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Shareowner Activism Intro

The Origins

In "The Concept of the Corporation," to quote the noted management guru Peter Drucker, modern big business is something that must be accepted by every country, for it is obvious that modern industrial technology requires some form of big-business organization.  Therefore, "Big Business" is something that must be accepted as the very center of any modern industrial society.  The central question, then, is not whether we want Big Business, but what we want of it; and what organization of Big Business and of the society it serves is best equipped to [help us] realize our wishes and demands..."

These words were written 60 years ago as the late Professor Drucker thoroughly analyzed (in his breakthrough business book) the largest corporation of its day " General Motors " and the impact of GM and other major corporations on society.  World War II had just ended " and the America, the Arsenal of Democracy emerged to dominate global business and other affairs. In 1946, the pervading influence of large publicly-traded corporations was  still a [relatively] new phenomenon -- for the most part a 20th Century development -- and the future was unsettled as various competing political economies and philosophies were jostling for supremacy (he cited capitalism, Marxism, socialism, communism, fascism). 

In 2006, it is clear that democratic rule is on the march throughout the world and that capitalism " varying styles of market economies " has trumped Marxism et al.  The free-market / market economies are dominant political philosophies and systems. It is also clear that corporations are the dominant market institutions " with a wide range of public / societal reaction to these 21st Century realities.

Who Owns the Corporation?

In the 1970s, Peter Drucker was [again] presciently advancing another bold concept that took a while to catch on (or least to comprehend): Thanks to the giant [and fast-growing] pools of investment capital available to the large corporations of the United States, ownership of the enterprise was passing to the real "owners."  That is, to the shareowners, many millions of whom invested indirectly through labor union pension funds, public employee pension funds, mutual funds, direct investment, and then-new individual retirement schemes.  It won't be long, he accurately predicted, before "Pension Fund Socialism Comes to America."  (His 1976 book was entitled, "The Unseen Revolution: Pension Fund Socialism Comes to America."  It is worth reading again today if you can obtain a copy.)

So " in an "ownership" society such as America [is considered to be] " who really "owns" the corporation?  In the simplest and broadest sense, those who invest in the common stock issued by the corporation to raise capital " the shareholder or shareowner. 

The Ownership Process " Exercising Democracy

Each year individual, institutional shareholders (and their fiduciary agents) holding common shares in literally thousands of American companies receive a ballot to vote for nominees to the corporate board of directors who will (when elected) recruit and appoint (and supervise) the senior management professionals who will run the corporation day-to-day.  The directors are responsible to the shareholders.

The shareholders vote the board, the board appoints the managers, the managers run the enterprise day-to-day; the board oversees the managers; the managers and board report to the shareholders on the financial performance and progress of the enterprise; the shareholders' ownership entitles them to reward for their risk of capital.  Simple equations? Not really!

Roots of Shareowner Activism

Over the past 50 years some corporate managers became somewhat or even totally disconnected from the interests of the owners.  (As did boards, sometimes consisting of many other CEOs, cross- recruited by the managers to their own respective boards.  The buddy system at work.)  Solution for disappointed, angry or demanding shareholders:  Shareholders Arise " to Activism!

The pioneers in challenging corporate leadership were the famous Gilbert Brothers " John (later joined by Lewis) who started in the late 1920s.  The Gilberts were fixtures at corporate annual meetings " sure to be covered by the media, and always good for a quip and a quote.  (Lewis died first and John was still active in campaigns until his recent death.)  The gadflies of Corporate America developed the framework for what is today's shareholder activism, focusing on a range of companies including Transamerica, calling for a vote on a resolution concerning the firm's outside auditors. 

SEC agreed with the brothers that the vote could go forward and an appellate court affirmed this " suddenly, the powerful tool of shareholder-sponsored resolution was handed to institutional investors and a huge movement " or series of movements, if you separate faith-based from social investors, from labor activists, etc. " was launched.  (See "Gilbert Brothers, shareholder activists" on your Google search " 40,000+ results will appear for your research.)

Religious / Faith-based Investors Lead the Way

Religiosity, investing, business and capitalism have long been intertwined aspects of modern societies.  The early Quakers (Society of Friends) set out principles of "social investing" three centuries ago.  In the late-1960s and into the early 1970s many states began to change their "Prudent Man" [trust] laws to allow fiduciaries to invest beyond "safe" Treasury and municipal bonds and similar instruments.  The 1974 ERISA law clearly spelled out the federal Prudent Man approach for fiduciaries of pension funds.  (Example: Addressing investments in companies that omit dividends.)

By the mid-1970s many institutional fiduciaries were moving into common stocks of the largest public companies.  This seismic shift --- which created the dominance of the capital markets be institutional investors of all kinds " provided capital for companies. And, brought many new "minds" to investing " not all focused [only] on the greatest return on investment (ROI).  "Behavior," "responsibility," "responsive attitude" and other quantitative metrics and characteristics became important to investors.

By 1970, religious investors "in the market" decided to band together to use their individual and collective stock market presence (their pension funds and endowments) to bring about social change.  First objective:  Protest Apartheid policies and practices in the Union of South Africa.  Targets: US firms doing business in the other USA.  Method:  Ask management to exert influence in South Africa; if that fails, bring the matter to all shareholders and ask them to vote (through their proxies) on the issue and their company's relationships in South Africa.

The Interfaith Center on Corporate Responsibility

And so was created the Interfaith Center on Corporate Responsibility (ICCR), initially organized by five mainline Protestant denominations and in the ensuing years vigorously infused and greatly expanded with the enormous capital and energy of the Roman Catholic community (religious order pension funds, endowments, investment mechanisms, religious healthcare complexes, etc.) 

Today, ICCR faith-based members represent a wide range of religious and faith interests " who manage $130 billion in direct investment and influence at least another $1 trillion-plus in related institutional investments. 

ICCR over the past 30 years has used its early, successful anti-Apartheid model of proxy advocacy to challenge hundreds of companies on a wide (but focused and organized) range of social issues.  Associate and Affiliate members (non-religious) conduct corporate proxy campaigns as well; one notable is the large New York City Pension plans; another, Domini Social Funds.

By January 1, 2006, the ICCR community had filed 299 resolutions for the 2006 proxy votes addressing a range of social issues at 147 companies " including Exxon Mobil, Wal-Mart Stores, Chevron-Texaco, Coca-Cola Company, Home Depot, Pfizer, General Electric, Bank of America, Time-Warner, and Walt Disney Company.  

Issues addressed included: Environmental - Sustainability; Human Rights " Worker Rights; Diversity " Inclusiveness; Corporate Governance; Finance; Military " Violence; and, Lobbying.  (There are a number of issues that are of importance to single members of ICCR as well, such as supplying heavy equipment to Israel's armed forces that are used to demolish Palestinian structures.)

ICCR launched its "EthVest" (sm) on-line Ethical Investor Database in fall 2005 to enable investors, advisors, corporate executives, analysts, professional service firms, and others to track in "real time" the dynamic proxy resolution environment.  [Click here for news, information and background.]

Commentary " on the Active Shareowner

The California Public Employees Retirement System " CalPERS " notes that:

"Shareowners collectively have the power to direct the course of corporations.  The potential impact of this power is staggering.  Through shareowners action, economic wealth can either be created or destroyed.  In CalPERS' view, the responsibility that results from this power must be exercised responsibly."

CalPERS provides ample information to the public on its current activism as the giant pension fund "exercises its ownership rights..."  Its activism is exercised through such activities as its Focus List and Proxy Voting Decision(s) that are relevant to current and upcoming proxy votes.   CalPERS encouraged all investors to conduct evaluations of the issues and make decisions that meet their own investment objectives.  For more information:

Fortune Magazine on Activism

In its cover story of June 24, 2002, Fortune magazine proclaimed " "Investors of the World Unite!"  Author Marc Gunther pointed out that crusaders like Robert A.G. Monks, his partner, Nell Minow, Vanguard's founder John Bogle and ISS executive Jamie Heard were striving to exert the power of institutional investors on corporations with poor corporate governance " where CEOs had too much power; boards were not minding the store; where corporate democracy is a myth; where no one takes responsibility when things go wrong in business.  And that " in Mr. Monks' view " included institutional shareholders!

In the wreckage of Enron, Global Crossing, Adelphia, Quest, WorldCom, et al, the crusaders saw the opportunity for reform.  Shareholder activism was their preferred route.

Corporate Directors " Get Ready

In an "EXTRA! Edition of its monthly newsletter, the National Association of Corporate Directors alerted members of boards of directors " its members " that new executive compensation disclosure rules (as formally proposed by the SEC) may be followed by action in the 109th Congress (in 2006) that addresses executive compensation.  What can board members do about executive compensation?  The "DM Extra" outlines many steps, and notes that "the importance of good shareholder relations has already attracted attention from shareholder activists...while there may be a gap between CEO and worker pay," NACD editors observe, "there may also be a gap between €˜director attitude' and investor attitude....on CEO pay issues..."

The good news from NACD:  Many corporate directors and entire boards have been taking constructive, positive steps to build more independent boards, and addressing shareholder concerns. Many boards, therefore, "are ready..."

State Law Trumps

State laws govern corporations in the United States; with almost 60 percent of the Fortune 500 domiciled officially in the State of Delaware, that state's laws on corporations (and business) are of real importance to corporate boards and executives, and to their investors as well.  (There are 600,000 corporations registered in Delaware.)

In November 2004, a delegation of Chinese government leaders came to Delaware to study its model law " "We know Delaware Corporate Law in China " it is the most popular corporate law in the world," said Wu Gaosheng to the Wilmington News-Journal. He is an official with the National People's Congress " counterpart to the US Congress " and was on tour in the US with a delegation of officials to learn corporate and securities law as China revises its own business laws.  An important stop: Delaware state government offices.

The Model Law on corporations (adopted by the respective states), which Delaware greatly influences, governs in each of the states the rights of shareholders, including access to the proxy process.  The SEC, operating under provisions of federal laws, also has a significant role to play in shareholder access to voting procedures.  Delaware's law, along with the American Bar Association efforts, and laws in individual states, plus SEC processes, are going to change the proxy process in the months and years ahead.  The editors will be providing news, information and opinion on the proposed and adopted changes as these affect corporate-shareholder relations.

Bob Monks " Pioneer of Shareholder Activist Movement

One of the pioneers in shareholder activism is the much-accomplished Robert A. Monks.  The first administrator for the rules of the federal government's "Employee Retirement Income Security Act statute ("ERISA") in the US Department of Labor, Bob Monks went on to a long career focused on advancing reforms and attempting to create "corporate democracy" " making corporate boards and managers more accountable to shareholders. 

With colleagues he created the Institutional Shareholder Services (ISS), the activist Lens Fund, and more recently, The Corporate Library (on-line governance research service).

Despite many advances over the past 30 years, at times it can seem that corporate democracy experiences serious least in Mr. Monks' view. In a blast at foot-dragging corporations and a reluctant SEC (timid, in his view, in advancing shareholder democracy), in March 2005 emailed contacts calling attention to the shareholder rights struggle " "Shareholder rights in American corporations is beginning to be a classic oxymoron," he fumed.  The concept of Shareholder Rights has been little more than a felicitous juxtaposition of words, he observed, and now the slender hope has been crushed...he cited the SEC's advice to Exxon Mobil that there was basis for excluding a proposal (from Monks' Ram Trust Services) that received 21% and 27% votes at prior annual meetings. 

To Mr. Monks, the Exxon Mobil management's response, and SEC's advice, "has the flavor of reeks of censorship, a censorship by the bottomless pocket..."  (For details on Mr. Monks message:  click here.)  The struggle goes on for the pioneers of the shareholder rights movement.

Corporate leaders would be well advised to engage with, communicate with, respond to, their shareholder activists and advocates.  The owners are speaking...ever more these days, it is apparent.

The editors of accountability " central will present news, viewpoints, perspective and other content that we hope will be useful to all involved in the company-shareholder dynamic.

See also Sections on Socially Responsible Investing, Corporate Governance, Corporate Social Responsibility, and others in this Web resource.)

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From the Editors at Accountability " Central

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The publishers of Accountability Central " Governance & Accountability Advisors, Inc. " are consultants and advisors to the Interfaith Center on Corporate Responsibility (ICCR) and agents for marketing the EthVest (sm) Ethical Investor Database, ICCR's on-line, "live" resource for investors, professional managers, corporate executives, analysts, academics, libraries, and others interested in ICCR shareholder advocacy.

For information on EthVest (sm), email:


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-- From the Editors at AccountabilityCentral.

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