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Corporations start to listen as shareholders find their voices

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By ROBERT TRIGAUX, Times Business Columnist

© St. Petersburg Times
published February 17, 2003

Once upon a time, a giant stepped on a small mound of ants. The thick-skinned giant barely noticed the ants, who were too small and too few to convince such a large foe to move on.

Years passed. One day, another giant -- bigger and thicker-skinned than the other -- stepped on another mound of ants. But this time, the mound was broad and deep and full of fire ants. In little time, the angry ants caught the giant's utmost attention. Not only did he quickly move his foot, but he was painfully reminded from that day on to step with care.

With a new season of annual shareholder meetings upon us, there's a lesson to this fable.

Big corporations long accustomed to trampling shareholder proposals are starting to find it tougher to ignore such resolutions. And in more and more cases, corporations are deciding to bend and deal with reasonable shareholder proposals before they sustain -- like the bite of fire ants -- an unpleasant experience.

Case in point: For more than 10 years, Cracker Barrel Old Country Stores' parent company, CBRL Group, resisted shareholder resolutions seeking to bar sexual orientation discrimination. In November, the resolution received 58 percent support from voting shareholders at CBRL Group's annual meeting.

The vote was a milestone -- and is now a rallying cry. It was the first social issue proposal opposed by a company's management ever to win majority support of shareholders. CBRL's board of directors voted immediately to amend its policy and honor the resolution.

The message? Persistence pays off.

There's a little secret in all this. While most shareholder resolutions never gain a majority support of voting shareholders, some don't need to. When investor support starts to approach 10 percent, some companies start taking the issue more seriously. And sometimes, they choose to change their policies on their own.

In 2003, investor activists are stepping up the pressure on companies to put a wide range of reform proposals up for shareholder votes. Through early February, shareholder groups filed 862 proposals among 2,000 major companies, up from 802 submitted during all of last year. The figures appear in a report issued last week by two prominent investor activist groups, the Investor Responsibility Research Center and the Interfaith Center on Corporate Responsibility.

Shareholder activism has slowly gained steam for years. But the recent rash of corporate misbehavior by Enron, WorldCom, Arthur Andersen, Tyco International and dozens of other companies has outraged investors and fueled reform-minded groups to press companies as never before to clean up their acts. Resolutions, typically 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.

With the vast majority of this year's annual shareholder meetings scheduled to take place from April to June, the heat is on.

Of this year's 862 known proposals, about three-fourths ask companies to change governance practices by curbing excessive executive pay, separating the position of chief executive and chairman, and moving their headquarters back to the United States from offshore tax havens.

The surge in proposals is on track to become a record, last week's report says. Numbers won't be finalized until the fall.

Some shareholder proposals are so adamantly opposed by companies that executives will fight to keep the resolutions out of their annual proxy statements. Just ask Sister Pat Wolf, who runs the Interfaith Center on Corporate Responsibility, a group representing faith-based pension funds, dioceses, religious orders, health systems and publishing houses with $90-billion in invested assets. Her group filed a pay disparity resolution this year asking certain companies to disclose the pay of both their top executives and their lowest paid workers.

"I am astonished to report that J.P. Morgan Chase has challenged the resolution," Wolf says, by protesting that it does not understand terms such as "lowest paid worker" or "total compensation" or "top executives." Exclaims Wolf: "Can you imagine?"

Here's a breakdown on this year's shareholders' proposals and some of the companies that must deal with them:

Environmental: About 60 resolutions, most related to global climate change, were filed at companies such as ExxonMobil, Caterpillar, ConocoPhillips, Reebok and Staples. Ford and General Motors face new resolutions asking for annual reports on auto emissions.

Similar resolutions are pending with such utilities as American Electric Power, Cinergy, PG&E, Southern and Xcel Energy. And resolutions at ChevronTexaco, Weyerhaeuser and General Electric ask for information on emissions and any plans to use more renewable sources of energy.

Social: Emboldened by the Cracker Barrel breakthrough last fall, more resolutions are asking companies to adopt antibias policies covering the sexual orientation of employees. Where there were nine such proposals last year, 19 have been filed thus far in 2003.

While resolutions are pending at El Paso Energy, J.C. Penney and Ingram Micro, similar proposals were dropped at Duke Energy, Dynegy and other companies after they voluntarily revised their policies.

CEO compensation: Executive pay issues account for a stunning 44 percent of all corporate governance proposals this year. Last year, the dominant issues were traditional antitakeover and board of director matters. Also this year, 101 resolutions have been filed (most by labor unions) asking companies to expense stock options.

Proposals to restrict executive pay by abolishing stock option compensation are before AOL Time Warner, American Express, Amgen, Verizon and others. Other proposals to freeze executive pay during layoffs and set a maximum ratio between the most and least paid workers are before Bristol-Myers Squibb, Coca-Cola, EMC and (again) Verizon.

Splitting the CEO and chairman jobs: Prompted by the abuses of power found among CEOs who carried the additional title and clout of chairman, a surge of resolutions this year seek to split the positions between two people. So far, 27 proposals were filed compared with just four in 2002.

Offshore tax havens: New this year, these proposals want companies incorporated in offshore tax havens to reincorporate in the United States. Again, investors were motivated by perceived corporate abuses of dodging taxes and other business responsibilities. Among the companies targeted: Carnival Cruise Lines, Cooper Industries, Ingersoll-Rand, McDermott International, Schlumberger, Transocean and -- among the most notorious -- Tyco International.

Listing the remaining wide variety of shareholder proposals this year would exceed the space left in this column. Trust me. There are hundreds out there, from encouraging drug companies to take a more active role in fighting the spread of HIV/AIDS in Africa (a proposal with new life since President Bush committed the U.S. government to the same cause in his State of the Union address last month) to seeking greater diversity on boards of directors.

Most of these proposals will briefly burn bright then disappear after strong shareholder opposition. Many will return the next year, and the next, to try again.

Sometimes, perseverance works. Just ask 73-year-old Holocaust survivor Evelyn Davis. Diligent St. Petersburg Times readers last read of Davis in May, when the gadfly and perennial thorn of corporate CEOs showed up in Tampa at the annual meeting of J.P. Morgan Chase. Davis, clearly ahead of the national media on the bank's messy relationship with bankrupt Enron, stood up and scolded the CEO in a sharp accent: "What about Enron?"

Well, the bank was not Davis' only target. After resisting for 18 years, Bristol-Myers Squibb recently agreed to give up staggered elections for its board of directors and put all members up for a vote every year, pending shareholder approval. That switch never would have happened without the relentless Davis.

Bristol-Myers simply says Davis showed there was substantial support for her board proposal. It was time to change.

Such shareholder victories are rare. But the full-court press of shareholder activism on so many fronts means more wins are on the way.

-- Robert Trigaux can be reached at or (727) 893-8405.

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