A Yahoo shareholder's failed human rights proposal

@CNNMoneyTech July 6, 2011: 5:05 PM ET
A Yahoo shareholder's failed human rights proposal

NEW YORK (CNNMoney) -- Even the smallest shareholders get their day once a year, when public companies are required to throw open their doors and let stockholders bend the ear of corporate bigwigs.

Those shareholders can also file written proposals for company policies and ask that they be put to a vote. Most die on the vine: Companies can petition the SEC to let them exclude propositions from their annual shareholder ballots, and it's an option they use liberally. More than 150 shareholder proposals were blocked this year, mostly because companies don't have to put up for a vote suggestions about their day-to-day workings.

But one man's six-year struggle finally paid off.

Yahoo (YHOO, Fortune 500) investor Jing Zhao has proposed each year since 2005 that the company adopt a code of human rights principles. For five years in a row, Yahoo blocked the proposal from its ballot -- but this year, the SEC told Yahoo it should put the issue up for a vote. It did.

Zhao's was the only shareholder proposal to make it onto Yahoo's ballot. That's typical: Most companies put less than half a dozen issues up for vote, and almost all of them are suggested by the company's management.

Zhao's "Human Rights Impacts of Yahoo Business" would mandate that "no information technology products or technologies will be sold, and no assistance will be provided to authorities in China and other repressive countries."

Zhao, a Chinese refugee and president of the activist group Humanitarian China, was "really shocked and so pleased" to finally have his proposal go public -- even though the proposal was voted down at Yahoo's extremely tense shareholder meeting last week.

"This is a victory of American ideals, and why I love this country," Zhao said. "I really just wanted to be able to broadcast my proposal to the other shareholders."

Corporate democracy in action: Before the vote, Yahoo's board released a statement recommending that shareholders vote against the proposal. (The company declined to comment further.)

Institutional Shareholder Services (ISS), a group that provides corporate governance guidance, also recommended voting the proposal down.

Yahoo called Zhao's suggestion "unnecessary," pointing out that it already has several human rights initiatives -- including a "Business & Human Rights Program" founded in 2008 and the Yahoo Human Rights Fund. Yahoo also noted that it's a member of the Global Network Initiative, a group of companies that are working on "collaborative approach to protect and advance freedom of expression."

Zhao read a three-minute statement at the Yahoo shareholder meeting, accusing Yahoo of "hid[ing] some truth to mislead our shareholders" over the Human Rights Fund and related issues.

After Zhao's speech, the shareholders voted on his proposal and three other Yahoo-supplied suggestions.

Shareholder proposals companies don't want you to see

Zhao's proposal drew 25 million "yes" votes and 779 million "no" votes. All of Yahoo's company-backed proposals -- about reelecting board members, executive compensation and the selection of an accounting firm -- were approved.

That's par for the course. Ted Allen, governance counsel for ISS, said 817 shareholder proposals have made it to a vote so far this year -- but only 94 got majority support.

The vast majority of those -- 89 out of 94 proposals -- were about governance issues, like rules on what counts as majority vote. The five remaining proposals that passed focused on social policies, and one of those was supported by company management.

So, with a social policy lacking company support, Zhao had about a 4 in 817 chance of getting his proposal passed.

"Human rights issues just don't tend to do that well," Allen said. "A large number of the shareholder vote is institutional investors, who tend to think social matters should be left to management. They'd rather leave shareholder voting to governance issues. "

But Zhao says he's pleased with any slight progress.

"I provided a really important message about how the board has failed the shareholders," Zhao said. "I will continue to press for this."

He's made similar proposals to Google (GOOG, Fortune 500), Cisco (CSCO, Fortune 500), Chevron (CVX, Fortune 500) and News Corp. (NWSA, Fortune 500) -- but he's gotten the furthest with Yahoo, and he has no plans to give up.

"Yahoo is a great company, despite their faults, and that's why I buy positions," Zhao said. "I spent my money to become a shareholder and communicate with American corporations." To top of page

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