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PROXY SEASON IN FULL SWING

May 2004

May 1 2004 by Chief Executive


It’s proxy season, and shareholders continue to flex their muscles. By the end of the first quarter, 1,074 resolutions already had been filed, just eight shy of the number filed in all of 2003. And the proposals continue to draw increasing shares of the vote. Executive pay remains a big issue, as does global warming. In addition, shareholders are raising concerns about the economic impact of HIV/AIDS and political contributions by corporations.

Shareholders are also intent on shaking up boards, voting in unprecedented numbers to block directors from being reappointed to boards seen as too cozy. Most notably, a 40 percent “no confidence” vote for Disney’s Michael Eisner cost him the chairman’s job and left his position as CEO tenuous.

To head off potentially damaging situations, a growing number of boards are taking a different tack. To misquote an old advertising slogan, it seems they’d rather switch than fight.

Shareholders of JP Morgan Chase, for example, were concerned about the company’s environmental risk. After meeting with shareholder groups that sponsored the proposal, including Christian Brothers Investment Services, Trillium Asset Management and Domini Social Investments, the bank agreed to assess the environmental impact of deals it underwrites or plays a role in. In response, the groups withdrew their resolution.

Similar scenarios have unfolded in the energy industry. AEP, the country’s largest power generator, agreed to investors’ request for better reporting on its efforts to reduce greenhouse gas emissions, which are likely to be regulated in the future. AEP’s change of heart came after a similar resolution last year grabbed a surprising 27 percent of the vote. Other energy companies have followed suit.

In some cases, management has even encouraged the resolutions. Coca-Cola’s board urged investors to vote yes on a resolution concerning the economic impact of HIV/AIDS on the company’s operations. Shareholder groups argued that the AIDS pandemic in Africa afflicts Coke’s employees and customers, and hurts the company. They urged Coke, which already has some pioneering AIDS programs, to analyze the impact and take action. With a nod from the board, 97 percent of shareholders voted for the resolution.

Of course, not all corporations are taking that route. ExxonMobil has famously opposed environmental resolutions despite global shareholder campaigns. And Pepsi, which faces an upcoming vote on the same HIV/AIDS issue that Coke approved, has declined to embrace the proposal.

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