CWA Shareholder Activism 1 Guide to Shareholder Activism for CWA Members and Retirees June 2009

CWA Shareholder Activism1

Guide to Shareholder Activism for CWA Members and Retirees

June 2009


Introduction

Use shareholder activism to move companies on issues and pressure them to adopt better practices

Rise in defined contribution pension plans (e.g., 401(k) plans)

– More opportunities to intervene since individuals have ownership stakes

CWA has had important shareholder victories– Verizon, shareholder “say on pay”– Dow Jones, annual election of directors– General Electric, majority vote required to elect directors


Background

Public vs. private companies – Public: Any individual, pension fund, or other

institutional investors can buy shares– Public: Shares traded in markets

Labor stakes in public companies– Individually through savings plans– Collectively through pension plans


Public Companies and Shareholder Rights

Public companies are required by incorporating state to hold annual meeting of shareholders

Shareholders can draft proposals to be voted by other shareholders

– Must be of general or strategic nature– Cannot deal with ordinary business matters or day-to-day

management of the company

Specific to each company– Bylaws confer / restrict shareholder rights


Types of Shareholder Actions

Shareholders can try alter company behavior through specific proposals

Support or oppose management-sponsored proposal– Highlight an issue– Block change

Oppose the election of a director Ask questions from the floor Publicize a particular issue


Shareholder Activism and Company Engagement

Many issues off limits – E.g., subjects of collective bargaining – wages, health care

benefits, pensions, etc.

ERISA rules on Labor-Management Pension Plans– Plans managed by fiduciaries (typically half appointed by

management and half by union)– Department of Labor demands that fiduciaries act in the best

interest of plan beneficiaries


Filing a Proposal

Need to hold stock whose value has exceeded $2,000 continuously for one year prior to filing

Promise to hold that stock until the annual meeting of shareholders

Filing deadline: will vary by company – Typically September – December

Annual meeting typically April - June


Defending Proposals

Companies frequently seek to exclude shareholder proposals by asking the Securities and Exchange Commission (SEC) to take “no action” if it excludes a proposal from the proxy statement

Companies must write SEC to ask Proponent may defend or risk the SEC

making a decision based on the arguments of one party


Procedural Bases for Exclusion

Length -- Proposal exceeds 500 word limit Proponent has filed after the deadline Proponent submitted more than 1 proposal Another proponent has submitted similar

proposal Proponent has not presented sufficient proof

of share ownership


Substantive Bases for Exclusion

Improper under state law Violation of law Violation of proxy rules (e.g., false, misleading statements) Personal grievance or interest in outcome Relates to less than 5% of total assets, earnings, revenues Company lacks means to implement Concerns ordinary business matters or “day-to-day business” Relates to election of a director Conflicts with a company proposal Proposal has been substantially implemented Proposal substantially duplicates another proposal Proposal fails to receive minimal support in previous years


Types of Proposals Allowed

Corporate governance Executive compensation “Significant issue of social policy”

– Human rights– ILO standards of employee rights– Environment / climate change


Corporate Governance Proposals

One share, one vote Independent board chair Separation of board chair and CEO functions Annual election of directors Majority vote for election of directors Disclosure of political contributions


Executive Compensation Proposals

Advisory vote (“Say on Pay”) Pay for superior performance Limit size of Supplemental Executive Retirement

Programs (SERPs) Limit size of severance packages Restrict use of tax gross-ups (companies paying

taxes on benefits for executives) Provide for clawbacks of incentive compensation

paid on false premises


Social Proposals

Adopt ILO standards on employee rights Review poor labor practices Adopt principles of health care reform Adopt standards of environmental reporting Reduce greenhouse emissions Report on industry-specific or company-

specific issue


Types of Outcomes (1)

Win majority (50% + 1)– Historically rare, but increasingly achieved on

executive compensation and corporate governance

Verizon, “Say on Pay”

– Proposals are “precatory”: Company is not bound by the vote, but majority vote may put strong pressure on the company to adopt


Types of Outcomes (2)

Near-win (35%-50%)– More frequent outcome. Also puts public pressure on company

Verizon: golden parachutes, compensation consultant Dow Jones: annual election of directors

Respectable (15%-35%) – Most frequent outcome. May build some public pressure– Mobilization potential. May build on issue in subsequent years

Lower scores– Company can exclude if < 3% once in previous five years– Company can exclude if < 6% in last submission and submitted twice in

previous five years– Company can exclude if < 10% in last submission and submitted three

times in previous five years


The Proxy Materials

States have broad guidelines as to subjects for a shareholder vote

SEC has rules governing the form of proxy card and proxy statements

Proxy materials will include information about all matters to be voted on, including a proponent’s statement in support of a proposal

Companies can state opposition to shareholder proposal with no restriction on word count

Opposition statement (by company) must be accurate and not misleading and must be provided to proponent in advance of printing


Soliciting Proxies

The proxy rules are detailed and complex, with civil remedies and criminal penalties for violations

Anti-fraud provisions apply To protect yourself and the union, make no

arguments or statements concerning a proposal on a proxy card in addition to any contained in a statement or fact sheet distributed by the union in support of a proposal

– See web site for “CWA Shareholder Activism Guidelines”


Collecting Proxies

As a matter of policy, CWA does not solicit authority to vote a proxy, but sometimes seeks to make a point by delivering proxy cards to annual meeting

Anti-fraud provisions also apply CWA and its representatives should act in way analogous to

Post Office – DELIVERY only NEVER sign or mark someone else’s proxy card NEVER reproduce a proxy card that can then be signed NEVER accept a proxy card unsigned or unmarked by the

shareowner


Proxy to Attend and Participate in Annual Meeting

I, Person A, hereby appoint Person B as my true and lawful attorney to attend the Annual Meeting of Company C on Date D, or at any adjournment thereof, and to participate on my behalf in the discussion of any matter which may properly and legally come before the meeting, including, but not limited to, the election of directors and proposals submitted to a shareholder vote, as fully as I could participate if I were able to attend the meeting in person.

Dated:_____________ Signed: _______________


The Shareholder Meeting

No uniform standard on the conduct of meetings Attendance can range from corporate directors and

insiders with only a handful of additional shareholders to a gathering of hundreds

Typical agenda– Review of the year– Voting

Proposal 1 is typically election of directors Management proposals

– Changes in bylaws; Changes in corporate governance– Ratify auditor– Adopt changes in executive incentive compensation plans

Shareholder proposals – Chair will ask proponent or his/her proxy to speak

General Q&A


The Results

Typically, voting in person will not change vote, since large institutional investors vote in advance

Sometimes provisional results are announced at the meeting

Company is required to announce results in its next Form 10-Q filing


Resources

http://investor.cwa-union.org – This slide show – “Everything You’ve Always to Know About the

Annual Meeting of Shareholders but were Afraid to Ask”

– CWA Shareholder Activism Guidelines – SEC Rule 14(a) – shareholder proposal rule– Sample proposals– Links


Best to coordinate with CWA Headquarters

Mesh with activities of union – If proposal is consistent with union efforts, union may seek

support from institutional investors Union may help defend proposal if company seeks to

exclude Coordination may help

– Assure compliance with proxy rules– Avoid duplication of proposals or proposals already

implemented Contact Tony Daley ([email protected])


Conclusion

Shareholder activism is the exercise of ownership rights

Can be another tool in union toolkit While rules do not favor either individuals or

unions, shareholder activism may pressure companies to adopt better practices


Appendix


Links

AFL-CIO Executive Pay Watch: http://www.aflcio.org/corporatewatch/paywatch/

Center for Corporate Policy (executive pay): http://www.corporatepolicy.org/issues/comp.htm

Corporate Library: http://www.thecorporatelibrary.com/

Council of Institutional Investors: http://www.cii.org/

Interfaith Center on Corporate Responsibility: http://www.iccr.org/

International Corporate Governance Network: http://www.icgn.org/

Risk Metrics (Policy Gateway): http://www.riskmetrics.com/policy

Securities and Exchange Commission: www.sec.gov

Shareholder Resolutions Guide: http://www.scn.org/earth/wum/2Whatsr.htm

United for a Fair Economy: http://www.faireconomy.org/issues/shareholder_activism

Documents

CWA Shareholder Activism 1 Guide to Shareholder Activism for CWA Members and Retirees June 2009