|
December 23, 2008
Investors Ask Obama to Improve Corporate Financial Disclosure
by Robert Kropp
President-Elect is asked to return SEC to original mission of protecting investors and
strengthening shareowner rights.
SocialFunds.com --
According to the mission statement of the Securities and Exchange Commission, the goal of the
agency is to "protect investors." Furthermore, it will "strengthen the integrity and soundness of
U.S. securities markets for the benefit of investors." And in implementing the laws which it was
created to enforce, the SEC "requires public companies to disclose to the public meaningful
financial and other information so that investors may judge for themselves if company’s securities
are a sound investment. Only through the steady flow of accurate, comprehensive, and timely
information can the public make informed investment decisions."
But for the last five years, "the SEC has
gradually been closing the door to important shareholder concerns," according to a letter signed by 60 investors and sent
to President-Elect Barack Obama. "Shareholder proxy requests that had been allowed in previous
years asking for better disclosure of financial risks to companies have been stymied," the letter
went on to assert.
Laura Berry, Executive Director of the Interfaith Center on Corporate Responsibility (ICCR), an
association of 275 faith-based institutional investors, said, "Since 2003, the SEC staff has
narrowed the lens through which risk-evaluated issues can be included in proxy statements. Yet as
long-term shareholders we consider it our fiduciary responsibility to consider external factors
which may have an impact on a company's financial performance."
Berry referred to what she
called "one exquisite example" of the SEC's "bad judgment since 2003." Last year, ICCR was among
the shareholders asking Washington Mutual to discuss its potential financial exposure as a result
of the mortgage securities crisis. The proposed resolution was struck down by the SEC. Then, in
September, the Office of Thrift Supervision seized the assets of Washington Mutual and sold the
bank to JPMorgan Chase. The debacle ranks as the largest bank failure in American banking history.
Berry said, "In 1993, ICCR introduced six shareholder resolutions warning of the effects
of predatory lending practices, all of which the SEC allowed. If the SEC had continued to maintain
this position, we night have stopped this catastrophic erosion of people's retirement benefits and
the necessity of the bailout."
According to SEC Staff Legal Bulletin No. 14C, shareowner
proposals face exclusion if they "focus on the company engaging in an internal assessment of the
risks or liabilities that the company faces as a result of its operations that may adversely affect
the environment or the public's health." However, the SEC allows proposals that "focus on the
company minimizing or eliminating operations that may adversely affect the environment or the
public's health."
According to the letter sent to Mr. Obama, "The adoption of this new bar
on resolutions requesting 'risk evaluation' represented a significant departure -- disregarding the
reasonable and principled approach that had governed at the SEC for decades, and replacing it with
a radical interpretation of the rules. The result has been to limit shareholder resolutions to
questions about the impact that companies are having on society in general, excluding vital
questions about the impact that any of these issues may have on the company’s future finances."
Sanford Lewis, an attorney who represents shareowners and a driving force behind the
investors' letter, said, "The SEC has always allowed the discussion by shareholders of public
policy issues. But it has barred certain activities that it designates as ordinary business.
Chief among these is shareholder efforts to micromanage the daily operations of a company. In the
last five years, however, the SEC has gone beyond that to treat as ordinary business the efforts of
shareholders to determine the financial risks to companies from public policy issues, in areas such
as the environment and even mortgage securities."
Coupled with an Administration viewed by
many as overly protective of corporate interests at the expense of those of shareowners, the SEC
actions have complicated the effort of socially responsible investors to force companies to adopt
sustainable practices and practice corporate responsibility.
Stu Dalheim, Director of
Shareholder Advocacy at the Calvert
Group, a fund company that includes a number of prominent SRI funds, pointed out an example of
the chilling effect such semantics can have on shareowner efforts to exercise oversight
responsibility.
"Because of climate change concerns, last year we filed a resolution
asking that OGE Energy's Board of Directors provide a report describing how the company assesses
the impact on it of climate change. We requested that the company provide such information through
reporting mechanisms such as the Carbon
Disclosure Project (CDP)."
OGE Energy "argued that such an evaluation of climate risk
would amount to an assessment of the company's day-to-day financial operations," said Dalheim.
"Even though the risk of climate change would seem a fundamental issue in the case of an energy
company dealing in fossil fuels, the SEC found in favor of the company," and disallowed the
introduction of the resolution.
"To label such proposals as nuisances prevents responsible
shareholders from asking companies to perform risk assessments, and hampers us from getting the
support of mainstream investors," Dalheim continued.
Asking for strong leadership from the
White House and Congress to encourage the SEC to "retract the staff-created prohibition on
resolutions that ask companies to evaluate the financial impacts of identified issues," the
investors' letter asserted that "effective disclosure of these issues through the proxy process can
lead to better anticipatory action by corporations such as the control of greenhouse gases and the
development of safer alternative materials."
The letter was sent on December 11 to the
incoming Administration's transition team through the Change.gov web site, and will be forwarded to Mary Shapiro, Obama's
choice for Chairperson of the SEC. As of this writing, no response has yet been received by the
investors' group.
"In the current atmosphere, it is important to realize that government
cannot catch every problem," Lewis said. "It is equally important to allow shareholders to police
the risks encountered by corporations. We need a marketplace of ideas in the proxy process, and the
view of the SEC over the last five years has censored it. The marketplace of ideas needs to be
restored."
©
SRI World Group, Inc. All Rights Reserved.
Top
|
