- The Washington Times - Monday, April 29, 2002

Organized labor has emerged as one of the most energetic shareholder activists this year, with demands that major U.S. corporations protect the integrity of their financial audits.
A smorgasbord of other activist groups and one feisty lone shareholder also are pushing companies to reform their voting procedures, curb executive pay and promote human rights overseas, putting a wide variety of issues on the agenda of Washington-area corporations' annual meetings this year.
But major unions, with billions invested through their pension funds, are the standout activists of the season, says Rosanna Landes Weaver, an analyst with the Investor Responsibility Research Center (IRRC), an independent Washington-based group that provides data to big institutional clients.
"Labor has tremendous assets," she says. "And labor has become more aware of their strategic value."
Their weapon is not the threat of a strike but persistent prodding through resolutions that are voted on by a company's shareholders. Unlike the usual labor-management conflicts over wages, benefits and job security, this union activism promotes exactly what corporate executives seek: rising stock values.
"Our focus through shareholder activism has always been to help create a healthy and growing company," says Jim Voye, a pension fund specialist with the International Brotherhood of Electrical Workers. "It's about fund value."
This year, what unions most want is greater accountability of auditors, a demand that has found special resonance in a year dominated by stories of fraud at Enron Corp., the once high-flying but now bankrupt energy trader based in Houston. Labor began filing its shareholder resolutions last fall well before the Enron debacle saw the light of day, Ms. Weaver points out.
Toby Shephard Bloch, a research associate in the AFL-CIO's Office of Investment, says that labor activists have been as surprised as anyone to find themselves at the forefront of such a hot issue.
"People have been wondering what sort of crystal ball they looked into," he says.
This year, unions and other activist stockholders have taken on Bethesda's Marriott International, Riggs National Corp. of Washington, and PG&E; Corp., an energy company with operations in Bethesda. AOL Time Warner Inc. and ExxonMobil Corp., both based outside the area but with extensive operations in Northern Virginia, also have come under the gun.
Nationwide, shareholders have filed at least 712 resolutions for the 2002 "proxy season" the period in the spring and early summer when most annual meetings are held, according to the IRRC.
Using shareholder resolutions can be tough, but they are often the best way to get a company's attention, say unions and other stockholders.
Resolutions must be filed in advance, usually about six months before an annual meeting. Companies can petition the Securities and Exchange Commission to exclude them from the proxy the ballot a shareholder uses to vote on various narrowly defined legal grounds.
Even if an activist entity convinces stockholders with more than 50 percent of the shares to support a resolution, federal regulations do not require a company's board to act. But the resolutions often bring executives to the negotiating table, and shareholders can get results before the annual meeting, with little conflict or fuss.
"Shareholder activism is one of several checks-and-balances that can keep companies operating in a responsible and transparent manner," the IRRC wrote in a March report.

Getting change
The Connecticut Retirement Plans and Trust Funds recently reached a settlement with Nextel designed to increase the independence of the board. Emboldened by studies suggesting that a strong shareholder-rights culture helps boost returns, the $20 billion pension fund for state employees in October filed a resolution with the struggling cellular service provider.
The resolution called for greater independence of the board committees that control crucial areas of corporate activity, such as auditing, board nominations and executive compensation.
"We picked board independence because we think that's the best way to get change," says Meredith Miller, Connecticut's assistant treasurer for policy. "But there are lots of other pieces to the puzzle."
Nextel responded positively, and soon the Connecticut fund was negotiating the outlines of a settlement.
There was a limit to how much Nextel could change to accommodate the fund. Telecommunications giant Motorola, and industry pioneer Craig McCaw both own major stakes in Nextel. They also have rights that limit the extent to which the firm could revamp its board.
The result was a compromise. Nextel, which declined to comment for this article, agreed to employ a headhunter to fill an empty board slot with an independent director and to create a corporate governance committee to study the company's business practices.
"They seemed very interested in talking to us," Ms. Miller says.

Targeting auditors
Organized labor has found the going much tougher as it has sought to improve the quality of company audits, but it did manage to score a major victory early this year.
The United Association of Plumbers and Pipefitters, with its $750 million pension fund, challenged entertainment giant Disney to stop funneling money to its auditor, PricewaterhouseCoopers, for non-audit services. After initially rebuffing the union, Disney Chief Executive Officer Michael Eisner abruptly changed course and agreed to the reform.
Despite Mr. Eisner's about-face, the proposal received 42 percent support on Feb. 19 at the first major annual meeting of 2002, a sign that the Enron debacle is resonating deeply with shareholders.
"Historically, it is very unusual for a first-year proposal of any kind to get such high support," the IRRC wrote in its report.
Union interest in the auditing issue began last February with a new SEC regulation that requires companies to disclose the fees they pay to accountants for auditing and other services, says Ed Durkin, director of special programs for the United Brotherhood of Carpenters and Joiners of America. The rule was an outgrowth of efforts by former SEC Chairman Arthur Levitt to prevent conflicts of interest at accounting firms, which often provided lucrative consulting services as well as audits.
Mr. Durkin took the information on auditors from the companies that formed the union's $35 billion pension fund and fed them into a database. He found that dozens of companies paid their auditors much more for consulting than they did for auditing; he concluded that this business relationship might taint audits.
The carpenters' union then filed 34 resolutions in the fall that restricted accountants to auditing only.
"We wanted to put the resolution in at enough companies to get the issue out there and visible," Mr. Durkin says.
One of them was aimed at PG&E; Corp., whose subsidiary, PG&E; National Energy Group, sits in Bethesda. PG&E; Corp. paid its accountants, Deloitte & Touche, $3.1 million for auditing. But Deloitte also got $11.3 million for other unrelated services.
Mr. Durkin stresses that the union was not accusing the auditor of fraud but says the company "never really engaged in substantive negotiations." In SEC documents, PG&E; Corp. argued that the carpenters' proposal was "too extreme" and that it would result in "inefficiencies and increased costs" without delivering any benefits to the company.
The resolution got an impressive 42 percent of the vote at the April 17 annual meeting, despite the company's opposition. Mr. Durkin says the carpenters will return next year.
"In time, I think most of the companies will come around," he says.
The plumbers' union is sponsoring a virtually identical resolution at Marriott International but has run into tough company opposition, says Sean O'Ryan, an investment assistant with the union.
First, the company initially asked regulators to exclude the resolution from a vote, a bid that ultimately failed. Then, in the proxy, Marriott issued a tough statement opposing the measure.
Mr. O'Ryan says that Marriott has not responded to union overtures for a settlement similar to the one at Disney. Marriott spokesman Thomas Marder says that Marriott is "responsive to shareholder concerns," but he adds that he cannot respond to charges about specific resolutions.

Beyond finances
In the 1990s, activist groups began turning to shareholder resolutions as a way to attack what they often complain is a lack of corporate responsibility to society, notes Meg Vorhees, an IRRC analyst who follows the trend.
Sometimes the corporations have listened. Sometimes they haven't.
Responsible Wealth, a Boston-based group made up of wealthy individuals interested in various social issues, filed a resolution against AOL Time Warner calling for more modest executive pay during times of corporate downsizing. Its weapon was a member of Responsible Wealth who owns a chunk of AOL Time Warner stock.
"They shouldn't be laying people off as corporate chiefs get big pay raises," says Scott Klinger, the group's director.
Initially, the media company tried to get the SEC to disallow the resolution. But AOL Time Warner then sat down at the negotiating table with Responsible Wealth. After a constructive meeting in February, the corporation agreed to revamp its pay structure. It did away with cash bonuses and shifted to stock options to compensate its executives.
By contrast, Harrington Investments, a Napa, Calif.-based money management firm, got nowhere with its shareholder resolution calling on AOL Time Warner to adopt a human rights code of conduct for its operations in China.
"We had a short dialogue with AOL but they were not interested," says Alana Smith, Harrington's director of research and development.
AOL Time Warner stated in SEC documents that human rights policy is "best entrusted to the responsible discretion of the Company as it continues to develop its businesses in China within the framework of its overarching mission and values."
The resolution will come up for a vote at AOL's annual meeting on May 16 in New York.

The gadflies
Not all shareholder activists get results through their financial analysis or an appeal to conscience. Some, such as Evelyn Davis, win attention through sheer force of will.
The 72-year-old resident of the Watergate building in the District peddles dozens of resolutions each year. This year, she helped persuade Riggs National Corp. to allow shareholders approval of auditors. She also wants Marriott to change the way its board of directors is elected.
In the parlance of shareholder activism, Mrs. Davis is a "gadfly," a shareholder who buzzes around companies with such a vengeance that they must, at the very least, hear her out, or face her wrath. The gadfly of gadflies once chewed out legendary investor Warren Buffet for spending too much on travel expenses.
Mrs. Davis also peddles "Highlights and Lowlights," a newsletter full of political musings, her travel schedule and an extraordinary number of exclamation points. She says the newsletter a subscription costs $1,000 per year is aimed at CEOs, whom she then hounds through resolutions and at annual meetings.
Fellow shareholders, angry with her penchant for hogging face time with company executive, have shouted her down on occasion. But as corporations get bigger, and their finances get more complex, the doyenne's basic approach to shareholder activism, which she has tried to follow since attending her first annual meeting in 1959, is as relevant as ever, for unions and individuals.
"You have to be extremely well-informed about all sorts of things," she says.

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