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WORKPLACE: SEC Again Turns Blind Eye to Concerns of Social Investors, March 1997
SOCIAL TOPICS (Archive): WORKPLACE
Published, March 1997 by Timothy Smith For the last four years socially concerned investors have been pressing the SEC to reverse its morally bankrupt position that shareholder resolutions dealing with any employment issues can be omitted from company proxy statements. Issues covered under this blanket exclusion include:
• discrimination in employment and affirmative action
In a 3-1 vote on February 24th, SEC Commissioners refused to consider an appeal of its staff’s decision to omit shareholder resolutions on these issues. In doing so the commissioners reinforced a four-year old decision that Cracker Barrel Old Country Stores could suppress a shareholder resolution calling on the company to end discriminatory practices because the issue was related to “ordinary business operations.” The SEC’s position is based on a legal exception that allows companies to ignore resolutions that relate to “ordinary business.” In other words, the SEC considers employment matters the sole purview of management — inappropriate for shareholders to raise through resolutions. For the four commissioners, the decision last month was a moral litmus test — one they failed dismally. By refusing to consider a reversal of the outmoded Cracker Barrel position, the commission is dodging a basic responsibility to protect the rights of shareholders. We are heartened, however, by Commissioner Steven Wallman’s unambiguous dissent in which he declares his colleagues’ position to be bad public policy that should be immediately reversed. But we are shocked that the other three commissioners could delay a decision in an age when it is clear from recent legal settlements (Texaco, Publix Supermarkets, and Shoneys) that employment discrimination in the U.S. can cost shareholders millions of dollars, and exposing sweatshop conditions overseas can seriously harm a company’s public image and bottom line. The commission’s position is an example of the ostrich mentality, ignoring present day reality. Literally thousands of letters from concerned investors including public pension funds, foundations, mutual funds, investment managers and religious investors were sent to the commission during the last four years. USTC, New York City Employee Retirement System and the Women’s Division of the United Methodist Church sued the SEC seeking a reversal of this policy. Ironically most corporations receiving resolutions on employment related topics do respect the rights of shareholders to submit them. In 1997, for example, 90% of companies receiving such resolutions agreed to include them in their proxy statements. It is also strange that, in a time when all of us want to unclog the court system, the SEC counsels resolution proponents that they can sue companies to get their proposals in the proxy.
Finally, the commission’s decision flies in the face of direct appeals by Administration officials such as former Secretary of Labor Robert Reich and Congressional leaders who passed a bill urging the SEC to review its position on this matter and report to Congress. The SEC’s position has also been rejected by the federal courts where shareholders sued Walmart to preserve their right to pursue a shareholder resolution on equal employment opportunity. In light of the strong position taken by the three constitutional branches of government, we are unable to fathom the arrogance of the SEC staff as it stubbornly promotes its position. We must continue to appeal to the commissioners to exercise their responsibility and reverse the Cracker Barrel decision. To refuse to decide is to support the status quo, and that is unacceptable. Timothy Smith is executive director of the Interfaith Center on Corporate Responsibility where he has promoted shareholder activism on a wide variety of social issues for the past 25 years. He is also chairman of the Calvert Social Investment Fund Advisory Council. |
