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Stockholders taking aim
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December 19, 1997: 6:10 p.m. ET
SEC, companies are responding to more activism among shareholders
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NEW YORK (CNNfn) -After waiting 45 minutes at Consolidated Edison Co.'s special shareholders' meeting on Dec. 13, investor John Gilbert finally got his chance to talk about an issue he's tracked for years.
Grabbing the microphone, Gilbert asked Con Ed Chairman Eugene McGrath about the company's policy dealing with in-house auditors.
"We've seen so many foolish happenings at companies where the auditors don't do their job," Gilbert said amid the standing-room-only crowd at Con Ed's headquarters near New York's Union Square.
Activists like Gilbert are a familiar sight at corporate shareholder meetings. They question the chairman about executive bonuses and scrutinize proxy statements. They line up at microphones to demand concrete answers about expense accounts and voting procedures.
But where should companies draw the line? How do they provide time for general questions if they're also fielding requests from people with private agendas? Should companies set limits on speakers who drag meetings on for hours?
The debate helped prompt the Securities and Exchange Commission to propose changes that make it more difficult for stockholders to re-submit unsuccessful proposals at annual meetings. The proposal would double, and in some cases triple, the percentage of votes required on a failed resolution to re-file it.
Companies such as General Motors have changed procedures to rein in long-winded speakers while allowing valid questions, said spokeswoman Toni Simonetti. Some well-known "gadflies" used to get booed by other investors because they gabbed on for so long at GM meetings, she said.
GM now imposes time limits on speakers and holds frequent regional meetings nationwide to give shareholders more access, Simonetti said. Speakers get three minutes to introduce a proposal, two minutes to talk about a candidate for the board, and one minute for other topics.
"The annual meeting used to last eight hours," Simonetti said. "I think we've come up with a pretty elegant solution. Now we can get to the grass-roots shareholders without a lot of contrived filibustering."
American Express last year limited speakers at its annual meeting to five, one-minute segments, said Lou Thompson, president of the National Investors Relations Institute in Washington, D.C.
Thompson said so-called shareholder "gadflies" are a small presence at annual meetings overall.
"The 'gadflies' today are an annoyance, but in comparison to other (shareholder) activism, they are barely a blip on the radar screen," he said. "The real shareholder activists have a significant role."
Taking on Corporate America
Kenneth Steiner, 31, is a registered investment advisor from Great Neck, New York. Steiner has proposed dozens of resolutions for consideration at shareholder meetings in the past four years. And he and his father, William, helped co-found the Investors' Rights Association of America.
The younger Steiner called for staggered terms at Digital Equipment Corp.'s annual meeting in November. He opposes the adoption of "poison pills" to prevent takeovers and supports paying board members in stock instead of cash. Last year alone, he submitted about 20 proposals.
"I'm investing in companies that I assume are doing the maximum to maximize the value of my investment," Steiner said. "If I see that they're doing something to damage shareholder value, I want to do something about it."
Steiner thinks everybody should have a chance to speak their mind -- but he also thinks they can do it in a reasonable amount of time.
"Any good point can be made in five minutes or less," Steiner said.
Robert Morse, 81, a retired jeweler from Morristown, N.J., has tried to ban stock appreciation rights for board members. He's submitted resolutions about it at Ford Motor Co., Chrysler, Merck Corp., and AT&T, among others.
"That's my money they're giving away -- company assets," Morse said.
And while Morse agrees with Steiner that some investors occasionally ramble at the meetings, he thinks far too many other stockholders don't know enough about the companies.
"I like the idea of stirring up interest in the stockholders," Morse said. "They don't know anything. They have the crumbs and the company is taking the pie."
The law
State laws require companies to hold annual meetings to elect directors, said Michael Goodman, a vice president at the American Society of Corporate Secretaries. Corporate secretaries run annual meetings, keep the minutes and coordinate information on the resolutions.
Under federal law, shareholders who have owned at least $1,000 of stock for one year can submit resolutions to be included on the proxy statement, Goodman said.
Companies support the changes proposed by the S.E.C. because they think resolutions are costly and suggest a lack of faith in how they are running the business, Goodman said.
Sometimes, top executives will actually negotiate with shareholders to withdraw resolutions, said Gerald Armstrong, 56, an activist from Denver.
Armstrong, president of Rocky Mountain Fuel Co., submits proposals at meetings every year. In one case, he said, Larry DeMuth, a former general counsel at U.S. West, negotiated with him when he proposed establishing confidential voting. The company agreed to adopt another policy and he withdrew the resolution.
"I believe in the Democratic rights of stockholders," Armstrong said.
A spokeswoman for U.S. West said she couldn't verify the story because it happened in the 1980s. She added, however, that Armstrong is a familiar face at annual meetings.
Making a difference
Supporters of shareholder rights argue that the proposed S.E.C. changes will silence a voice in Corporate America that deserves to be heard. The Social Investment Forum did a study showing that the proposed rules would block a majority of resolutions on financial and social issues.
Under existing rules, a shareholder can resubmit a resolution if it received 3 percent of the vote in the previous year. On a second attempt, the percentage increases to 6 percent, and 10 percent on a third try. The S.E.C. plans to raise those percentages to 6, 15, and 30, respectively.
The 30 percent benchmark has created the most controversy. Such a high percentage would have prevented many resolutions on companies doing business in and with South Africa that helped chip away at apartheid in the 1980s, said Alisa Gravitz, vice president of the forum.
Thompson of the National Investors Relations Institute said activism by the California Public Employees Retirement System (CalPERS), a $100 billion pension fund, also made a difference. CalPERS proposed changes approved by the S.E.C. in 1992 that required that more information on a company's performance be published in its annual report, he said.
Those changes, according to Thompson, led to more scrutiny -- and eventually the departure -- of chief executives at companies such as I.B.M., Kodak and American Express.
"It really helped focus the issue of shareholder activism on the issue of corporate performance as it related to compensation and governance," Thompson said.
Con Ed responds to John Gilbert
Back at the Con Ed meeting, shareholders authorized the repurchase of up to $1 billion of stock and approved a new holding company as McGrath took a range of questions from the audience. McGrath assured Gilbert that the company rotates its in-house auditors.
"We don't want to have the same person in place for too long," McGrath said.
Not quite satisfied with the answer, Gilbert asked to hear a few words from the outside auditing firm, Price Waterhouse.
McGrath joked that James Dooley, a client-service partner at Price Waterhouse who was also at the meeting, would have to share Gilbert's microphone.
"Mr. Gilbert," McGrath said, "He can get up close and personal to you."
-- By staff writer Martine Costello
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