Shareholder resolutions: thorns that annoy giants


Dollars & Sense

November 18, 2001|By EILEEN AMBROSE

AS INVESTORS, the Marianist brothers and priests in Baltimore expect more from companies than rising earnings and stock prices.

"We're looking for a company to be socially responsible in the broadest sense with their employees, with the environment, with how their product is manufactured," said Brother Steven O'Neil.

That's the reason the Catholic religious order has filed shareholder resolutions for decades.

These proposals, trying to prod certain action from a company, appear in the proxy statement and are presented at the annual meeting for a shareholder vote.

Resolutions may address social issues, such as restraining price increases on pharmaceuticals or keeping tobacco out of youngsters' hands.

Or, they may deal with how corporations run themselves, and attempt to rein-in executive pay or eliminate directors' staggered terms that make it harder to get rid of lapdog boards. Though not binding if they pass, resolutions can influence how a corporation does business.

"There are different levels of success. Just filing the resolution and helping to educate other stockholders is a success itself and an important piece to the effort," O'Neil said. "If the company responds positively, that's even greater success. If they actually decide to move on the resolution and commit to some action, that's the ultimate success."

The Marianists, which have about 60 stocks in a $9 million stock and bond portfolio, expect to file eight resolutions for next year.

This is the time of year when shareholders file resolutions for spring annual meetings. (Check a company's previous proxy statement for the deadline.)

If you have little luck getting your concerns addressed by a company through the usual channels, consider filing a resolution, shareholder activists say.

The number of resolutions has been stable over the past decade, although more are passing. Last year, shareholders at 2,000 companies filed 820 resolutions and 386 were voted on, reports the Investor Responsibility Research Center in Washington. Of those, 53 passed. Five years earlier, only 16 passed.

Many companies hate resolutions and try to keep them off the proxy ballot. "It is viewed by corporations, in general, as an adversarial move. It's like taking someone to court," said Richard Ullrich, director of the Marianists' Office of Justice and Peace. "Whereas, we say we use the resolution to really get their attention. We want to sit down and talk."

Washington securities lawyer Richard Rowe said companies generally find resolutions "irritable at best," and he advises his corporate clients to work out a compromise with shareholders so the matter never comes up for a vote.

The Marianists, for instance, withdrew a resolution a couple of years ago after Crown Central Petroleum Corp. agreed to prepare a report on its hiring of women and minorities. But companies often try to throw out a proposal for not meeting stringent standards. For that reason, if you submit a resolution, "you want to be bulletproof," said Nell Minow, editor of The Corporate Library in Washington.

To file a resolution, you must own at least $2,000 worth of stock or 1 percent of shares, whichever is less, for at least a year. You need to show proof of stock ownership, and hold the shares through the annual meeting. And you or a representative must attend the meeting to present the resolution.

A resolution and supporting statement can't exceed 500 words, although some companies waive that limit. There's no word limit on the company's rebuttal.

"There are a lot of grounds that the company can challenge it," said William Smith, a management professor at Towson University.

For example, resolutions can't call for breaking the law, be false and misleading or involve a personal grievance. They can't be about an insignificant part of the business or about something outside the company's power.

And resolutions can't deal with "ordinary business," a common reason for omitting them. "For example, you don't enter a shareholder resolution that says, `UPS, I want all your trucks painted yellow, not brown,'" Ullrich said.

A company omitting a resolution must inform the Securities and Exchange Commission, which advises whether the omission is legitimate.

Experts suggest ways to improve a resolution's chances of success:

"You have to be informed about the issue. You must know what the corporation has done on that issue in the past and what they have in place," Ullrich said. The company may have adopted a policy on the issue and can argue to the SEC that your proposal is moot, he said.

"Be careful not to use exaggerated, inflammatory language," said Amy Domini, president of New York-based Domini Social Investments, a socially responsible investing mutual fund company. That can turn off institutional investors that otherwise might have voted for the resolution.

Be specific. "Being vague is going to confuse management and confuse other shareholders," Smith said.

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