Posted on: Monday, February 24, 2003

Investors shunning proxy voting

By Russ Wiles
Arizona Republic

Traditionally, corporate proxy votes have had all the suspense of an election in the former Soviet Union. Management routinely wins such votes, quashing any opposition.

But that's starting to change. A lot more shareholders are up in arms over outlandish CEO pay and other corporate-governance issues as they deal with a prolonged bear market and stagnant economy.

Against this backdrop, the upcoming proxy season promises to be a lot more interesting and meaningful. And it should stay interesting and meaningful for years to come now that mutual funds, which have the clout to swing many proxy elections, must reveal how they vote.

The rise in activism stems partly from all those Enronesque scandals that came home to roost recently.

"Investors are moving from passive holders of stock to becoming active and responsible owners," said Timothy Smith, president of a group of money managers called the Social Investment Forum. He thinks 2003 will be remembered "as the year when investors decided to stand up and be counted."

As of Feb. 1, at least 862 shareholder proposals had been filed at U.S. public corporations, compared with 802 for all of 2002, according to the Investor Responsibility Research Center and the Interfaith Center on Corporate Responsibility. The groups predict 2003 will bring a record number of resolutions.

Corporate-governance proposals dominate the list, accounting for nearly three-quarters of this year's tally. But at least 237 proposals on environmental and social issues also have been filed so far, up slightly from 2002.

Some of the more interesting battles involve resolutions on noxious gas emissions at Caterpillar, Exxon Mobil Corp, ConocoPhillips and various other companies, including several utilities. Resolutions to restrict executive pay in some way are being proposed at AOL Time Warner, American Express, Wells Fargo and elsewhere.

AOL Time Warner, Honeywell and JPMorgan Chase, among others, are being asked to provide comparisons of pay for their top executives with that of their lowest-paid workers, both here and abroad.

Many of these proposals merely ask companies to report on their involvement in various activities, plus the attendant costs and risks.

Ultimately, though, activists are seeking a change in corporate policy. Last year marked the first time a social issue opposed by management won a proxy election. It involved a proposal attacking discrimination against gay employees at CBRL Group, which runs Cracker Barrel restaurants. Management said it would adopt the anti-discrimination policy.

The Securities and Exchange Commission earlier this year decided to require mutual funds to reveal how they vote on proxy matters. Fund companies often have enough power to decide proxy votes but usually prefer to work behind the scenes. The SEC action came against the wishes of most fund families, which worry that their businesses will become politicized by special-interest groups bent on advancing a social cause.

That's a legitimate concern. It will be up to the vast majority of both mutual fund and corporate shareholders, many of whom don't vote their own proxy ballots, to wake up and pay more attention to what's going on.