Pension funds, unions are flexing their proxy muscle

Anger over compensation of CEOs behind 55% rise in shareholder proposals

February 16, 2003|By THE BOSTON GLOBE

Angered by CEO compensation and seeking to improve corporate governance, unions and their pension funds have filed 297 corporate shareholder proposals this year, up 55 percent from the total number of proxy resolutions they introduced in all of last year, according to the Investor Responsibility Research Center.

"Unions have used the proxy process before, but they are getting more active," said Jay W. Lorsch, a professor at Harvard Business School. "Union pension funds are also significant shareholders, and they have decided to use the proxy process to try and influence corporate governance, which is their right."

This year the AFL-CIO, a federation of 65 unions, introduced a shareholder resolution at Tyco International Ltd. That resolution would require shareholders to approve the size of executive buyouts. The measure is to be voted on at Tyco's annual meeting in Bermuda March 6. The AFL-CIO's member unions have more than $400 billion in assets in their pension benefit funds, including hundreds of thousands of shares in Tyco.

The AFL-CIO proposal is one of four being offered at Tyco. The others were filed by pension funds for the American Federation of State, County and Municipal Employees and the International Brotherhood of Electrical Workers, and the officers of Amalgamated Bank, which is owned by the Union of Needletrades, Industrial and Textile Employees.

Tyco spokesman Gary Holmes declined to comment on the proposals. However, in its proxy statement, Tyco has indicated that it will recommend that shareholders vote against the union proposals.

Based in Washington, the Investor Responsibility Research Center provides research on corporate governance and proxy voting to institutional investors.

Last week, it joined with advocacy groups monitoring corporate involvement in social or environmental issues to announce a record number of resolutions by unions and religious and environmental groups. The other organizations are the Social Investment Forum, the Interfaith Center on Corporate Responsibility and the Coalition for Environmentally Responsible Economies.

862 proposals filed

Shareholder groups filed 862 proposals with companies through early February, up from 802 submitted during all of last year, according to the IRRC.

AFL-CIO, expected to release its own report on labor-related shareholder proposals, said its affiliates and their pension funds have filed 380 proposals thus far, almost double the number filed in 2002.

Most of the union shareholder resolutions attack stock options awarded to executives, said Brandon Rees, research analyst at the AFL-CIO investment office. Many executives receive options that rise in value as the company's stock rises above the price at which the stock option was granted.

Unions want the exercised price of an option tied to a benchmark such as the Standard & Poor's 500 stock index. That would allow an executive to profit only if his company surpasses the market index.

"We think it is better to tie the executive pay to company performance," Rees said. "It would make stock options performance-based. Grants would be paid according to the relative performance to competitors. That is a better measure than relying on the simple day-to-day fluctuations of a company stock price."

Rees said the AFL-CIO has filed more than 30 shareholder resolutions so far this year.

Union voice heard

Specialists said the nation's economic woes and anger over escalating executive compensation are causing shareholders - and in some cases, the targeted companies - to pay more attention to the union proposals.

Of those filed last year, 41 were withdrawn after action was taken by the companies targeted, the Investor Responsibility Research Center said.

The center also notes that far more Americans, including union members, hold stock through 401(k) plans and mutual funds today, and many were angered by the scandals.

"Corporate governance is getting tremendous play in the general press because of corporate malfeasance - Enron, Tyco, you name it," said Bruce Beebe, editor of Directorship Monthly, a resource for corporate directors on best board practices.

"No. 2, there is a sense among institutional investors that they have not taken nearly as active a role on such issues as compensation and independent audits. Unions and church groups were filing proxy resolutions for years, but people are paying more attention now. It's front page news."

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