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March 2004 News

What Kind of Fool Am I?

Eliot Cohen, who usually posts news on the eRiader.com site, wrote, "Lies, Half-Truths, and Hubris," which appears on the Motley Fool site. With a 3/31/04 deadline for e-mail comments on the SEC's director nominations rulemaking, it is a last minute plea for support.

"The rule's conditions and limits are nonsense, but its adoption would help establish two important rights: investor access to the proxy ballot and a meaningful shareholder role in the voting. This rule would bring the proverbial camel's nose into the boardroom toward a system that gives shareholders a real voice and choice in selecting directors to oversee the corporations they own."

Don't forget to e-mail the SEC with your comments and put "Security Holder Director Nominations S7-19-03" in the subject line. (See Publisher's comments, for an example.)

Foundations Waking Up

Endowments of foundations totaled $400 billion in assets last year but 62% leave their investments to outside money managers, according to a recent Council on Foundations survey. Only 54% don't automatically vote with management on proxy ballot resolutions. Pension funds and religious organizations woke up years ago to the fact that by learned this lesson a long time ago. They gained visibility in the early 1990s by exercising their rights as corporate owners, realizing they could impact issues important to their central mission, like ending apartheid in South Africa.

Only 1 in 20 instruct money managers to follow their priorities. "Foundations do a lot of good with the 5% of their assets they must give away each year," says Neva Rockefeller Goodwin, co-director of the Global Development & Environment Institute. "But they don't realize how much power they could exercise by being wise about the 95% of their assets they don't give away." (A Bigger Voice for Small Nonprofits, BusinessWeek 4/5/04)

Hot Topic: Disclosure of Political Contributions

The proxy season is upon us. Disclosure of political contributions is emerging as one of the hot topics this year with about over 40 resolutions submitted by a wide range of investors. The Nathan Cummings Foundation is the lead on two of these resolutions - at Pfizer and Merck - with co-filers including social funds, labor unions and faith-based funds.

They focused on pharmaceutical companies because their Health Program has a focus on access and affordability. From the investment perspective, they are concerned about the long-term viability of a business model that is so dependent on protecting and marketing a handful of blockbuster drugs. More broadly they are concerned about corporate managements using company / shareholder resources to protect their short-term interests - both near term profits and their own compensation - at the expense of long-term shareholder value.

Robert AG Monks has been calling on corporations to minimize their involvement in politics for many years and we have always agreed with him on this issue. We ask that you consider supporting these resolutions and instruct whoever votes your proxies to vote in support of them. Resolutions regarding disclosure of political contributions have been introduced at:
Abbott Laboratories
Altria Group
American Express
American International Group
AMR
AmSouth Bancorporation
Bank Of New York
Bank One
BellSouth
Bristol-Myers Squibb
ChevronTexaco
Chubb
Citigroup
Comcast
Du Pont (E.I.) de Nemours
Exxon Mobil
FirstEnergy
Gateway
General Electric
Harrah's Entertainment
Hartford Financial Services Group
International Business Machines
J.P. Morgan Chase
Lockheed Martin
Merck
Morgan Stanley
PepsiCo
Pfizer
Pitney Bowes
Riggs National
Safeway
SBC Communications
Textron
Time Warner
Tribune
Union Pacific
Verizon Communications
Wachovia
Wal-Mart Stores
Waste Management
Wells Fargo
Wyeth

US Nixes Role for Workers in Corporate Governance

A dispute between France and the United States over whether to encourage the involvement of workers in corporate management has derailed efforts of the Organization for Economic Cooperation and Development to publish a comprehensive revision of its principles of corporate governance.

The OECD has had nonbinding principles of corporate governance since 1999 and in January announced plans to expand and enhance them.The revised principles were scheduled to be formally adopted in May. The existing principles state that "performance-enhancing mechanisms for employee participation should be permitted." In context, that means participation in corporate governance. France proposed changing the word "permitted" to "encouraged." Apparently, some other European countries agreed.

Many European countries give workers places on corporate boards or other bodies; the US does not. "You almost need a new slogan," John G. Evans, the general secretary of the Trade Union Advisory Committee to the organization, told a conference on corporate governance at the French-American Foundation. "Capitalists and workers unite in the struggle against managers."
International Herald Tribune, 3/27/04

Levitt, Whitworth and Moore Nominated to NYSE Board

Investor protection was Levitt’s top priority during his tenure at the SEC. He worked to educate, empower, and protect America's investors. Whitworth is a founder and principal of Relational Investors LLC, a $2.3 billion investment fund specializing in strategic block investments and corporate governance. North Carolina State Treasurer Richard Moore who was named late last year to an executive advisory board of the NYSE was nominated by New York State Comptroller Alan Hevesi.

Earlier this month, the NYSE announced a new procedure to allow the investing public to nominate director candidates. The NYSE Nominating and Governance Committee is expected to review candidates with the full NYSE Board and recommend a slate of candidates in April for election. Directors are expected to be elected at the June 3, 2004 NYSE annual meeting.

Eat Your Own Cooking

CalPERS enacted a code of ethics for external money managers. The most controversial provision requires those that work for CalPERS to invest a "material portion" of their current income or net worth in their firms products. In general, that means roughly 30% of their net income or wealth. Typically, hedge fund managers earn a 1% flat fee and 20% performance fee. That provides upside rewards but not much downside penalty. Very small firms can appeal to CalPERS for something of an exemption if the cost to the firm of compliance would be prohibitive. Major requirements are as follows:

• Implement policy and procedures to ensure fair and equitable allocation of investment opportunity and pending transactions among clients;
• Designate an officer to address all potential conflicts of interest;
• Design management structures to promote an environment of compliance and culture of integrity from the top, including ethics and compliance committees;
• Establish an independent ombudsman or facility to receive reported problems or compliance issues;
• Conduct a biannual review of compliance, using a third party expert;
• Ensure that the Chief Legal Officer and internal audit function report independently to the Board; and
• Create an organizational chart showing reporting relationships and establishing clear lines of authority and responsibility.
• Disclose all soft dollar use, and costs, with comparisons to industry standards;
• Implement polices to promote an alignment of interests of investment professionals with clients including compensation structures that are sensitive to investment performance; and
• Disclose compensation polices requiring the investment or deferral of current income into the companies products.

ProxyMatters.com Adds Companies

ProxyMatters.com, which seeks to become a Internet hub for the exchange of ideas on specific corporate proxy votes, has updated their website.

• "SpeedPoll" now enables users to post ultra-fast responses with an easy-to-use polling system. 
• 28 companies are currently profiled, with 12 more, including Motorola, Verizon, American Express, Altria Group, Citigroup and UPS, to be added in the next few days.

Reaching too Far

Pensions&Investments (P&I), the international newspaper of money magement, blasts California’s Corporate Elections Fairness Act of 2004 (AB 2752) but its editorial sends a mixed message. The bill, which will be heard in the Assembly Banking and Finance Committee on Aril 19, 2004, would allow shareholders to place nominees for at least 40% of directors on the corporate proxy. It goes well beyond the current SEC proposal by eliminating the need for triggering events and lowering the threshold for nominations. The bill would apply to corporations doing business in California.

According to P&I's 3/22/04 editorial, “The state is trying to dictate this area of corporate governance beyond borders of state incorporation.” The editorial cites Thomas J. Donohue (U.S. Chamber of Commerce) who, during the recent SEC roundtable discussion, threatened to sue the SEC if it adopted their proposed rule. Donohue’s prior written comments complained that “under the guise of disclosure, the Commission would be effectively adopting federal corporate governance standards that would provide certain large shareholders with a new federal substantive right of shareholder access that does not generally exist under state law.”

In other words, the Chamber believes this is an area for state, not federal, law. However, the same interests can be expected to also oppose any state measures, such as California’s AB 2752. Simply stated, they don’t want to lose power and don’t want to be directly accountable to shareholders.

The P&I editorial mentions an alternative proposal by Charles M. Elson, Director of the Center for Corporate Governance at the University of Delaware. Elson believes nomination of directors should be left to nominating committees composed of “independent” directors. Of course, the definition of independent doesn’t preclude the CEO’s golfing buddies or college roommates. Shareholders should continue to have access only through expensive proxy contests. Elson’s idea is that companies should reimburse shareholders who run dissident slates based on the proportion of the vote they receive.

That, to me, seems an expensive proposition for all concerned…and all those expenses come out of the pockets of shareholders. The P&I editorial rejects Elson’s proposal because the “idea ignores a fundamental right of shareholders to directly nominate candidates to the board, which the SEC proposal only partly acknowledges, although it at least gives shareholders some access.”

The editorial concludes with the following: “As one panelist quipped at the recent SEC roundtable, There should be no independent directors, only directors dependent on shareholders.” That sounds like an endorsement of making directors directly accountable to shareholders.

It appears that P&I endorses the SEC rule, which would extend a limited form of democracy (one or two directors nominated by shareholders) to an estimated 45 out of 17,000 companies. More widespread democracy would be “reaching too far.” Or is AB 2752 only reaching too far because it would apply to any corporation doing business in California, rather than only those incorporated in California? The editorial is ambiguous.

Sustainable Investing Gets Boost

California State Treasurer Phil Angelides has led the way again with his "GreenWave" initiative at CalPERS and CalSTRS, which is designed to "bolster financial returns, create jobs and clean up the environment." CalPERS, for example, will invest up to $200 million in the burgeoning environmental technology sector during the next few years, an amount that could be expanded to $700 million.

The System’s Board of Administration approved the CalPERS Environmental Technology Program that will target investments in environmental technology solutions that are more efficient and less polluting than existing technologies such as recycling; minimizing the use of natural resources; and reducing emissions, refuse, and contamination to air, water, and land. The new venture will be implemented under guidelines and policies of the Alternative Management Investment (AIM) Program, which has committed more than $19 billion to private equity investments.

Specific “green” technologies include renewable energy resources such as wind and solar generators, hydrogen fuel cells, desalination and gray water recycling, and the development of products that use recycled and reused materials.

In early 2002, the Contra Costa County pension fund allocated approximately $150 million to an "eco-enhanced" index fund. The fund tracks the Standard and Poor's 500 index fairly closely, but overweights the top "sustainability" performers and underweights the laggards. After its first year, the fund had outperformed its benchmark by 150 basis points (1.5 percent), an excellent result for a conservative, risk-controlled "enhanced index" strategy. (How pension funds can rake in green by investing green, Sacramento Bee, 3/21/04)

We hope CalPERS will work closely with the California Environmental Technology Certification Program (CalCert), which conducts an independent evaluation of environmental performance under Cal/EPA. CalCert recognition gives products, processes and equipment greater visibility in the market and offers credibility to those technologies proven to have an environmental benefit. Perhaps it will also lower the cost of capital and earn higher returns for CalPERS if the programs cooperate with each other.

Vexation Without Representation

That's what SmartMoney's Lawrence Carrel calls the current frustration among shareholders in his 3/22/04 article, The Shareholder Revolution Heats Up.

He discusses California's Corporate Elections Fairness Act, AB 2752, which will be heard on 4/19/04 by the California Assembly's Banking and Finance committee. He also discusses the SEC's weaker rulemaking, Security Holder Director Nominations, S7-19-03 and calls the Editor of CorpGov.net "a major force" behind both proposals...an exaggeration but one I'd love to see repeated. I'd credit Les Greenberg, the AFL-CIO, California Secretary of State Kevin Shelley, Assemblywoman Judy Chu and all those shareholder activists who have helped set such measures in motion.

I urge readers, especially those in California, to send letters of support for AB 2752 to Patricia Wiggins, Chair of the Assembly Banking and Finance Committee and to other Committee members.

Director Training in Los Angeles

UCLA Conference on Corporate Governance The UCLA Anderson School is hosting their Seventh Director Training and Certification Program on May 12-14, 2004. This includes three stand-alone board committee modules on Audit, Compensation, and Governance & Nominating on May 12th before the Opening Directors’ Networking Dinner. They may be taken separately or with the Certification Program. This three-day intensive event is designed for executives, directors, and officers of private and public companies. More than a dozen world-class subject matter experts will cover every aspect of being a successful corporate director.
In addition to this program, the UCLA Anderson School and the Rady School of Management at UCSD are presenting a special program on Corporate Director Training on April 20, 2004, including three stand-alone board committee modules on Audit, Compensation, and Governance & Nominating Committees. This program will be held at the Rady School of Management on the UCSD campus. (information)

Letter to TIAA-CREF Re Location of Annual Shareholder Meeting

Laverne Jones
Corporate Secretary
TIAA-CREF

Dear Ms. Jones:

We are inquiring about the location of the next annual meeting of TIAA-CREF. The last time the meeting was held in Charlotte, in 2002, TIAA-CREF stated that the reason was to highlight the (relatively) new regional office and to give different shareholders an opportunity to attend the annual meeting. But we question why the meeting is scheduled to take place in Charlotte again this year. Presumably, the office there has already been highlighted and in 2002, attendance there was very low--perhaps 20 shareholders or their representatives attended. Not even CREF trustees were there. In contrast, at least 150 people attended the 2003 recent annual meeting held in New York City.

It is ironic that a group that rightly sees itself as a champion for shareholder rights is moving its annual meeting back to a location that is inconvenient and expensive for many more shareholders. We urge you to reconsider your decision. Mr. Allison specifically welcomed and solicited participant input and participant proposals at the 2003 annual meeting. To engineer reduced attendance flies in the face of this policy. A session in another large city (e.g., Chicago or Los Angeles) would be a compromise solution that's just as "inclusive" of participants as is New York City. We realize that holding the meeting in a more accessible location, like New York, means facing more shareholders with concerns and criticisms regarding TIAA-CREF policies and practices. Nevertheless, TIAA-CREF owes it to its participants to provide an open, accessible forum for them to air their views. 

Note: This message is sponsored by a number of TIAA-CREF participants, as well as several groups of academics and activists concerned with issues of corporate and social responsibility as regards  TIAA-CREF (U.S. Campaign for Burma, Infact, Press for Change, Educating for Justice, World Bank Bonds Boycott, Citizen's Coalition, and Social Choice for Social Change: Campaign for a new TIAA-CREF). We hope that you will join in asking  TIAA-CREF to move the meeting back to the usual location, their headquarters in New York, or some other major city accessible to more shareholders. Call CEO Herbert Allison at 800-842-2733; 212-490-9000 (ask for him and leave a message with his assistant).  Calls bring the most attention, but you can email him at HAllison@TIAA-CREF.org.

Report From the Front

Les Greenberg writes on his experience at the Security Holder Director Nominations Roundtable, sponsored by the Securities and Exchange Commission, which occurred on March 10, 2004 in Washington, D.C.

Our goal was to present the views of the Committee of Concerned Shareholders that, in order for institutional shareholders to really participate in the director nomination process, the SEC needs to lower the threshold in their proposal so that director nominations by shareholders who own $2,000 in stock for one year will appear on the corporate ballot. Further, we wanted to meet those persons with whom we had either previously had email communication and/or who had published writings sympathetic to our position.

The Wall Street Journal and the Washington Post carried full page advertisements, which began, “An open letter from 40 former CEOs to the SEC --- Beware the law of unintended consequences …” The ad concluded, “These unintended consequences could have serious adverse impact of the American economy. The proxy rule changes are bad public policy.” “ The SEC should reject.”

The Roundtable was scheduled from 9:00 AM. to 5:15 PM. Our Panel, with issues related to the consequences to Shareholders, was allotted 30 minutes --- the shortest time of all panels. Evelyn Y. Davis used much of that time to lambaste the SEC. Of the 38 Panelists, only Ms. Davis and the Committee represented the views of Individual Investors.

The SEC and Staff did an impressive job of organizing the Roundtable. The Commissioners and the Staff were very hospitable.

For the most part, there was a very friendly atmosphere. My wife and I sat in the first row that was reserved for guests. We first met the CFO of the Nathan Cummings Foundation and she introduced us to its Chairman and CEO. I introduced myself to Evelyn Y. Davis and later several others. We had the definite impression that most of the panelists knew one another. It was as if the SEC had rounded-up “the usual suspects.”

Chairman Donaldson, in his opening remarks, specifically requested that alternatives to the SEC’s proposed rule be presented, but few were offered. Those defending the status quo gave their “special interests” and “corporate chaos” speeches. Some claimed that proxy reform is a matter for state legislation. Some advocated compromises that would result in no change. Some accepted the SEC’s proposed rule as a beginning. A few others tried to demonstrate that the proposed rule is unworkable, e.g. due to legal fears.

The Roundtable room was set up for Panelist and the Commissioners in a U-shape. Looking into the U-shape, the Panelists sat at the center of the U-shape with Commissions Glassman, Donaldson and Goldschmidt on the right leg and Commissioners Atkins and Campos of the left leg. Moderators Beller and Dunn sat in the center-right and cameramen were located next to them on the center-left. Two rows of chairs were stationed behind the Commissioners on the right for panelists. Behind the moderators were two rows of reserved seats for guests of the panelists then about 10 rows for the public with televisions monitors scattered throughout the area.

The SEC sponsored a buffet lunch for the participants. Many members of the morning’s panels had already left and several of the afternoon’s panelists had not arrived. We joined representatives of the Nathan Cummings Foundation at a table for 6 persons. Commissioners Campos and Atkins joined us. We talked mostly with Commissioner Atkins. We expressed our thoughts on the non-workability of the proposed rule. We informed Commissioner Atkins of how the Guy Adams model at Lone Star Steakhouse could be effectively employed if shareholder proposals could be used to nominate Director candidates. He was impressed with my wife’s comments that any rule with stock thresholds should be applied equally to outside nominators and members of a corporation’s nominating committee --- the quasi-legal principle of what’s good for the goose is good for the gander. Commissioner Atkins encouraged me to speak to the flaws in the proposed rule and to suggest alternatives. He was not familiar with Assembly Bill 2752 that has been proposed in the California legislature.

My sense is that institutional shareholders will not nominate director candidates if the rule is enacted. In private conversations, I was informed that most funds weren’t geared up for it but that the Guy Adams model at Lone Star Steakhouse “might work.”

The Commissioners asked many questions. Commissioner Goldschmidt seemed to be the most knowledgeable and most familiar with the proposed rule and its shortcomings. We were disappointed that the Commissioners did not inquire of the panelists as to the ability and willingness of institutional shareholders to nominate director candidates.

I personally thanked each of the Commissioners for the opportunity to appear at the Roundtable. I had the distinct impression that the Commissioners were thankful to hear a non-ivory tower analysis from the Committee --- a group without a specific vested economic interest and with some battlefield experience in proxy contests.

I met with reporters from the Washington Post and the Philadelphia Inquirer. Our expressed concern is that the proposed rule, with its insurmountable hurdles, if passed, would result in a sham upon the investing public --- it will be touted by the media as added shareholder protection when, in reality, it would provide none and the SEC will not revisit the issue for many years.

When we arrived home, we received messages from the California Legislature dealing with AB 2752. Corporate advocates who claim shareholder democracy is a matter for state legislation may be very surprised with what they receive from California.

Editor: Thanks to Les for representing independent shareholders so well at the Roundtable. It is extremely important that shareholders weigh in on this rule, and that we have thoughtful comments going in. Even if you just send a few sentences stating your opinion on the topic and this rule, that is important. The Commission is looking to hear from folks in their own words. You can send an email directly to Jonathan Katz, Secretary, at: rule-comments@sec.gov. Please make sure to put the rule number in the subject line of your email: File No. S7-19-03 (Comments on Shareholder Proxy Access). The deadline to comment is March 31st!

ISS Reports: First Shareholder Access Onto Ballot

The first shareholder access proposal to make it onto the ballot was filed by two members of the Association of U.S. West Retirees. (scroll down to March 8, 2004, SEC Tells Qwest to Include Holders' Proposal in Proxy) According to the ISS Friday Report, "the proposal requests that qualified shareholders (owning five percent of the stock for two years) be allowed to propose qualified nominees on next year's ballot." Maybe that says something about the likelihood of the SEC enacting its director nomination access proposal.

Free! Free! Free!

Preparing for Your 2004 Annual Meeting, 180 pages to aid companies in organizing and scheduling their annual shareholders’ meetings. Also usefull to activists shareowners. Updated for 2004 by Brian J. Lane, partner, Elizabeth A. Ising, Jacqueline Landells and Spencer Wright, associates of Gibson, Dunn & CrutcherUpdated By: Brian J. Lane, Elizabeth A. Ising, Jacqueline Landells and Spencer Wright, Gibson, Dunn & Crutcher LLP. and published by Bowne & Co., Inc.  Get the latest legal update.

Not Free: CII Meets in Washington

The $3 trillion Council of Institutional Investors will address pressing corporate governance issues at their annual spring meeting, March 25-26 at the Mayflower Hotel in Washington, DC. Speakers will include:

• The judges of the Delaware Court of Chancery
• SEC Chairman William H. Donaldson
• Former Disney board member Roy E. Disney
• WorldCom Corporate Monitor Richard R. Breeden
• Former Secretary of State Madeleine K. Albright
• Congressman Michael G. Oxley
• Alliance Capital CEO Lewis A. Sanders

"Capitalism is Not for Sissies"

I advise readers to listen directly to the SEC’s Security Holder Director Nominations Roundtable. Below are a few largely unedited scribbles and snippets, mostly in my own words, of what several participants brought to the forum.

Nell Minow (The Corporate Library) There is no way to determine true independence but we can determine who invites you onto the board…who you dance with. We will not have genuine independence until you let shareholders play a role. We need a market test for directors. The goal of corporate governance is achieve a series of checks and balance to obtain credibility for capitalism. A director who got a bad grade called. I told him he had a resolution that passed by 60% that they didn't implement. Nell, I’m glad you brought that up; “those are fringe shareholders.” We have had “independent directors” for a long time; we need genuinely independent directors put to a market test. “Capitalism is not for sissies.” “If this be shareholder treason, then make the most of it.” (Ms. Minow always has the most quotable quote and the most delightful laugh.)

Martin Lipton (Wachtell, Lipton, Rosen & Katz) Fundamental goal of corporations is to produce goods and service. It’s too easy to say we need additional fixes. I think we’ve already done that. Give the new requirements a chance to work. Most corporations aren’t ignoring shareholder wishes. Communications with institutional shareholders are having a major impact. This proposal is a serious mistake to take this step at this time. We haven’t had an opportunity to test recently enacted requirements. Potential directors don’t want to serve because they don’t want to be involved in contentious proxy contests. I think it is working just fine but of course you can find occasional situations where shareholders are ignored.

Lucian Arye Bebchuk (Harvard Law School) Good corporate governance is an instrument for achieving higher long-term shareholder value. Most of the time is not always. That’s why we need a safety valve. Mere independence will not ensure the directors will be well selected and have the right incentives.

Randall S. Kroszner (Graduate School of Business, University of Chicago) How do we enhance shareholder value? Make sure corporation is credible so it can raise capital at a lower rate. There is mixed data on independent directors. Proposal may not help that much on this margin. Allow new rules to work out. Instead of new rules, look at old rules. Look at anti-trust, short swing rules, ERISA, etc. that may block more activity by institutional investors.

Richard H. Moore (State of North Carolina) Ninth largest public pension fund in the country. I can’t think of any instance where our 30-year timeframe interests are out of alignment with increasing shareholder value. This is about the preservation of majority rights. Loss of checks where people are spending other people’s money…not unlike unchecked government. 78% of our funds are indexed or enhanced indexes.

Steve Odland (AutoZone Inc. – Business Roundtable) We’ve be appalled by the scandals. Objective is positive but compared the rule with one company invading another and then talking. When we wrote our corporate governance guidelines three years ago there were none to copy and no one had ever heard of corporate governance. (Ed. He should have looked on our internet site eight years ago...the subject is hardly a new one.) A very small number of shareholders would like to impose their will on the majority. We should let independent boards do their work. Are we trying to fix the issues of a few years ago or the entirely different process we have now? I think that boards are listening today not because of anything done in Washington but because they want to do the right thing. All the rules haven’t even gone into effect and there are major changes.

Eric Roiter (General Counsel, Fidelity Management & Research Company) This is a modest proposal as a means to an end. However, it is only one means and there are others. Apears to advocate greater use of the Wall Street rule of dumping unfavorable stocks. The strength of our capital markets is the depth of liquidity of secondary markets. Urges a broader view.

Damon Silvers ( AFL-CIO) The board has a legal duty to the corporation and its shareholders to serve a higher purpose…the creation of wealth, jobs, goods and services. Corporation should not be turned into a vehicle for some to enrich themselves at the expense of everyone else. Indexed funds look a lot like the corporation and its shareholders and should get access to the ballot. The current system allows expensive control contests and the choice of walking away. Neither choice is palatable to long-term indexed shareholders. The other alternative is the shareholder resolution but in most cases they are only advisory. This proposal has increased responsiveness in corporations but that responsiveness may vaporize if it is not enacted.

Ralph V. Whitworth (Relational Investors) Triggering mechanisms will cause more distraction because they have thresholds lower than 5%. At Apria, we said if the nominee didn’t receive 25% they wouldn’t be eligible for 3 years. Look to the other end of the process for additional limitations.

Wallison (American Enterprise Institute) The rule creates a vehicle for special interests. Shareholders are really interested in increasing shareholder value not shareholder dissatisfaction. What we should have is something to address the failure of a company to match its peers in profitability, not current triggers. We need a much more narrowly focused rule, if any. Implication, maximization of value is the shareholder's only legitimate interest. (The proposal leaves to shareholders what their interests are.) Shareholders who are dissatisfied should sell their stock.

Richard C. Breeden (Richard C. Breeden & Co.) Would agree with need to allow states to remain vital in business governance. Accused others of the Marie Antoinette school of governance; if you don’t like company sell and buy a house in Beverly Hills.

Charles M. Elson (University of Delaware) Rule will not promote the interests of particular groups because you have to get elected by majority. Short slates have often achieved results. Proposal makes sense. Quibble is with the approach. Solution is independent nominating committees, access to the proxy and the way we pay for the contests. Create a state approved process to allow short slate to get their expenses paid for if they win or a proportion if they lose but win a substantial vote.

Joseph A. Grundfest (Stanford Law School) Slow is bad; complexity is bad. Goal of shareholder community is to get the company to address their concerns. Proposes advice and consent mechanism. Senate has to confirm. Board nominates...if director elected without a majority vote federal rules can disable that director. Forces consultation and cooperation.

Ira M. Millstein (Weil, Gotshal & Manges) Simplicity is important. Shareholders have no voice in the election of directors because of plurality vote and withhold votes that are basically advisory. Shareholders can’t cause anything to happen. Make it a new listing requirement that every director must win a majority of votes to be elected, with withheld votes counting against the candidate. This would force boards to take action, whether by negotiating with shareholders, calling for a new election, or asking the director to resign. What’s a matter with that as a first step? Editor: Do both.

Donaldson. If we have a hundred voters and 99 vote withhold, they’re still elected. We haven’t really had (legitimate) elections. Shareholders feel that they’ve never really participated in an election.

J. Carter Beese, Jr. (Riggs Capital Partners) Board meetings are now different. We should at least understand what has changed before we move on to the next phase of regulation. Many more potential directors are turning down positions. Individual director liability is coming soon. Seeking redress from individual directors. Role prone to unintended consequences. Would enhance gaming of the market by hedge funds. Something needs to be done to get shareholders involved in voting. Should be able to vote for individual directors. Institutional investors are not serving well by not voting. Activists can swing because others don’t participate.

Franklin D. Raines (Fannie Mae) If it effectively targeted unresponsive companies, we wouldn’t have a problem. However, this proposal reaches well beyond that. Corporations are not governments. We want them to be risk-takers. What role should there be for advisory firms? Should a fiduciary be able to delegate their vote to such advisors? SEC has under-estimated costs because everyone will want their bets covered. Better to have already have triggered to cut out a year in the process. Companies have a fiduciary responsibility to spend money to elect candidates they have endorsed. Leverage issues…causes. People will do whatever they can to advance their cause. Often ask company to produce a report. Companies will spend a lot of time in responding to human health problems, environmental issues, etc. to ensure no disruption. Folly not to recognize that reforms have happened. This advances interest group politics. The rule is creating the costs. 35% shouldn’t trigger vote because 65% (majority voted the other way) Even relatively small withhold votes have created changes. The withhold issue has to be dealt with at the state level.

David S. Ruder (Northwestern University School of Law) would the rule target the appropriate companies at an appropriate cost? Proposal to limit to accelerated filers is a good one. Will cause boards to be much more aware. Corporations will treat advisory resolutions more seriously. Too much like a Rube Goldberg structure to address giving more power to institutional investors. Improve the voting process. Fix the broker voting process. Treat a withheld vote as a no vote. Need a majority of those voting.

Jeffrey A. Sonnenfeld (Yale University School of Management) Hundreds of sociologists working on white-collar crime. We consistently punish institutions for the infractions of individuals. Checks and balances are inappropriate in the corporate world because they slow decisions down. We want to take risks and some businesses will go out of business. Opposes social engineering. Boards have made progress. We’re going to raise our expectations too high. Is it fair to put ISS in the role of influencing elections? He likes Joe and Ira’s suggestions.

Ted White (California Public Employees' Retirement System) We have come to recognize the rule will probably contain triggers. Costs are minimal unless the companies want to make it so. Rule is about getting shareholder perspective on boards.

Susan Ellen Wolf (Schering-Plough Corporation) Amer. Society of Corporate Secretaries wants a delay before having to deal with this. Current election mechanisms can’t handle this process. First we need to make sure the process works for close elections. Apply to largest companies first and then small. Proposal will make boards more adversarial. Embrace Grundfest’s proposal. Fear that leverage issue will get out of control. Disclosure up front has to relate to proxy value. If there is to be a trigger it should be explicit.

Ann Yerger (Council of Institutional Investors) Whether long-term, shareholder should have a meaningful ability to have input into director nominations. Many companies have consulted with owners but in some case they don’t. It is very difficult for fiduciaries to undertake a proxy contest. Our members aren’t going to undertake unless we’ve tried other approaches and failed. Disney vote over 50% without broker votes. Only 6 companies with a no vote higher than 35% in sample of 100 S&P, 100 mid-cap and 100 small-cap.

Evelyn Y. Davis (Highlights & Lowlights) Forty years experience. You do things in a nice amicable way. Proposal discriminates against small shareholders. Should have a 5 year holding requirement. This is going to be Armageddon and small shareholders will be hurt because corporates will spend a lot on warding off. Hell will break loose. This is going too far. There will be greenmailers. (I’ve got to give Ms. Davis an award for repeating her own name several times during her remarks… Evelyn Y. Davis…with an emphasis on the why?)

Les Greenberg (Committee of Concerned Shareholders) Institutional investors will not nominate directors. It isn’t a matter of money. However, we don’t think many individual investors will do what we did (without easier access). Any shareholder action has to rely on the institutional shareholders. 1/10 of 1% might be a better threshold based on what nominating committee or boards hold in the typical company. What's good for the goose is good for the gander. In running a campaign, you can expect the company will essentially solicit enough of your support to undermine your 5%. Greenberg discussed our initial proposal, Request for Rulemaking To Amend Rule 14a-8(i) To Allow Shareholder Proposals To Elect Directors: SEC Rulemaking Petition File No. 4-461, and the concept of lead nominator.

Lance E. Lindblom (The Nathan Cummings Foundation) $430 million fund. Bar is very high. We all speak a common language of long-term shareholder value. We put together coalitions. Danger of special interest is negated by vote. Sarbanes Oxley doesn’t require real independence.

Denise L. Nappier (State of Connecticut) 56th largest pension fund. Generally supports Commission’s effort but the rules set the bar too high for smaller funds. $2,000 threshold rather than 1%, add restatement of earnings. Roll back nominators to 1%. 5% threshold can be reduced without losing the safeguards.

Paul M. Neuhauser (University of Iowa College of Law - retired) Step in the right direction. The big institutions would be able to do something. Do away with triggers. If we have triggers, the numbers are too high. Ought to be scaled. Larger the company, the less should be required percentage. If a shareholder proposal gets a majority vote, that ought to be a trigger.

I noticed that on the legal interests panel, all but Lang agreed the SEC has the authority to go ahead with their proposed rule.

John C. Coffee, Jr. (Columbia University Law School) No simple bright line between federal and state laws. Rule expands 14(a). Bus. Roundtable decision recognizes SEC power does go to procedure. Purpose is to allow the absent shareholder essentially to have a place at the meeting. If you can nominate at the meeting, you should be able to nominate through proxy. Since 1950s the only thing you can vote on is something you can vote on under state law. Ambiguity with regard to state law. Stroud v Grace only eligible candidates had to have line experience. Equalizing absent and present shareholders. 1947 SEC v TransAmerica bylaw amendment couldn’t be used to frustrate a federal law right. Only nominations that are proper under the proposal. The more it is procedural the safer you are.

Jill E. Fisch (Fordham University School of Law) Disagree that it is a new right. The proposal is explicit in its grounding in state rights. Legislative history 1933-34 was addressing insider with 14(a). More than disclosure but also procedure. The obvious response is to have a simpler rule. Provide more flexibility. States and companies should be able to go further.

David A. Katz (Wachtell, Lipton, Rosen & Katz) Looked at the laws of 50 states. Bylaw amendments and charter provisions could be done as a matter of state law. Haven’t been successful in getting institutional investors to suggest candidates.

Robert Todd Lang (Weil, Gotshal & Manges, ABA) A lot of good coming from this proposal. Proxy machinery needs updated. Commission has asserted its authority under disclosure. A new federally created right by the SEC. Overrules authority of nominating committee. Facilitates proxy contests. Controversy is likely. Look for a model to allow management and shareholders to work it out. New nominating rules will increase influence of institutional investors. Grants a new right that they don’t have now.

Donald C. Langevoort (Georgetown University Law Center) SEC can preempt. Less inclined to allow states to opt out. Strength of the rulemaking record…necessary and appropriate. Closest practical substitute for attending the meeting. Fair corporate suffrage rather than doing well.

E. Norman Veasey (Supreme Court of Delaware) You might be inviting states to prohibit shareholder nominations and create a race to the bottom. Potentially discriminating against small stockholders. Millstein point …perhaps state laws should require majority vote of those voting.

James E. Heard (Institutional Shareholder Services) Directors who serve on more than six boards…they recommend withhold. 2 years consecutively board has ignored. 9 companies last year near 35% withhold.

Gregory P. Taxin (Glass, Lewis & Co.) Background information in proxy enough? We look at other publicly available information. Interlocking boards could be disclosed. Resumes back further than 5 years. Burden ought to be on shareholder nominated director. Current directors have failed to solve. 500 words and reference to a website.

John C. Wilcox (Georgeson Shareholder Communications Inc.) Current system isn’t very accurate, unless there is a contest.

As the Washington Post's Steven Pearlstein points out: "The timing couldn't have been worse. Just as the corporate class was preparing its last-ditch assault on a variety of reform initiatives, a flurry of indictments and trials has come along to remind everyone exactly why these folks need to be reined in."

"Nothing has the corporate class more riled up, however, than the Securities and Exchange Commission's proposal to allow shareholders to nominate competing directors if more than 35 percent withhold their votes for the company slate. In lobbying against the idea, the Business Roundtable sheds crocodile tears over the erosion of states' rights and raises the specter that labor unions and other "narrow" interest groups will turn corporations away from their only legitimate purpose, which is to meet the next quarter's profit number. What the Business Roundtable really means, but doesn't have the guts to say, is that corporate democracy is a sham and if investors don't like the way a company is run, they can sell their shares and put their money elsewhere." (Corporate Class Pushes Weak Case Against Reform, 3/10/04)

See also Disney Vote and California Bill May Affect SEC Shareowner Director Nomination Rule, by William Baue at SocialFunds.com and Why are shareholders so powerless? by Jim Jubak at MSN Money, as well as Corporate Interests Widely Decry SEC's Plan on Proxy Reform, LATimes, 3/11/04.

NACD, Look Over Your Shoulder

We've added the Independent Corporate Directors Association (ICDA) to our Links. The ICDA aims to promote the rights of shareholders, restore the authority and integrity of boards and encourage enlightened corporate governance principles. ICDA's comments to the SEC on shareholder nominations said "the best thing the SEC could do in this proceeding would be to free shareholders to nominate the directors that represent them. All of them...It would allow shareholders to correct problems of governance at the source through board members dedicated to their interests without having to rely on after-the-fact remedies such as derivative actions."

In contrast, the National Association of Corporate Director's comments express concern with "shareholders who put their own agendas before the needs of the entire shareholder base. The solution, of course, is to have boards that are composed of knowledgeable, thoughtful, independent-minded individuals who have the ability, willingness, and courage to discharge their responsibilities to shareholders effectively. Existing reforms will help to ensure that result. Let us give them time to work."

Which appears more concerned with shareholders?

The Smell of Gunpowder in the Air

Rarely do I turn to The Conference Board’s publication “Across the Board” for the latest insights into democratic corporate governance. However, James Krohe Jr.’s “The Battle for Corporate Power” is one of the best summaries I have seen in any recent publication. From the opening paragraphs, it is apparent that he is not holding back in describing the movement.

The large, publicly owned corporation is, nominally, a representative democracy. But power in most corporations lies everywhere but in the hands of the people. For decades, the shareholders of big U.S. companies have resembled the pre-Revolutionary American colonists, who labored under an indifferent ruling class that looted the people's wealth and that left them few lawful means of redress. Today, citizen shareholders vote for referenda that company leaders ignore; they are represented by people whom they have no say in choosing.

Unhappy shareholders, like the colonists, have two choices. One is to simply invest their money somewhere else — the shareholder equivalent of going into exile. The other is to rebel in the hope of taking control. Few shareholders in the past have had the stomach for such a fight. But open a window on Wall Street today, and you can smell gunpowder in the air.

He sees advocates for more democratic corporate governance largely divided into two camps. “Value-seekers” want “to pry out the potential profits that lies not in new products or markets but in unrealized management improvements. The other faction he calls “value-builders.” These shareowners embrace corporate democracy “as a way to bring corporations under control, by committing them to extra-financial values such as diversity, sustainability, and nonviolence. The list of corporate sins is as endless as the human capacity for outrage.”

Krohe then discusses the current SEC proposal to allow shareholders to place their nominees on the corporate proxy in very limited circumstances. Just as civil democracy was improved by expanding the vote to former slaves, then women, and finally to people aged 18-20, the current SEC proposal will not be accepted as final justice.

Krohe quotes me saying, “I doubt if anyone in 1919 was proposing that women should get the vote only in specific townships or jurisdictions where they can demonstrate they've been treated badly, or that in those jurisdictions, they'll get to nominate only one-eighth of their representatives."

Within the article, Nell Minow notes that whatever happens in 2004, the war is far from over. “The core issue for the next five years will be access to the proxy,” Minow insists. “Whatever the outcome,” Krohe concludes, “annual general meetings that used to resemble coronations will become more like big-party political conventions.” Mark Latham’s brands become nascent political parties. Whether they divide along the lines of “value-seekers” and “values builders,” it is still unclear. However, a consensus to shift primacy in the boardroom from CEOs to shareowners appears to be clearly in the wind.

Security Holder Director Nominations Roundtable

The Securities and Exchange Commission announced the final agenda and participants for a roundtable on proxy access for shareholder nominations to company boards of directors. The "Security Holder Director Nominations Roundtable" scheduled for March 10, 2004, from 9:00 a.m. to 5:15 p.m. in the William O. Douglas Room of the Commission's headquarters at 450 Fifth Street, N.W., Washington, D.C., and will be open to the public with seating on a first-come, first-served basis. Doors will open at 8:00 a.m.. The Roundtable will address the rules proposed by the Commission on Oct. 14, 2003, relating to proxy disclosure of security holder director nominations. The proposals would, under certain rare circumstances, require companies to include in their proxy materials disclosure regarding security holder nominees for election as director.

The Roundtable will cover a number of topics, including (1) whether problems in the proxy process need to be addressed; (2) whether the proposed rules are a reasonable solution to those problems; (3) how the proposed rules would apply to companies and investors; (4) the impact of the proposed rules on retail and other investors; (5) federal and state law issues that may be raised by the proposed rules; and (6) how proxy voting mechanics might impact the proposed rules.

9:00 a.m. Opening Remarks: Chairman William H. Donaldson

9:10 a.m. Introduction of Issues
Alan L. Beller, Division of Corporation Finance
Martin P. Dunn, Division of Corporation Finance

9:15 a.m. Panel One - What problems in the proxy process need to be addressed? Are there flaws in the proxy process with respect to the nomination and election of directors? If so, do those flaws affect investors' ability to participate in the process?

Moderators
Alan L. Beller, Division of Corporation Finance
Martin P. Dunn, Division of Corporation Finance

Participants

Lucian Arye Bebchuk (Harvard Law School)
Randall S. Kroszner (Graduate School of Business, University of Chicago)
Martin Lipton (Wachtell, Lipton, Rosen & Katz)
Nell Minow (The Corporate Library)
Richard H. Moore (State of North Carolina)
Steve Odland (AutoZone Inc.)
Eric Roiter (Fidelity Management & Research Company)
Damon Silvers (AFL-CIO)

10:45 a.m. Panel Two - Is the proposal a reasonable solution? If there are flaws in the proxy process, is the approach of the proposed rule - disclosure of security holder nominees in company proxy materials in certain circumstances - an appropriate way to address them? Are there other approaches, or modifications of the proposed rule, that would be preferable?

Moderators
Alan L. Beller, Division of Corporation Finance
Martin P. Dunn, Division of Corporation Finance

Participants

Richard C. Breeden (Richard C. Breeden & Co.)
Peter C. Clapman (TIAA-CREF)
Thomas J. Donohue (U.S. Chamber of Commerce)
Charles M. Elson (University of Delaware)
Joseph A. Grundfest (Stanford Law School)
Ira M. Millstein (Weil, Gotshal & Manges)
Peter J. Wallison (American Enterprise Institute)
Ralph V. Whitworth (Relational Investors, LLC; Apria Healthcare Group Inc.)

1:00 p.m. Panel Three - The application of the proposal to companies and investors. Does the proposal limit the application of proposed Rule 14a-11 to the appropriate companies and properly address the potential costs to companies? Does the proposal provide security holders with appropriate opportunities to exercise their rights in the proxy process?

Moderators
Alan L. Beller, Division of Corporation Finance
Martin P. Dunn, Division of Corporation Finance

Participants

Warren L. Batts (National Association of Corporate Directors)
J. Carter Beese, Jr. (Riggs Capital Partners)
Franklin D. Raines (Fannie Mae)
David S. Ruder (Northwestern University School of Law)
Jeffrey A. Sonnenfeld (Yale University School of Management)
Ted White (California Public Employees' Retirement System)
Susan Ellen Wolf (Schering-Plough Corporation)
Ann Yerger (Council of Institutional Investors)

2:45 p.m. Panel Four - Impact of the proposal on retail and other investors. What are the consequences of the rule for retail and other investors?

Moderator
Martin P. Dunn, Division of Corporation Finance

Participants

Evelyn Y. Davis (Highlights & Lowlights)
Les Greenberg (Committee of Concerned Shareholders)
Lance E. Lindblom (The Nathan Cummings Foundation)
Denise L. Nappier (State of Connecticut)
Paul M. Neuhauser (University of Iowa College of Law - retired)

3:15 p.m. Panel Five - Legal issues. What are the federal law and state law issues raised by the proposal?

Moderators
Alan L. Beller, Division of Corporation Finance
Giovanni P. Prezioso, Office of General Counsel

Participants

John C. Coffee, Jr. (Columbia University Law School)
Jill E. Fisch (Fordham University School of Law)
David A. Katz (Wachtell, Lipton, Rosen & Katz)
Robert Todd Lang (Weil, Gotshal & Manges)
Donald C. Langevoort (Georgetown University Law Center)
E. Norman Veasey (Supreme Court of Delaware)

4:30 p.m. Panel Six - Impact of the proposal on proxy voting mechanics. How would the proposal affect voting mechanics, such as clarity of the proxy card and ability to tabulate proxies?

Moderator
Elizabeth Murphy, Division of Corporation Finance

Participants

Richard J. Daly, (Automatic Data Processing Inc.)
James E. Heard (Institutional Shareholder Services)
Gregory P. Taxin (Glass, Lewis & Co.)
John C. Wilcox (Georgeson Shareholder Communications Inc.)

5:15 p.m. Conclusion
Visitors will be subject to security checks. Real time and archived webcasts will be accessible at http://www.sec.gov. Two of the SEC's three Republicans remain wary of the plan. The two Democrats support it. Donaldson, the GOP chairman, could cast the tie-breaking vote in favor but is struggling behind the scenes to design a final rule that can win over his fellow Republicans.

ISS Investor Forum

Institutional Shareholder Services (ISS) will hold an Investor Forum to discuss the move toward companies separating the Chairman and CEO roles. The discussion will look at how Disney made its decision in the aftermath of the March 3rd shareholder vote. Executives from Oracle and Dell, Inc. will talk about how they arrived at their voluntary decisions to appoint separate chairmen, while two corporate governance experts, Ira Milstein and Charles Elson, will outline the impact to shareholders on the issue of separating the positions.

The ISS Investor Forum will be held via webcast on Friday, March 12 at 2:00pm eastern. To register, go to www.issproxy.com/investorforum. The webcast is open to all interested parties.

The Rotten Apple Theory

Former Secretary of Labor Robert B. Reich doesn't subscribe to the "rotten apple" theory of corporate misbehavior. Martha Stewart has been found guilty. Members of the Rigas family, who ran Adelphia, have gone to trial. Ex-World Com CEO Bernard Ebbers has been indicted. Jeffrey Skilling, erstwhile chief executive of Enron, was formally arrested and charged with fraud and insider trading. The "rotten apple" theory assumes malfeasance is the work of a very few people who abused their authority. If we deal with these rotten apples the rest of the bushel will remain perfectly healthy. It's not all that difficult for prosecutors to find evidence that a few higher-ups have looted their companies or profited from insider trading or cooked the company books. These prosecutions reassure the public that a handful of corporate crooks may be headed for jail.

But, according to Reich, the rotten apple theory distracts public attention from the broad pattern of malfeasance that's still endemic in corporate boardrooms. It takes the pressure off to come up with systemic reforms. It's an open secret that many companies pumped up their balance sheets over the past few years. In the last two years, a large percentage has had to restate their earnings, a strong sign that some numbers have been fudged. Most of the troubles on Wall Street have involved CEOs who pumped up balance sheets and then dumped their own shares before the market learned of the extent of the pumping. Pumping and dumping it's called-and the incentives to pump and dump are still there. It's fine to require CEOs to sign off on their audits, and to demand that more company directors be independent. And headline prosecutions of a few executives may serve as a useful deterrent. But none of this gets at the basic problem. The incentive to pump and dump comes from executive stock options. As long as top executives can sell them in the short term, executives are going to use whatever gimmick they can find to pump up the share price before the sale. Stock options have to be designed in such way that they don't encourage executives to cheat. (TomPaine.com, The Rotten Apple Theory, 3/4/04)

Reich has a fine point. However, the real problem is that CEOs are not accountable to shareholders. Yes, the cost of stock options should be included in corporate accounting and awards should be more closely tied to performance. Yet, CEOs can hire the best experts to come up with additional "gimmicks." Of 401 CFOs recently surveyed, 78% said they would sacrifice "economic value" to achieve "smooth earnings," according to a study by Duke University's John Graham. The only gimmick they can't get around would be a true shift in power. Let's bring democracy to corporate governance and let shareowners hold boards and CEOs accountable. Assembly Bill 2752 comes closer to that realization than any proposal under consideration. Yet, even it needs several amendments if we are to really guard against rotten apples at 14,000 companies.

Boards Improving

Sarbanes-Oxley and Enron are having an impact, according to the latest PricewaterhouseCoopers Management Barometer survey. The survey found that 88% of senior executives report their directors are expected to have more input on a variety of issues; 73% predict their board will be more vocal on risk management issues; 72% have established a whistle-blower complaint process; 63% have improved the skill sets of their audit committee; and 47% of boards have performed a self-assessment in the past 12 months. (CFO.com, Sarbox Adding Accountability, Say Execs Nearly Three-Fourths Of Respondents To A New Survey Say Their Company Has Established A Whistle-Blower Complaint Process, 3/2/04)

Disney on the Ropes

Separating the CEO and the chair was a good move; the trouble is with the occupants. Clearly, after an unprecedented 43% no confidence vote, Michael Eisner should have been shown the door. Although that number makes the 24% no confidence vote earned by George Mitchell look small, it was not.

Shareholders are no longer willing to sidestep the issues. Roy Disney and Stanley Gold indicated, “It is clear from this action that corporate governance is just talk at the Walt Disney Company. We renew our call for substantive change beginning with the immediate commencement of a search for a new CEO and the selection of a truly independent Chairman of the Board."

Sean Harrigan, President of CalPERS stated, “Eisner should go and the Board should get quickly to work on planning for an orderly transition." Cynthia Richson, the corporate governance officer for the Ohio Public Employees Retirement System said, "I'm extremely disappointed with Mitchell. There are questions about his psychological independence, considering his long-standing ties with Eisner." Robert A.G. Monks, Respected governance luminary, commented on the vote, "It would have been a discharge vote at 33 percent. At 43 percent, they shouldn't even take time to blot the ink on the resignation ... He's got to go.”

A spokeswoman Institutional Shareholder Services was quoted as saying, "If the Disney Board believes this is the silver bullet to fix all the problems, they are sort of mistaken. The level of the vote makes it clear that investors have a lot more on their minds than just the splitting of the position." The Council of Institutional Investors stated, "And the most troubling thing of all? The company's response to this extraordinary shareholder proxy revolt trivialized it." Even Charles Elson, director of the University of Delaware's Center for Corporate Governance who I’ve always viewed as a moderate said, "Disney once again seems to be misunderstanding the situation. This is a shuffling of the chairs, not a change."

(Based on Roy Disney and Stanley Gold press release. Contact: Clifford Miller of Shamrock Holdings, 818-973-4297; or Michael Sitrick of Sitrick And Company, 310-788-2850, for Roy Disney and Stanley Gold; or investors, Charlie Koons, or Larry Dennedy, both of MacKenzie Partners, 800-322-2885.)

A Few recent epic votes include:

• 2003: At AOL Time Warner's annual meeting, 22% of shareholders withhold their votes for board member Steve Case. Case, anticipating the negative vote, resigns beforehand as chairman. Case remains on the board today.
• 2002: At Lockheed Martin, 28% of shareholders withhold their votes for director Frank Savage in a reelection challenge linked to his role as an Enron director. Savage remains on the board today.
• 2001: Service Employees International Union and other major investors urge Eastman Kodak shareholders to withhold support from four board members; about 17% of shareholders do so. One of the four directors leaves the board the next year. The other three remain on the board. today.
• 2001: At mining company Freeport McMoRan Copper & Gold, a challenge led by New York City pension funds causes shareholders to withhold 18% to 25% of votes for a slate of five directors. The next year, in voting on a different set of directors, shareholders withhold nearly 39% of votes. Despite the votes, board membership remains largely unchanged today.
  

Pension Funds Warned

William Galvin, Massachu