SOCIAL TOPICS (Archive): WORKPLACE

Published, July 1994

       The 1994 proxy season presented a perfect environment for the success of USTC’s shareholder activism on Equal Employment Opportunity (EEO) and director independence.

       • Two years ago, the Securities and Exchange Commission (SEC) modified its rules to remove some of the restrictions on communication among shareholders. The SEC appeared to recognize the substantial need for alternatives to the “Wall Street Rule,” which dictated that dissatisfied investors simply sell their stock. Shareholders required efficient and effective leverage which they could use to demand the best return possible on their investments. The result is a valuable forum for shareholders to discuss their concerns about company performance without the obligation of cumbersome filings under certain circumstances.

       • In 1993, Judge Kimba Wood ruled on a suit co-filed by USTC, New York City Employees’ Retirement System and United Methodist Women that the SEC had not followed proper rulemaking procedures when it allowed Cracker Barrel to omit an EEO resolution from its ballot. The SEC indicated its intention to appeal the decision, but stated that in the meantime it would not take action when corporations objected to shareholder resolutions on the grounds that they address matters of “ordinary business.” This opened wide the door for shareholders to bring many issues, particularly EEO, to the attention of companies via the proxy ballot.

       • Jury awards for class-action discrimination suits, allowed by the Civil Rights Act of 1991, have reached the tens of millions of dollars and forced those skeptical of EEO’s importance to acknowledge its financial implications. No longer can the argument be made that EEO is strictly a “social” issue with no relevance to a company’s bottom line.

       USTC seized the moment and combined two strategies in its shareholder activism for the first time. Prior to annual meetings, we contacted other institutions or their advisory services urging them to support the resolutions we filed. At the annual meetings, USTC spokesperson Ann Taylor appealed directly to directors of our companies who were also on boards of other firms that were already addressing some of the requests in our proposals.

       The result? A whopping 21% of the shares voted at R.R. Donnelley supported our resolution calling for disclosure of EEO data. Similar resolutions at both Leggett & Platt and W.W. Grainger received support in the double digits. Typically, such resolutions are considered successful if they garner only 6% to 8% of the votes cast.

       At Ametek, we proposed a more independent as well as a more diverse board and received 30% of the votes cast after USTC’s Larry Litvak argued in favor of the resolution. Significant support on all four of these resolutions, even though they failed to pass, sent a strong message to managements that shareholders are increasingly concerned about EEO performance and board composition.

       We were also pleased with the outcome of our proposal to Tecumseh. The company is closely held, so we did not anticipate that our EEO proposal would attract significant support. Rather unexpectedly, Tecumseh offered to provide us with its EEO information if we were willing to share ours. We accepted and withdrew the resolution.

       It became highly evident that the most critical factor to these results was our ability to better educate others regarding the issues at hand. The more information we were able to provide shareholders, advisory services, companies and their directors, the better our resolutions fared.

       An old lesson relearned: education and information are key to responsible decision making.