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The inevitability of getting involved.

Who Owns Corporate America

"I am pleased to say that 1990 appears to be the year in which corporate governance has come into its own," stated David G. Ball, Assistant Secretary of the Pension and Welfare Benefits Administration, at the annual meeting of the United Shareholders Association in September. But Ball, whose office is responsible for regulating corporate pension funds under the Employee Retirement Income Security Act (ERISA), advised that the PWBA will continue pressing for an improved governance process. Excerpts from his remarks follow.

More active shareholder involvement in corporate governance as a way to create value is, in my view, inevitable. Quite aside from the fact that ERISA requires plan fiduciaries to knowledgeably cast their corporate proxy ballot, it stands to reason that active institutional investors do not invest in corporations that they believe are fully valued against future expectations. Rather, they invest in corporations, that they believe are undervalued against future expectations.

Therefore, as fiduciaries on behalf of their participants and beneficiaries, pension fund managers should examine proxy proposals to determine whether they will add to the value of the corporation over the time frame of the investment or whether they will detract from it, and vote accordingly.

I believe that actions designed to insulate corporate management from the discipline of the marketplace are, as a general matter, unhealthy for the corporation, its workers, and the economy at large. Corporate management that is insulated from the discipline of the marketplace is likely to become inefficient and fail to maximize value for shareholders; nor is it likely to provide stable employment for its workers over the long term.

This is not to say that I advocate an adversary relationship between pension plans and corporate management. I believe that pension plans, which generally are accumulating funds for benefit payments in the future, are in a particularly good position to be long-term, patient investors.

Just as I believe that plans do not necessarily gain by selling shares of stock every time they disagree with management, I believe that, in general, it is preferable for plans that are large shareholders in companies to share their concerns with management and try to work them out before they get involved in tender offers or proxy contests to unseat management.

I think it would be a mistake to focus solely on proxy contests won by shareholders as a measure of our success in heightening institutional investors' awareness of the need to pay attention to issues of corporate governance. What is gratifying is the evidence that corporate management is beginning to respond to the heightened sensitivity of institutional investors to these issues. To cite just two examples, Westinghouse Electric Corp. voluntarily adopted a confidential voting policy after receiving a shareholder proposal, and Bank of America's executives voluntarily terminated their golden parachutes. As institutional investors hold an ever-increasing share of the S&P 500 companies, I would hope to see corporate management become increasingly responsive to corporate governance issues and, as a result, see fewer, rather than more, proxy contests.

In 1990, the Department of Labor undertook three initiatives of note with respect to corporate governance. First, we issued the Monks letter, which articulated the responsibilities of various fiduciaries of pension plans with respect to voting of proxies in various factual situations. The other two initiatives are not yet completed.

This past summer our office of enforcement has undertaken a project focused on banks to ascertain how well they are functioning in ensuring that proxies are delivered in a timely fashion to the plan fiduciaries responsible for voting the proxies. It will also examine bank trustee procedures for ascertaining that the persons voting the proxies on behalf of the plan are indeed the appropriate plan fiduciaries.

After all, like political democracy, for corporate democracy to work well, persons entitled to vote need to be able to get relevant information in a timely fashion, and to receive their ballots in time to cast them. All of our area offices will be contacting a small sample of bank trustees in their area. If our experience with our prior proxy project involving investment managers is any guide, I would expect that the fact that we are making these inquiries will lead to an internal review of procedures by bank trustees to ensure compliance with the law.

The other major initiative that we are considering is a proposal to amend ERISA to provide for better disclosure by plan fiduciaries with respect to proxy voting. Currently, plan participants can find out from the Form 5500 about the plan's investments but cannot determine whether the plan fiduciaries have a proxy voting policy or what that policy is. Because disclosure has proven to be an effective safety device in other areas of the law, it seems appropriate to use it to help police this area.

In addition to these items, we are, of course, continuing to receive inquiries with respect to the application of ERISA to particular areas of proxy voting. Two inquiries that my staff received relate to the duties to vote proxies of foreign shares, and questions as to who has the right to vote the proxies of borrowed shares. They will be answered in due course.

During my tenure at the department, some people have asked me why PWBA has devoted a good amount of its limited resources over the past six years to corporate governance, a field that is unlikely to yield massive recoveries, even where violations are discovered.

Pension plan fiduciaries must act as owners of the companies in which they hold shares, both to protect the value of the shares that they own on behalf of plan participants and, in a broader sense, to ensure that corporate management acts in the best interests of all shareholders.

At the same time, management should treat shareholders, including your pension plans, as partners -- not adversaries. The PWBA is proud of the fact that early on, we identified corporate governance as a matter of importance both to pension plans and to society generally and were willing to devote scarce resources to the issue. We are happy that our efforts have brought significantly increased compliance in this area. Our current initiatives indicate our intention to continue to focus in this area.

The accompanying table lists 50 companies being targeted this year by the United Shareholders Association. The organization advocates four reforms: confidential voting: elimination of poison pills; shareholder approval of golden parachutes; and requiring companies incorporated in states with anti-shareholder statutes to exempt themselves from coverage under the laws. Proposals on these issues will be introduced at the 1991 annual meetings of the companies.

United Shareholder Association's 1991 Target 50


(Tentative annual meeting date) Allied-Signal Inc. (4/30/91) AMAX Inc. (5/3/91) American Ship Building Co.

(1/15/91) Armco Inc. (4/27/91) Avon Products Inc. (5/3/91) Baxter International (5/7/91) Bethlehem Steel Corp. (4/24/91) Beverly Enterprises (5/10/91) Boise Cascade Corp. (4/24/91) Caterpillar Inc. (4/11/91) Champion International Corp.

(5/17/91) Consolidated Freightways

(4/30/91) Control Data Corp. (5/2/91) Crane Co. (5/7/91) EG&G Inc. (4/24/91) Eastman Kodak Co. (5/9/91) General Signal Corp. (4/19/91) W.R. Grace & Co. (5/10/91) Great Western Financial (4/24/91) Greyhound Dial Corp. (5/8/91) Grumman Corp. (4/19/91) Hercules Inc. (3/27/91) International Paper Co. (5/8/91) K Mart Corp. (5/22/91) Lockheed Corp. (3/29/91) Lubrizol Corp. (4/23/91) Maytag Corp. (4/24/91) NALCO Chemical Co. (4/26/91) National Education Corp.

(4/20/91) Navistar International Corp.

(3/21/91) Ogden Corp. (5/24/91) PHH Corp. (8/27/91) Pan Am Corp. (5/8/91) Pfizer Inc. (4/26/91) Pittston Co. (5/4/91) Polaroid Corp. (5/8/91) Raytheon Co. (5/23/91) Ryder System Inc. (5/4/91) Santa Fe Pacific Corp. (4/24/91) Textron Inc. (4/24/91) Time Warner Inc. (5/8/91) Transamerica Corp. (4/26/91) USAir Group Inc. (5/9/91) USX Corp. (5/7/91) Union Carbide Corp. (4/25/91) Unisys Corp. (4/23/91) Wendy's International (4/27/91) Weyerhaeuser Co. (4/19/91) Whirlpool Corp. (4/24/91) Xerox Corp. (5/17/91)
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Title Annotation:Who Owns Corporate America; participation of pension trust companies in management of funds invested in various companies
Publication:Directors & Boards
Date:Jan 1, 1991
Previous Article:A tilt toward the cross-border deal: mergers and acquisitions.
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