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Guide to Shareholder Activism for CWA Members and Retirees. June 2009. 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)

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Presentation Transcript
introduction
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

CWA Shareholder Activism

background
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

CWA Shareholder Activism

public companies and shareholder rights
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

CWA Shareholder Activism

types of shareholder actions
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

CWA Shareholder Activism

shareholder activism and company engagement
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

CWA Shareholder Activism

filing a proposal
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

CWA Shareholder Activism

defending proposals
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

CWA Shareholder Activism

procedural bases for exclusion
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

CWA Shareholder Activism

substantive bases for exclusion
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

CWA Shareholder Activism

types of proposals allowed
Types of Proposals Allowed
  • Corporate governance
  • Executive compensation
  • “Significant issue of social policy”
    • Human rights
    • ILO standards of employee rights
    • Environment / climate change

CWA Shareholder Activism

corporate governance proposals
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

CWA Shareholder Activism

executive compensation proposals
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

CWA Shareholder Activism

social proposals
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

CWA Shareholder Activism

types of outcomes 1
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

CWA Shareholder Activism

types of outcomes 2
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

CWA Shareholder Activism

the proxy materials
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

CWA Shareholder Activism

soliciting proxies
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”

CWA Shareholder Activism

collecting proxies
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

CWA Shareholder Activism

proxy to attend and participate in annual meeting
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: _______________

CWA Shareholder Activism

the shareholder meeting
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

CWA Shareholder Activism

the results
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

CWA Shareholder Activism

resources
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

CWA Shareholder Activism

best to coordinate with cwa headquarters
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 (tdaley@cwa-union.org)

CWA Shareholder Activism

conclusion
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

CWA Shareholder Activism

appendix

Appendix

CWA Shareholder Activism

links
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

CWA Shareholder Activism