For Immediate Release
Monday, January 29, 2007
AFSCME Announces 2007 Shareholder Proposals
27 proposals focus on executive pay, board reform, corporate accountability
WASHINGTON —The American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO, today outlined its 2007 shareholder program to foster greater accountability in corporate America.
The AFSCME Employees Pension Plan (“the AFSCME Plan”)—an institutional shareholder activist with more than $850 million in assets—has submitted 27 shareholder proxy proposals for consideration at annual company meetings this spring. Among the proposals, the AFSCME Plan seeks proxy access for shareholder-nominated board candidates, a binding majority vote standard in director elections, advisory shareholder votes on executive compensation, a system for recouping expenses in proxy contests that do not seek board control, more effective executive compensation programs and annual board elections.
“Large institutional investors have a duty to actively encourage good governance and corporate accountability, and that’s what these proposals are seeking to do,” said AFSCME President Gerald W. McEntee, who chairs the Employees Pension Plan. “Until the SEC finally embraces proxy access and allows shareholders to nominate and elect directors who will put the company’s best interests ahead of the personal financial interests of greedy CEOs, shareholders will have to push the issue themselves. Our proposals are designed to give shareholders the tools to make boards listen.”
Proposals have been filed at the Chubb Corp. (CB), Hess (HES), Limited Brands (LTD), SunTrust Banks (STI), Adobe Systems (ADBE), Apple Computers (AAPL), Boston Scientific (BSX), Danaher (DHR), Dell (DELL), Home Depot (HD), Genzyme (GENZ), Honeywell (HON), Lehman Brothers (LEH), Wells Fargo (WFC), JPMorganChase (JPM), Hewlett-Packard (HPQ), Apache (APA), Affiliated Computer Services (ACS), Bank of New York (BK), Citigroup (-C-), Countrywide Financial (CFC), Ingersoll-Rand (IR), Merrill Lynch (MER), Morgan Stanley (MS), Qwest Communications (Q), U.S. Bancorp (USB), Wachovia (WB).
The shareholder proposals fall into several broad categories:
Proxy Access
The AFSCME Plan won its appeal on proxy access in a landmark ruling expanding shareholder rights. Proxy access is designed to give shareholders a meaningful voice in board elections by opening up the director-nominating process. This proposal was filed at Hewlett-Packard. Filers are AFSCME, the New York State Common Retirement Fund, the Connecticut Retirement Plans and Trust Funds, and the North Carolina Retirement Systems.
Shareholder Approval of Summary Compensation Table
Last year, shareholders proposals for an advisory vote on CEO compensation averaged over 40 percent support at Home Depot, U.S. Bancorp, Countrywide Financial, Merrill Lynch, Sara Lee, Sun Microsystems and Cardinal Health. These proposals seek to give shareholders a non-binding, up-or-down vote on companies’ summary compensation tables. Shareholders are already entitled to such a vote in the United Kingdom, Australia, Sweden and the Netherlands. In 2007, AFSCME has submitted “say on pay” proposals at Affiliated Computer Services, Morgan Stanley, Bank of New York, Citigroup, Wachovia, Qwest Communications, and Ingersoll-Rand and resubmitted at U.S. Bancorp, Merrill Lynch and Countrywide Financial.
Independent Chairman
This proposal seeks a bylaw amendment requiring that corporate board chairs be an independent director. A CEO who also serves as a board chair presents a conflict of interest because the CEO becomes responsible for overseeing his or her own performance. This proposal has been filed at Home Depot.
Binding Majority Vote Standard
The AFSCME Plan submitted four binding resolutions amending company bylaws to require that directors be seated only if they receive the support of a majority of shareholders. Currently, a director need only receive the support of a plurality of shareholders represented at an annual meeting to win election. Because so few outside shareholders actually attend the annual meeting, absent a proxy contest, directors who are nominated by the incumbent board will win election no matter how unpopular they are. Binding proposals at Lehman Brothers, Honeywell and Wells Fargo were withdrawn after the companies each amended their bylaws to provide for majority voting; however, a fourth proposal has been filed at Genzyme.
Solicitation Expenses
Currently, in a proxy contest, management can use the company treasury to campaign in support of the candidate nominated by the incumbent board, while shareholders who nominate a candidate must bear the cost of a solicitation themselves, even if their candidate wins. The AFSCME Plan proposes that shareholders who nominate a short slate of candidates (fewer than half of the seats on the board) be allowed to recoup their solicitation costs from the company should one or more of their nominated candidates win a seat. Under the proposal, shareholders are not allowed to cumulate votes, and the amount reimbursed cannot exceed the amount expended by the corporation. This proposal has been filed at Apache.
Board Declassification
The annual election of directors is a fundamental component of good corporate governance. Required annual elections have been a core shareholder concern for many years, and now the majority of S&P companies have annual elections. A proposal submitted at SunTrust Banks (that won a majority vote in 2006) was withdrawn after SunTrust agreed to place the matter to a management-sponsored vote to declassify. Proposals have also been filed at Hess and Limited Brands.
Equity Compensation Holding Policy
In an effort to better align management and shareholder interests, the AFSCME Plan has submitted proposals at Adobe Systems, Apple Computers, Danaher, Boston Scientific and Dell requiring executives to maintain a percentage of after-tax shares provided to them under the company’s equity compensation plan, so that executives who exercise stock options also increase their overall share ownership.
Performance-based Restricted Stock
This proposal asks a company to add performance-based vesting measures to restricted stock awarded to executives. This proposal is designed to make restricted stock awards contingent upon objective performance criteria, instead of simply based on the length of time served, a standard known as “pay for pulse.” This proposal has been resubmitted at JPMorganChase, where in 2006 it received a majority of votes cast.
Climate Change Risk Report
This proposal asks for a report to shareholders so they can better understand the economic and financial risks associated with climate change. There is a growing consensus among institutional investors that the rising costs of extreme weather events are affecting global financial markets through higher and more volatile insurance costs. This proposal has been submitted at The Chubb Corporation.
