cwa shareholder activism 1 guide to shareholder activism for cwa members and retirees june 2009
TRANSCRIPT
CWA Shareholder Activism1
Guide to Shareholder Activism for CWA Members and Retirees
June 2009
CWA Shareholder Activism2
Introduction
Use shareholder activism to move companies on issues and pressure them to adopt better practices
Rise in defined contribution pension plans (e.g., 401(k) plans)
– More opportunities to intervene since individuals have ownership stakes
CWA has had important shareholder victories– Verizon, shareholder “say on pay”– Dow Jones, annual election of directors– General Electric, majority vote required to elect directors
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Background
Public vs. private companies – Public: Any individual, pension fund, or other
institutional investors can buy shares– Public: Shares traded in markets
Labor stakes in public companies– Individually through savings plans– Collectively through pension plans
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Public Companies and Shareholder Rights
Public companies are required by incorporating state to hold annual meeting of shareholders
Shareholders can draft proposals to be voted by other shareholders
– Must be of general or strategic nature– Cannot deal with ordinary business matters or day-to-day
management of the company
Specific to each company– Bylaws confer / restrict shareholder rights
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Types of Shareholder Actions
Shareholders can try alter company behavior through specific proposals
Support or oppose management-sponsored proposal– Highlight an issue– Block change
Oppose the election of a director Ask questions from the floor Publicize a particular issue
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Shareholder Activism and Company Engagement
Many issues off limits – E.g., subjects of collective bargaining – wages, health care
benefits, pensions, etc.
ERISA rules on Labor-Management Pension Plans– Plans managed by fiduciaries (typically half appointed by
management and half by union)– Department of Labor demands that fiduciaries act in the best
interest of plan beneficiaries
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Filing a Proposal
Need to hold stock whose value has exceeded $2,000 continuously for one year prior to filing
Promise to hold that stock until the annual meeting of shareholders
Filing deadline: will vary by company – Typically September – December
Annual meeting typically April - June
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Defending Proposals
Companies frequently seek to exclude shareholder proposals by asking the Securities and Exchange Commission (SEC) to take “no action” if it excludes a proposal from the proxy statement
Companies must write SEC to ask Proponent may defend or risk the SEC
making a decision based on the arguments of one party
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Procedural Bases for Exclusion
Length -- Proposal exceeds 500 word limit Proponent has filed after the deadline Proponent submitted more than 1 proposal Another proponent has submitted similar
proposal Proponent has not presented sufficient proof
of share ownership
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Substantive Bases for Exclusion
Improper under state law Violation of law Violation of proxy rules (e.g., false, misleading statements) Personal grievance or interest in outcome Relates to less than 5% of total assets, earnings, revenues Company lacks means to implement Concerns ordinary business matters or “day-to-day business” Relates to election of a director Conflicts with a company proposal Proposal has been substantially implemented Proposal substantially duplicates another proposal Proposal fails to receive minimal support in previous years
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Types of Proposals Allowed
Corporate governance Executive compensation “Significant issue of social policy”
– Human rights– ILO standards of employee rights– Environment / climate change
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Corporate Governance Proposals
One share, one vote Independent board chair Separation of board chair and CEO functions Annual election of directors Majority vote for election of directors Disclosure of political contributions
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Executive Compensation Proposals
Advisory vote (“Say on Pay”) Pay for superior performance Limit size of Supplemental Executive Retirement
Programs (SERPs) Limit size of severance packages Restrict use of tax gross-ups (companies paying
taxes on benefits for executives) Provide for clawbacks of incentive compensation
paid on false premises
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Social Proposals
Adopt ILO standards on employee rights Review poor labor practices Adopt principles of health care reform Adopt standards of environmental reporting Reduce greenhouse emissions Report on industry-specific or company-
specific issue
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Types of Outcomes (1)
Win majority (50% + 1)– Historically rare, but increasingly achieved on
executive compensation and corporate governance
Verizon, “Say on Pay”
– Proposals are “precatory”: Company is not bound by the vote, but majority vote may put strong pressure on the company to adopt
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Types of Outcomes (2)
Near-win (35%-50%)– More frequent outcome. Also puts public pressure on company
Verizon: golden parachutes, compensation consultant Dow Jones: annual election of directors
Respectable (15%-35%) – Most frequent outcome. May build some public pressure– Mobilization potential. May build on issue in subsequent years
Lower scores– Company can exclude if < 3% once in previous five years– Company can exclude if < 6% in last submission and submitted twice in
previous five years– Company can exclude if < 10% in last submission and submitted three
times in previous five years
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The Proxy Materials
States have broad guidelines as to subjects for a shareholder vote
SEC has rules governing the form of proxy card and proxy statements
Proxy materials will include information about all matters to be voted on, including a proponent’s statement in support of a proposal
Companies can state opposition to shareholder proposal with no restriction on word count
Opposition statement (by company) must be accurate and not misleading and must be provided to proponent in advance of printing
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Soliciting Proxies
The proxy rules are detailed and complex, with civil remedies and criminal penalties for violations
Anti-fraud provisions apply To protect yourself and the union, make no
arguments or statements concerning a proposal on a proxy card in addition to any contained in a statement or fact sheet distributed by the union in support of a proposal
– See web site for “CWA Shareholder Activism Guidelines”
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Collecting Proxies
As a matter of policy, CWA does not solicit authority to vote a proxy, but sometimes seeks to make a point by delivering proxy cards to annual meeting
Anti-fraud provisions also apply CWA and its representatives should act in way analogous to
Post Office – DELIVERY only NEVER sign or mark someone else’s proxy card NEVER reproduce a proxy card that can then be signed NEVER accept a proxy card unsigned or unmarked by the
shareowner
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Proxy to Attend and Participate in Annual Meeting
I, Person A, hereby appoint Person B as my true and lawful attorney to attend the Annual Meeting of Company C on Date D, or at any adjournment thereof, and to participate on my behalf in the discussion of any matter which may properly and legally come before the meeting, including, but not limited to, the election of directors and proposals submitted to a shareholder vote, as fully as I could participate if I were able to attend the meeting in person.
Dated:_____________ Signed: _______________
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The Shareholder Meeting
No uniform standard on the conduct of meetings Attendance can range from corporate directors and
insiders with only a handful of additional shareholders to a gathering of hundreds
Typical agenda– Review of the year– Voting
Proposal 1 is typically election of directors Management proposals
– Changes in bylaws; Changes in corporate governance– Ratify auditor– Adopt changes in executive incentive compensation plans
Shareholder proposals – Chair will ask proponent or his/her proxy to speak
General Q&A
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The Results
Typically, voting in person will not change vote, since large institutional investors vote in advance
Sometimes provisional results are announced at the meeting
Company is required to announce results in its next Form 10-Q filing
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Resources
http://investor.cwa-union.org – This slide show – “Everything You’ve Always to Know About the
Annual Meeting of Shareholders but were Afraid to Ask”
– CWA Shareholder Activism Guidelines – SEC Rule 14(a) – shareholder proposal rule– Sample proposals– Links
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Best to coordinate with CWA Headquarters
Mesh with activities of union – If proposal is consistent with union efforts, union may seek
support from institutional investors Union may help defend proposal if company seeks to
exclude Coordination may help
– Assure compliance with proxy rules– Avoid duplication of proposals or proposals already
implemented Contact Tony Daley ([email protected])
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Conclusion
Shareholder activism is the exercise of ownership rights
Can be another tool in union toolkit While rules do not favor either individuals or
unions, shareholder activism may pressure companies to adopt better practices
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Appendix
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Links
AFL-CIO Executive Pay Watch: http://www.aflcio.org/corporatewatch/paywatch/
Center for Corporate Policy (executive pay): http://www.corporatepolicy.org/issues/comp.htm
Corporate Library: http://www.thecorporatelibrary.com/
Council of Institutional Investors: http://www.cii.org/
Interfaith Center on Corporate Responsibility: http://www.iccr.org/
International Corporate Governance Network: http://www.icgn.org/
Risk Metrics (Policy Gateway): http://www.riskmetrics.com/policy
Securities and Exchange Commission: www.sec.gov
Shareholder Resolutions Guide: http://www.scn.org/earth/wum/2Whatsr.htm
United for a Fair Economy: http://www.faireconomy.org/issues/shareholder_activism