Clowns, Annual Election of Directors & ACGI

Like many, I read that a proposal at McDonalds to halt marketing to kids, retire Ronald McDonald, and report on links between fast food and children’s health, failed… winning only 6% of shares voted. Every change has to start somewhere.

However, I also learned from a reliable source that a proposal submitted by Florida SBA, with the assistance of the American Corporate Governance Institute (ACGI) to declassify the board won 77%. It was a real cooperative effort, with Dan Nielsen, the Director of Socially Responsible Investing at Christian Brothers Investment Services, presenting the proposal at the meeting.

It is great to see shareowners working together and even more exciting to learn about ACGI, which I see Nell Minow already discussed a bit back on May 10.  Minow writes a little on the evolution of classified boards, cites a study that finds they insulate directors while providing no apparent benefit and discusses the campaign by Florida SBA and the Nathan Cummings Foundation to address many of the 10% of large company boards that remain classified with the help of ACGI.

I knew Florida SBA was looking to submit proposals but was somewhat reluctant given the time, effort and expertise they take. I don’t know the specifics but I imagine that it is hard for public pension funds, or almost any fund, to justify increased costs. That’s why I am especially delighted to see formation of ACGI, headed by Lucian Bebchuk with Scott Hirst, Jesse Fried and Robert Jackson Jr. also involved.

Members of the ACGI’s 2011 advisory board are: Richard Breeden (Breeden Partners), Michael Garland (NYC Retirement Systems), Jeffery Gordon (Columbia Law School), Oliver Hart (Harvard Economics Department), Michael McCauley (The Florida State Board of Administration), Anne Sheehan (CalSTRS), and Daniel Summerfield (USS). All members of the advisory board serve in their individual capacity; institutional affiliations are listed solely for identification purposes.

So far, ACGI site is sparse. However, it does note the Institute seeks to contribute to improving corporate governance and accountability in publicly traded companies. The ACGI seeks to make such a contribution by:

  • facilitating institutional investors’ engagement with publicly traded companies;
  • facilitating research on improving corporate governance and accountability;  and
  • facilitating interactions among institutional investors, interactions between such investors and publicly traded companies, and interactions between investors and companies and researchers working in this area.

This is a very promising development. John Chevedden assists a network of retail shareowners and they typically submit well over 100 proposals. Imagine what ACGI can do with, I’m sure, substantially more resources. They should especially have an excellent ability to write supporting statements backed by academic research and be able to defend against no-action requests.

I hope ACGI will continue to work cooperatively with others attempting to facilitate shareowner engagement. I know, for example, the United States Proxy Exchange has created a network of “field agents” around the country willing to go to shareowner meetings to present proposals, thus saving proponents some expense.

It would be great to also see better coordination of proposals. No sense two shareowners working on the same proposal at the same company.

Another area where help is needed and ACGI seems especially qualified in in the area of legal actions. Readers of this blog know what happened this year at KBR. They took Chevedden back to the same court that ruled in favor of Apache last year and the judge handed down a ruling that KBR could exclude his proposal, not based on the requirements for shareowner proposals but based on the requirements for proxy access…. rules on an entirely different subject and rules that have been stayed pending the outcome of the lawsuit.

Legal advice. There are also innumerable issues that arise… like can they skip over proxy items at annual meetings. Recently, at Southwest they skipped over SOP and SWOP proposals from mgt, catching a presenter for a shareowner proposal off guard. I once had a proposal at Whole Foods where the presenter was told they couldn’t present until after the business meeting was over…. had to wait until Q&A period. How do we deal with that. SEC rules say we have to present, but we are at the mercy of corporate managers running the meeting.

Proxy proposal templates. ACGI could host a database of downloadable proxy proposals that have passed the test of no-action requests.

Software coordination of efforts around proxy access. I know there are a number of companies that have developed software for raising private equity where the companies simply facilitate pooling money and legal filings within the constraints of various laws. Users simply fill out online forms, much like using tax return software. Bell could ring when those representing 3% of shares have signed on. If we do get proxy access it is likely to be practically unworkable without this sort of effort.

I’m sure I’ve got at least a dozen ideas for ACGI but I’m eager to see what the actually do. They certainly seem to be off to a good start, working with Florida SBA and he Nathan Cummings Foundation.

I’ve added links to ACGI on our Links page under Corporate Governance Centers and under Legal Services. Time will tell if these are the best categories.

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