Better to switch than fight?

ANOTHER PROXY SEASON has wound down and a record number of shareholder resolutions were filed. As of early June, when the bulk of annual meetings had been held, more than 1,100 resolutions had been filed, according to the Investor Responsibility Research Center. That compares with 1,082 for all of last year. And the proposals continued to draw increasing shares of the vote. Of course, without a majority the resolutions are non-binding. But they can still cause PR headaches.

This year's hot topies? Executive pay remained a big issue, as did global warming. Shareholders were also intent on shaking up boards, voting in unprecedented numbers to block directors from being reappointed (most notably, the 40-percent-plus "no confidence" vote for Disney's Michael Eisner). "The big story this year is the 'no' votes," says Nell Minnow, editor of the Corporate Library, the governance watchdog.

The less publicized story, however, may be a shift in the way that CEOs and boards manage vocal shareholders. A growing number of companies took steps to cooperate with shareholder groups and head off potentially damaging situations. To misquote an old advertising slogan, it seems they'd rather switch than fight.

In the case of J.P. Morgan, investors were concerned about the company's environmental risk. After meeting with shareholder groups that sponsored the proposal, including Christian Brothers Investment Services and Domini Social Investments, the bank agreed to assess the environmental impact of deals it helps finance. In response, the groups withdrew their resolution.

Similar scenarios unfolded across the energy industry. AEP, the country's largest power generator, agreed to investors' requests for better reporting on its efforts to reduce greenhouse gas emissions. AEP's change of heart came after a similar resolution last year grabbed a surprising 27 percent of the vote. Other energy companies, including Cinergy, Southern Company and TXU, followed suit.

In some cases, management actively supported a resolution. Tyco International's management, for example, backed a resolution that called for a companywide environmental reporting system aimed at reducing emissions of toxins. The proposal won 85 percent of the vote and pleased shareholder groups.

Or take Coca-Cola. Rather than negotiate to get the resolution withdrawn, Coke's board urged investors to vote "yes" on a resolution concerning the economic impact of HIV/AIDS on the company's operations. The sharcholder groups argued that the AIDS pandemic in Africa afflicts Coke's employees and customers. They urged Coke to analyze the impact and take action. With a nod from the board, 97 percent of shareholders voted "yes."

Governance watchdogs say the new spirit of cooperation is smart. "If there's more dialogue with sharcholders, you won't have those resolutions coming to a vote," says Tracey Rembert, a coordinator at the Social Investment Forum. That would indeed be a lovely thing.

--Amy Cortese

Shareholder Resolutions

            804
2001        744
2002        803
2003       1082
2004*      1100*

*As of June 2004
Source: The Investor Responsibility Research Center