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September 06, 2007

Shareholder Activists Turn Up Heat on the SEC
    by Anne Moore Odell

The Social Investment Forum and the Interfaith Center on Corporate Responsibility launch a website as part of a campaign to garner support against SEC's proposals limiting shareholder rights. -- Less than a month remains for proponents and opponents to register comments on the U.S. Securities and Exchange Commission's (SEC) recent proposals that would eliminate shareholders' ability to submit resolutions. Three groups representing thousands of institutional and individual investors have come down heavy against the new proposals.

The Social Investment Forum (SIF) and the Interfaith Center on Corporate Responsibility (ICCR), with the support of Ceres, have created the website to help people comment on the proposals and to recruit 500 institutions and financial professionals to sign a joint statement opposing the SEC proposals.

"It is urgent that investors comment on these proposals," said Tim Smith, Board Chair of SIF and Senior Vice-President of Walden Asset Management.

The groups are focusing their campaign on three proposals they think will limit investors' rights. The first proposal would allow companies' board of directors to "opt-out" of the shareholder resolution process. The second proposal suggests replacing the current public resolution process with unilateral electronic petitions, a.k.a., "chat rooms." The third proposal would raise the voting levels at which shareholders could resubmit proposals.

Although the grassroots effort campaign is comfortable using email and the internet to reach investors, members of Congress and the SEC, the shareholder activist groups don't want to replace the current non-binding shareholder resolutions with online discussions. The groups don't want shareholders to lose the right to present proposals. Instead of dealing face-to-face with management, shareholder concerns might disappear into the ether they fear.

One of the proposals would move the shareholder resolution resubmission levels from the current 3%, 6% and 10% vote levels to 10%, 15% and 20% levels. Smith, told, "It is not the SEC itself we are opposing, but the proposals that could undermine shareholder rights. The proposed threshold votes for resubmission would cut to the core corporate governance, social and environmental shareholder proposals."

The struggle to defeat the proposals by the SEC regarding shareholders' rights will seem like déjà vu to some who remember when in 1997-1998 shareholder activists opposed SEC proposals limiting shareholder rights. The SEC withdrew these proposals after vocal opposition was heard. However, this new set of proposals goes far beyond earlier proposals to limit shareholder's rights, which didn't include the "opt-out" option or the chat-room replacement of proposals.

"This is a step backwards for shareholder rights," said Rich Ferlauto of the American Federation of State, County, and Municipal Employees Pension Plan (AFSCME), with 1.4 million members and over $1 trillion invested.

"AFSCME believes that the current SEC rules should be kept in place. At this point, both of the proposals in front of the SEC would do more harm than good to shareholders and negatively affect shareholders who seek corporate governance changes," Ferlauto added.

The three groups launching the website have some powerful organizations behind them. SIF, representing more than 500 banks, mutual fund companies, foundations, and community investing institutions, is the national membership association for the social investment industry. The ICCR is an alliance of nearly 300 faith-based institutional investors. Ceres is a large coalition of investors, environmental groups and others that work to address sustainability issues, such as climate change.

The groups point to the importance of shareholder advocacy as a means of communication with boards, management, and even other investors. Difficult and timely issues such as employee diversity, workers' rights abroad, and climate change have found voice through shareholder resolutions. The purpose of is to keep these issues in front of corporate boards.

"Corporate management will have few checks on their power and decision-making abilities. In the long run, companies that are irresponsible will go on being that way. Companies that today are willing to engage shareholders, learn about their issues, and work with them will be likely to become less concerned about their shareholders' input," said Michael L. Hess, Ph.D. candidate, Department of Political Science, University of New Orleans. "Even large shareholders may find in the end, they have lost a lot of their power to influence companies as well."

"The beauty of the rights of shareholders to file resolutions, either to be helpful or to hold their companies to task for short-sighted policies, was that almost anyone could do it," Hess told

Individual investors such as Ann B. Alexander strongly oppose the proposals by the SEC. Her family's investments have been with a socially responsible investment firm for twenty years. Alexander commented, "I can't understand why the SEC would propose these changes which would do nothing but weaken our voices as shareholders, unless it is because corporations are pressuring them. What is the SEC's mission, anyway, to protect shareholders or corporations?"

The SEC is not able to give public commentary on the proposals during the comment period. In July 2007, the five-member SEC commission divided their votes on shareholder resolutions plans, following party lines, with SEC chairperson Christopher Cox supporting proposals by both parties.

Yet the SEC is going to experience a shake-up in several weeks when Commissioner Roel Campos, a Democrat, steps down. The plan, as it stands now, is for the SEC to read the public comments for a month and to come back with suggestions in November before the start of the next proxy season. However, some question if the SEC will be able to complete this task when they are short a member.

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