boards)
  • Elaine L. Chao, U.S. Labor Secretary designate (6 boards)
  • Ronald L. Kuehn, Former chairman, El Paso Energy (6 boards)
  • Rozanne L. Ridgway, Former assistant U.S. Secretary of State (6 boards)

Investor Relations Advice (Update)

Karen Hendricks, CEO of the Baldwin Piano & Organ Company gives advice on the “care and feeding of institutional investors” in the January 2001 issues of Directorship. Having a strong authentically trusting relationship with investors can help your firm weather the downturns.

  • Establish an ongoing personal relationship with the individual decision-maker.
  • Understand and address your investor’s philosophies and policies.
  • Know their marketplace pressures.
  • Know when they are exceeding their expertise re knowledge of your firm or industry.

(Update 1/23) However, for another view on the situation at Baldwin and the advice given shareholders by ISS, see Phil Goldstein’s (of Opportunity Partners L.P.) remarks at (about half way down the page). “ISS supported management in a proxy contest launched in 1997 by a dissident shareholder of Baldwin Piano and Organ Company who had sought to have the company sold. Despite Baldwin’s prolonged underperformance and a consensus view that its stock price of $13-to $14 was significantly less than its breakup value, ISS recommended that shareholders support the incumbent board of directors.”

Goldstein goes on to note that “Baldwin’s board was re-elected in accordance with ISS’s recommendation but the company’s financial performance continued to deteriorate. Baldwin’s stock price is currently around $3.25.”

Call for Papers

Corporate Governance: The International Journal for Effective Board Performance

Corporate governance is a growing area of international interest and challenge, as new issues emerge throughout corporations in the world. Corporate Governance: The International Journal of Effective Board Performance will lead the international debate on board effectiveness by featuring practical and real-world discussions of current, past and future concerns of board membership. It is envisaged that articles will be based on good theory and research, but with the emphasis placed on practicality and application within organizations. Coverage includes but is not limited to the following subjects:

  • Increasing understanding of corporate governance – what it is, how its works and what it demands of organizations
  • Newly evolving techniques and developing trends such as member selection, membership profiling, decision consensus, executive succession and corporate decision making
  • Legal and governmental developments
  • Quality control
  • Ethics and corporate responsibility
  • Systems of outcome based performance
  • Environmental reporting and social reporting

Cases (with teaching notes) are also encouraged and welcome. Manuscript requirements The manuscript should be submitted as a Word or rtf document formatted with double line spacing with wide margins. Articles should be approximately 1,000 – 4,000 words in length and be sent or emailed to the editor below, together with a brief autobiographical note, up to six keywords, and an abstract of not more than 150 words. References to other publications should be in Harvard style. More detailed notes on article format and presentation and copyright requirements may be obtained from the publisher or journal homepage.

Manuscripts, abstracts or outlines of proposed articles should be submitted to:
Dr Samuel M Natale, Professor of Strategic Management, School of Business
Adelphi University
Garden City, New York 11530 USA

Back to the topMessage from Les Greenberg

The Committee of Concerned Luby’s Shareholders is pleased with the results that we have achieved. Our grass-roots campaign, with limited resources in terms of personnel (a few people who met on the Yahoo! Message Board) and funds (less than $15,000) as compared to those employed by the BOD, allowed Shareholders to voice their feelings toward the BOD and what the BOD has allowed to occur at Luby’s. We hope that we have demonstrated to shareholders of other corporations that they can make their voices heard.

We thank all who have shared their ideas with us, supported our efforts with their words of encouragement, voted for us and/or made financial contributions to us.

Even though we did not have sufficient funds to solicit the votes of all Shareholders, we received more than 25% of the net votes cast for Director nominees. Two of the four Shareholder Proposals for which we solicited were passed. Those Shareholder Proposals seek accountability of the BOD by requiring all Directors to stand for election each year and to remove all anti-takeover defenses. The Shareholder Proposal seeking to remove all anti-takeover defenses won by almost a 2-to-1 margin!

We wish the best for Luby’s. The Committee has prodded Luby’s to, at least, say that it is moving in the right direction. We hope that the BOD will become receptive to constructive criticism from customers, all Shareholders, employees and former employees. However, we will remain vigilant.

Hong Kong Event

The Chinese University of Hong Kong is arranging a high-profile event entitled “Corporate Governance and Disclosure: Enhancing the Competitiveness of Hong Kong.” This will take place on 2/22-23 at the New World Renaissance Hotel, Kowloon. Prominent speakers include representatives from the Securities & Futures Commission, China Securities Regulatory Commission, Hong Kong Monetary Authority, and others. David Webb, Editor of, will be speaking in the morning session on 23-Feb.

Tobacco Cut by UC

University of California (UC) regents are expected to adopt a recommendation that would exclude tobacco stocks from the school’s investment portfolio, the San Francisco Chronicle reported 1/12. UC President Richard Atkinson made the recommendation that the university be barred from investing in companies manufacturing tobacco products.

“It is focused on financial reasons, but it is also a result of health risks,” said Judith Hopkinson, chairwoman of the regents investment committee. “Due to the health risks of that product, we just don’t think it is the appropriate investment for the University of California.” (see JTO Direct)

Tidbits (mostly having little to do with corporate governance)

The number of labor disputes in China has risen from 8,000 in 1992 to 120,000 in 1999.
Americans work 350 more hours a year than the typical European and the hours are increasing.
Thirty-six percent of all experienced professionals are “passively” seeking jobs — three times the number of employed “active” job seekers. Target this group through referral programs.
Forty percent of newly promoted managers and execs fail within 19 months, largely because they don’t develop relations with peers and subordinates.

Turfgrass (lawns) cover 25,000 acres in the US — about the size of Pennsylvania. The average American (including men, women and children) spends 30 hours a year mowing lawns. In one hour of operation the typical gas mower releases as much pollution as driving a car 350 miles. In the West, up to 60 percent of all urban water is used to water lawns (30 percent in the East). The average acre of American lawn gets four times as much pesticide applied to it as the average acre of farmland. (from January’s Across the Board, which also has an informative interview with former Secretary of Labor, Robert Reich and features a discussion, “Should a Company have a Noble Purpose,” by Art Kleiner, George Roth and Nina Kruschwitz.)

Competitive Edge

James Wolfensohn, president of the World Bank, has indicated “the governance of the corporation is now as important to the world economy as the governance of countries.” Holly Gregory, of Weil, Gotshal & Manges LLP, argues that “good corporate governance gives US companies competitive advantage” in global competition. In conjunction with her work with the OECD/World Bank Private Sector Advisory Group she has compared the corporate governance systems of about 35 nations.

World Bank studies have shown that erosion of investor confidence was “directly linked to a lack of meaningful oversight of corporate performance and compliance” in the recent Asian meltdown. The US system offers important protections to investors, gives managers and boards discretion and flexibility and has an ability to self-correct and evolve with relative ease. However, it would be a mistake to believe that system can simply be imported into another country. “In order to work, governance reforms must develop over time, in relation to local culture and social values, and with the support of the private sector, writes Gregory.

She points to Russia as a country that tried to copy US securities laws but found that approach failed because they didn’t have a solid framework of private property rights, fiduciary, anti-corruption, antitrust, anti-fraud and bankruptcy laws and regulations. She also points to the support institutions from the exchanges to Institutional Shareholders Services to the American Society of Corporate Secretaries and many others who play an important role…what former Delaware Chancellor William T. Allen called the “institutions of capitalism.”

Gregory will follow her current article in the January 2001 issue of Directorship with a second in February but if you’d like to delve right in to this important subject, I’d advise taking a look at her excellent two part series on “The globalisation of corporate governance” which you can find at

Back to the topFoundation for Enterprise Development Conference

Sign up before Friday, January 19th and receive $40 off the conference fee. The 15th annual conference will be located at the Hilton La Jolla Torrey Pines in beautiful San Diego, California. San Diego, February 5th to the 7th. Learn from the leading experts in the field of equity compensation. see The Power of Sharing Ownership

Colgate-Palmolive Wins “Board Excellence” Award

SpencerStuart and the Wharton School of the University of Pennsylvania have granted its fifth top honor to Colgate Palmolive for outstanding performance. Contributing factors include the formal board evaluation procedures adopted in 1997, the company’s 1998 code of conduct governing all business dealings, and the company’s significant devotion to human resources. Pfizer received an honorable mention. Jan 9, 2001 (BUSINESS WIRE)

Member-to-Member Forum at ASCS

Another reason to belong the American Society of Corporate Secretaries is their member-to-member forum which provides online advice to members concerning shareholder proposals. Find out how similar proposals were omitted in the past. Don’t reinvent the wheel; get the answers directly from those who have already dealt with the same issues.

CERES Conference in Atlanta

On April 5th and 6th, 2001, it will happen again. As in past years, CERES is assembling an extraordinary mix of people–senior executives, environmental activists, labor leaders, major investors, and others–who are willing to reach across the boundaries of organization, culture, and language in a spirit of learning and dialogue. For more information about the conference, you can visit the CERES 2001 Conference Overview.

Option Plan Expansion Rejected at Micros Systems

Corporate Governance Highlights (1/5/2001) reports that shareholders rejected a proposal to increase the reserved shares under a stock option plan at Micros Systems’ November 17th annual meeting. The vote marks a dramatic turnaround since this is the 6th consecutive year they have sought shareholder approval for such an increase. Last year they won support of 78.6 percent of the votes cast but this year only 41.6 percent of shareholders voted in favor. IRRC notes this was the sixth stock option plan rejected by shareholders in 2000.

Shareholders Propose Denying Directors Indemnity

Two shareholders of Vari-L have submitted a proposal to prevent the company from spending money to defend its board members in lawsuits associated with accounting irregularities “first publicized in May 2000 or with their insider trading activities.” The shareholder contend that directors failed to meet the applicable standards of conduct for indemnification required under the company’s bylaws because they did not meet provisions requiring conduct “in good faith” they reasonably believed “was in the company’s best interests.”

The supporting statement says management didn’t disclose accounting irregularities until after three Vari-L directors had sold $10 million worth of their stock. see Corporate Governance Highlights (1/5/2001)

Nasdaq Comment Extended

The deadline to submit comments on Nasdaq’s plans to align stock option disclosures with NYSE recommendations. Comments can be submitted to by 2/5/2001. When submitting comments, we urge readers to consider the opinions expressed by CII and also raise the issue of broker voting.

Corporate Governance Highlights (1/5/2001) again discusses the recent exchanges between CII and NYSE. In addition, it notes the study, “Corporate Voting and the Proxy Process: Managerial Control versus Shareholder Oversight,” (link to earlier version) by Jennifer Bethel of Babson College and Stuart Gillan of the TIAA-CREF Institute. Their research found that broker votes were associated with increasing management votes by more than 15 percent, depending on the type of proposal. As many as 4.7 percent of routine proposals might not have passed without broker votes. I can see no rationale for continuing this anti-democratic practice.

Canadian Governance Awards

Bank of Montreal, the Capital Health Authority and the Deposit Insurance Corporation of Ontario won the first National Awards in Governance by The Conference Board of Canada and Spencer Stuart in the private, not-for-profit and public sectors. The winners will be recognized at an awards dinner on January 30 at the 2001 Corporate Governance Conference, “Springboard to Excellence,” Hilton Toronto. seeNational Awards in Governance Showcase Best Practices the The Conference Board’s registration page.

Back to the topUndermining Pay for Performance

Pay for performance through option awards accounts half of executive compensation. A Business Week commentary by Louis Lavelle warns against the increasing practice of executives hedging such awards through zero-cost collars and similar devices. Microsoft’s Paul Allen saved almost a billion dollars last year through such a strategy.

Charles Elson, director of the University of Delaware’s Center for Corporate Governance is quoted saying, “It’s like a baseball player betting on the other team. If the executive is collaring, shareholders should be aware of it.” When managers sell stock their transactions are widely reported. Hedging transactions, reported on SEC fir 4, are rarely filed electronically and, therefore, do not appear on EDGAR. Since the transactions aren’t widely reported the chances of triggering a sell-off is small and executives retain voting rights while deferring taxes.

According to Lavelle, “whatever the motivation, when top managers hedge, shareholders deserve to know.” When executives hedge part of their stake, the pay for performance link is diminished. Lavelle compares such action to the captain of a ship who “sees an iceberg up ahead and heads for his lifeboat without waking the sleeping passengers.” However, Lavelle’s proposed remedy, to require disclosure in the annual report, is like allowing the captain to announce the iceberg only after he is not only in the lifeboat but is a mile away from the impending disaster. (Business WeekUndermining Pay for Performance, 1/15/2001)

Sprint Managers Sued

Amalgamated Bank’s Longview Collective Investment Fund filed suit in Kansas City accusing Sprint management of a “breach of fiduciary duty, waste of corporate assets, unjust enrichment and fraud,” claiming they used inside information that the merger with WorldCom “was almost certain never to occur.” The proposed merger “was used as a vehicle to make winners out of management and losers out of the shareholders,” according to Longview’s attorney William Lerach.

An accelerated plan to vest employee stock options valued at $1.7 billion went forward despite the failed merger. Early cashout provisions usually aren’t triggered until after a merger is completed. In this case there is apparently some dispute between the parties as to when Sprint’s rules changed so that “change of control” came to mean a shareholder vote to approve a sale or merger, instead of the being deemed to occur with an actual transfer in ownership. What is clear, however, is that the value of Sprint shares went from $60.875 on October 4, 1999, the day the deal was announced, to $18 a share on January 2, 2001. Shareholders lost a bundle and management made out like a bandit. (Pensions & Investments, 1/8/2001)

Green Investing Pays

A study by the Assabet Group of Concord, Massachusetts, finds that all nine environmentally focused funds studied have consistently beaten their benchmarks. The top two performers were the Winslow and Green Century funds with returns of 197% and 72% respectively. (Pensions & Investments, 1/8/2001)

Board Diversity and Independence

While 82 percent of S&P Super 1500 companies (small, mid and large cap companies) have at least a majority of independent directors, women only account for 10 percent and minorities only 7 percent of directors, according to a recent survey by IRRC. Compensation committees are now 90 percent independent, while audit committees average 87 percent independence. The popularity of corporate governance committees appears to be peaking at about 35 percent; many boards address such issues as a whole. (see Board Diversity Needs Improving, Investor Relations Business, 1/8/2001)

In Australia women hold just 3.4 per cent of positions on the boards of Australia’s publicly listed companies, according to a study by Dr Alison Sheridan at the University of New England. Out of 7341 positions on Australian public company boards, women hold just 251 posts while men hold 6409. (see Women in back seat on boards, The Daily Telegraph, 1/16/2001)


“Shaming in Corporate Law,” by David A.Skeel Jr. presents two perspectives: shaming by shareholder activists and judicial shaming. Shaming sanctions are in fashion and “range from requiring drunk drivers to wear tee-shirts announcing their crime to forcing polluters to place advertisements confessing and apologizing for their offense…. each is designed to elicit moral disapproval from the offenders’ fellow citizens” Shaming draws on shared social values.

The article reviews shaming activities by shareholder activists Monks and Minow and CalPERS’ focus firms. A third case study involves a decision of the Delaware chancery court stemming from alleged Medicaid and Medicare violations by Caremark Industries. The article also includes a discussion of shaming by the financial press (Fortune and Business Week). See The Corporate Library, “The Link between Governance & Performance – Reviews by Dr. D. Jeanne Patterson.”

Conference Board

Check out the latest corporate governance Products and Services from the Conference Board.

Back to the topInternational Certification

A Deloitte Touche Tohmatsu team, headed by Richard H. Murray, conducted a year-long study of 6,700 boards and will unveil their findings in the form of discussion points at the World Economic Forum (WEF) in Davos. Among the ideas to be explored:

  • international certification of corporate governance practices
  • active board involvement in strategic planning
  • stakeholder view vs shareholder primacy

See “Is shareholder value the only consideration for companies,” Earth Times News Service.

Aspen Technology

A shareholder proposal requesting the board of Aspen Technology (AZPN), of Cambridge Massachusetts, to rescind their shareholder rights plan reportedly received 54 percent of the votes cast. Last year the same proposal received 49 percent of the votes cast. To join in the fray contact the proponents,Carol R. Aronson and Donald E. Shobrys.

International Right to Know Campaign

A recent survey by the University of Maryland’s Program on International Public Attitudes showed that nearly 90 percent of the American public expect US companies to follow US environmental and safety standards overseas. A coalition of environmental, labor, social justice and human rights organizations will seek legislation to ensure that basic US right-to-know laws are applied to the overseas operations of US-owned companies. It looks like a long term battle.

Environment: The coalition seeks reporting of toxic release inventories, resource extraction, and emissions permits.

Labor: Require OSHA reports, disclosure of hazardous chemicals in the workplace, labor policies, complaints received and posting the ILO Declaration of Fundamental Principles and Rights at Work.

Human Rights: Require disclosure of security arrangements with police, military and paramilitary forces. Report on human rights policies, lawsuits and complaints.

Additionally, they hope to require disclosure of the name and address of all facilities, including those maintained by subsidiaries or contractors, and to enforce the law by allowing government prosecution and citizen suits.

Groups working on the initiative include Friends of the Earth, Amnesty International, American Lands Alliance, AFL-CIO, Global Exchange, Sierra Club, Oxfam America, Student Environmental Action Coalition, People of Faith Network, Rainforest Action Network, and the Center of Concern. For further information, contact David Waskow at Friends of the Earth at endorse the campaign, e-mail

BP Targeted

Four resolutions will reportedly be filed at British Petroleum within the next two weeks on the subjects of:

  1. Global Warming – led by Greenpeace UK
  2. Arctic National Wildlife Refuge – led by US PIRG and World Wildlife Fund
  3. PetroChina/asking BP to apply its own human rights and environmental standards to corporations in which it invests – led by ECCR
  4. PetroChina/asking BP to divest from PetroChina – led by the Free Tibet Campaign (UK)

US and Canadian SRI firms likely to join in filing including Trillium Asset Management, Walden Asset Mgt., Green Century, Ethical Funds, MMA-Praxis.

Back to the topPets.Com Wins Anti-Shareholder Award

Shareholder rights advocate announces the winners of its “Bite the Hand that Feeds You” award for the worst corporate insult to shareholders in the year 2000.Pets.Com took first place. The company made headlines by burning up $150 million shareholder dollars in nine months. It went IPO on Valentine’s Day and was in critical condition by early summer. But over 100 other e-retailers failed in 2000; shareholders should have known this was a very risky investment. Then there was the $1.5 million paid out in management bonuses to oversee the liquidation of assets. This, too, is par for the course. According to eRaider, managers expect a big chunk of the gains if the stock price goes up, but cannot be expected to live on their salary alone if the stock price goes down.

The gratuitous insult that put them over the top was its donation of 20 tons of dog food to Alaskan sled dog owners. The company exploited the donation as a platform to attack shareholders. John Cummings, director of investor relations, told ABC News that Pets.Com waited until it was in liquidation before going ahead because it didn’t want to hear from grumpy stockholders who might want the inventory sold instead.

According to eRaider, most shareholders would probably not mind that 2 ounces of dog food per 100 shares—reducing the eventual payout to shareholders by about 1 percent—was given away. But they did mind Cummings’ arrogance—the person hired specifically to help shareholders appears oblivious to who owned the dog food and who pays his salary. Cummings went on to say, “Our company is committed to pets, to animal welfare. Most people at this company are passionate about it.” Not passionate enough to donate their own money, of course, just passionate enough to give away shareholders’ money and insult them while doing it.

Dime Bancorp, which owns and operates New York’s Dime Savings Bank, came in second. The financial geniuses running this bank spent most of the year using shareholder money trying to block a sale of the company to North Fork Bancorpation at a price more than 50 percent higher than the friendly deal negotiated by the board and management (which, of course, included generous contracts for themselves). But, again, this is standard practice and inspires shareholder cynicism rather than action.

Dime management broke new ground by trying to prove 30 percent is larger than 70 percent. The Dime proxy card allowed shareholders to vote for all director nominees or to withhold their vote…23.8 million shares were voted “for” and 55.2 were voted “”withhold.” Dime declared victory and seated its directors. North Fork and shareholder Lawrence J. Toal promptly sued, and the court quickly granted summary judgment against the Dime. Dime added insult to injury by wasting shareholder money to hire Sullivan & Cromwell, one of the most expensive law firms in the country, to argue its absurd anti-shareholder, anti-democratic, anti-common sense position.

Third place went to Sprint for the most insulting use of a poison pill. Pills are designed to prevent unfriendly takeovers by triggering expensive provisions if anyone acquires more than a certain percentage (most commonly 15 percent) of the company. Clearly this entrenches the board and management, and interferes with the free right of shareholders to get the maximum price for their shares.

Sprint made history by triggering its own pill with an announced merger with WorldCom, creating a $600 million windfall for management. The announcement allowed top managers to exercise options at the pinnacle of the stock’s merger inflated valuation, and then retire. When the merger fell apart, Sprint executives got to keep their options windfall. Today, they crowd Phoenix golf courses and make side income as telecommunications consultants while shareholders own diluted, devalued and undermanaged stock.

Four more companies qualified for dishonorable mention:

  • Storage Technology for saying one thing to defeat a shareholder resolution asking management and directors to hold more stock, then exactly the opposite to later justify their innovative method of repricing.
  • Heartland Mutual Funds for losing 70 percent of Net Asset Value in one day in a short-term municipal bond fund, then making nonsensical explanations to shareholders.
  • Lernout & Hauspie Speech Products NV for the famous “I am responsible for nothing” line from the Managing Director after $100 million in cash and all shareholder value disappeared.
  • Hershey for adopting a poison pill when voting control is already locked up in the Hershey Trust, then giving dismissive to shareholders who asked the obvious question of “why?”
  • Others receiving votes: DaimlerChrysler, Warnaco Group, Mattel, Hyundai, Crown Central Petroleum, Willamette Industries.

Warnaco was my nomination. Warnaco Group, Inc. (WAC) which designs, manufactures and markets a broad line of intimate apparel, jeans and sportswear. For the 9 months ended 9/30/00, revenues rose 13% to $1.70B but net losses totaled $130.3M vs. an income of $95.1M for the previous year. The results reflect higher revenues from sportswear and accessories, offset by an increase in personnel and interest expenses… at least in part to the CEO who was paid $2 million plus a $7.7 million bonus in fiscal year 1999. During the past 12 months, while the average value of DJ clothing/fabrics firms has gained 8.5%, Warnaco shareholders have seen the value of their stock decline by more than 86%.

In this age of Internet commerce, it also gripped me thatWarnaco’s Internet site has consisted of the same message for two years, “under construction.” It was “updated” last year …presumably to note lack of construction progress. Why would any company pay a $7.7 million bonus to the CEO for moving from net profit to net loss? Why would any company advertise their incompetence by having a sign posted on the Internet that indicates that can’t even construct a rudimentary site over the course of two years?

AFL-CIO Petitions SEC to Require Disclosure of Mutual Fund Votes

On December 19th the AFL-CIO petitioned the Securities and Exchange Commission to require mutual funds to disclose how they are voting their shares. Currently, mutual funds aren’t required to disclose the principles they use when voting in corporate elections. Nor do they have to tell investors how they voted. Unlike pension funds, there isn’t even a requirement that mutual funds vote in the best interest of shareholders.

Recently, the UK began requiring that pension funds disclose their social investment policies (if they have such policies). (see news) Just as that law brought a new level of scrutiny to the investment decisions of UK pension funds, the reforms advocated by the AFL-CIO would allow individual investors in the US to ensure their shares are being voted consistently with their values.

As early as 1988 the Department of Labor (DOL) set forth the opinion that, since proxy voting can add value, voting rights are subject to the same fiduciary standards as other plan assets. In my opinion, its about time that mutual funds and other institutional investors also accepted the responsibilities of ownership. (see December 2000 news for a list of mutual funds which do make such disclosures)

Most mutual funds have failed to disclose their proxy voting policies or their votes. Perhaps they have been reluctant to provide such disclosure for fear of being deselected by corporate 401(k) plans. In addition, in many fund families the votes of the funds are probably not in harmony. Some funds will initially find such disclosures difficult, since they risk loosing corporate clients. However, if it is a legal requirement, there will be a level playing field where advantage can best be gained by working in the shareholder’s best interest. Disclosure of mutual fund proxy voting policies and voting behavior should enhance the return on capital by increasing the accountability of corporate officers to corporate owners.

To make the information easy for investors to use, the AFL-CIO asked the SEC to require mutual funds to disclose both holdings and voting information on the Internet in a user-friendly format. A copy of the petition is available by calling (202) 637-3900. For information contact: Bill Patterson (202) 637-3900 or Lane Windham (202) 637-5018. (See AFL-CIO press release) I encourage all readers to join in the AFL-CIO’s request. If fulfilled, it would be one of the most important developments in corporate governance ever.

For more information, read “Make 2001 the Year You Become an Activist Fund Shareholder” by Mercer Bullard in, 1/2/01 or go directly to Fund Democracy for sample letters to the SEC and additional resources. In a follow-up article, “Are Ballots Too Secret? Fund Advisers Should Tell How They Vote Proxies,”Bullard says the AFL-CIO’s proposal “holds out the best hope for improving corporate democracy in 2001.” In my opinion, if adopted the development would rank in importance with the DOL mandate that pension funds treat voting as a plan asset and the SEC’s 1992 communication reforms which allow shareholders to communicate with each other without going through elaborate and expensive filing procedures.

Proxy Monitor Acquires Fairvest

New York’s Proxy Monitor, a leading voting advisor to institutional investors, acquired Fairvest, our primary source of corporate governance information and advice in Canada. The Toronto based firm will now be known as Fairvest Proxy Monitor Corporation. see 01/03/01 press release

Focus on the Corporation

If you’re interested in corporate governance, you may also be interested in a weekly column “Focus on the Corporation,” co-authored by Russell Mokhiber, editor of Corporate Crime Reporter, and Robert Weissman, editor of Multinational Monitor magazine. It reports and comments critically on corporate actions, plans, abuses and trends. Written with a sharp edge and occasional irreverence Corp-Focus can be read at or you can get a free rabble rousing e-mail subscription by sending a note to the moderated listserve at with the text subscribe.

The latest edition points to cooperation between the FBI and insurance industry in fighting insurance fraud and asks, “wouldn’t it be great if consumer groups had a working relationship with the FBI — just pick up the phone and call your local FBI agents, and have them knock on the door of the CEO of the insurance company, and begin asking questions? Wouldn’t it be great if law enforcement sided with individuals against corporate criminals in our midst?”

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