AP: Corporate Scandals Spur Investor Proposals for Reform

AP: Corporate Scandals Spur Investor Proposals for Reform

February 13, 2003

NEW YORK (AP) - Investor activists, driven by discontent over corporate scandals, have stepped up pressure on companies to put reform proposals up for shareholder votes.

Shareholder groups filed 862 proposals with companies through early February, up from 802 submitted during all of last year, according to a report by the Investor Responsibility Research Center and the Interfaith Center on Corporate Responsibility.

About three-fourths of the proposals ask companies to change governance practices including curbing excessive executive pay, separating the position of chief executive and chairman, and asking companies to move their headquarters back to the U.S. from offshore tax havens.

''Investors are moving from passive holders of stock to becoming active and responsible owners,'' said Timothy Smith, president of the Social Investment Forum, a trade group for socially responsible investment businesses, which joined in putting out the report, released Wednesday.

The surge in proposals filed this year could well be a record, the report says. The previous high over the past five years was the 821 proposals filed in 1997, but figures from earlier years were not immediately available.

The resolutions, submitted by pension funds, religious orders, unions and other advocacy groups ask that shareholders be allowed to vote by proxy on the proposals before companies hold their annual meetings. Most of those meetings are held in the spring of each year.

Such resolutions are non-binding on companies and shareholder groups usually withdraw about a quarter of them before a vote take places after negotiating changes with the firms. A numbers of resolutions asking companies to count stock options as an expense have already been withdrawn because of companies' agreement to do so.

The vast majority of resolutions that do go to a vote win only limited support from shareholders, and companies ignore many of those that do win majority backing. But the attention garnered by some resolutions has helped pressure companies to make changes.

Most recently, for example, such resolutions led some companies to change their policies to include clauses prohibiting discrimination against gay and lesbian employees.

The shareholder proposals filed so far this year include 625 resolutions focused on corporate governance issues, up from 529 during all of last year. Investor groups have also filed 237 proposals related to social change, compared with 273 during all of last year.

Some of the most common proposals include a demand, principally from unions, that companies abolish compensation in the form of stock options, submitted to companies including AOL Time Warner, American Express, Verizon Communications and Wells Fargo.

Another group of proposals ask companies including Bristol Myers-Squibb and Coca-Cola to review and report on executive compensation.

Religious and social groups have asked another group of companies to prepare reports comparing the pay of their top executives with their lowest-paid workers as a means of determining whether executive pay is excessive. Companies targeted include Alcoa, Pfizer and J.P. Morgan Chase & Co.

The article originally appeared in theAssociated Press on February 13, 2003 by Adam Geller.