March 27, 2000
Shareholders Weigh in on Proxy Advisor Scheme
At the Whole Foods annual meeting today, shareholders voted on a pioneering proposal to hire an
proxy advisory firm, giving them a more independent and informed voice.
Although shareholders are ostensibly the owners of corporations, their influence is often hampered
by inadequate information, lack of independent nominating committees, and other corporate
governance issues. A new shareholder proposal this year, Shareowners' Alternative Voting
Information (SAVI), could mark the beginning of more democratic and informed shareholder
participation in corporate decisions.
Today's annual meeting of Whole Foods
Market in Chicago was the first shareholder vote on SAVI (pronounced "savvy"), a proposal to hire a
proxy advisory firm chosen by shareholder vote to give them a more independent and informed voice
in corporations. The resolution was presented by the Corporate Monitoring Project (CMP), a San
Francisco-based corporate governance advocacy group.
"CEOs still run 'their' companies
like kings (or queens), although institutional investors have increased their influence in the last
ten years," said Mark Latham, Coordinator of CMP. "The SAVI proposal is a first step, but I think
it will lead to a fundamental power shift in favor of shareowners, with pervasive effects. It will
replace corporate monarchy with corporate democracy."
Only about half of individual
shareholders vote their proxies, according to Latham, and most of them merely vote with management,
due to inconvenience or lack of information. The internet could go a long way toward making proxy
voting more convenient, but SAVI proponents suggest that further moves are needed to provide
shareholders with more useful independent information.
In theory, board directors are
elected to look after the interests of shareholders, but in practice shareholders have minimal
influence in their election. SAVI provides for an alternative: shareholders would vote to choose
proxy advisory firms to look out for their interests. These firms would provide the same benefits
of independent information enjoyed by large institutional investors.
The SAVI proposal
was submitted to 11 large companies, including General Motors, Pfizer, and Citigroup, but company
management in each case has consistently resisted it. Whole Foods was the only company management
that didn't try to keep it off the proxy, but they did recommended voting against it on the grounds
that it would be an additional cost to shareholders with only marginal benefit.
shareholder meeting today, Whole Foods CEO John Mackey rebutted Latham's proposal during the
question and answer period, asserting that the board is doing its job and adequate corporate
governance guidelines are in place. But he wished
Latham luck with other companies that might
be in greater need of corporate governance improvement.
Of the remaining target companies
only Washington Mutual, the Washington-based financial services company, was not able to get the
SAVI proposal omitted by the Securities Exchange Commission (SEC). The SEC merely asked the
proponents to reword the resolution in the form of a recommendation or request, rather than a
mandate, before it was presented at their annual meeting in April.
All the other companies
succeeded in getting the SAVI proposal omitted by the SEC, under rule 14a-8(i)(8), "as relating to
an election for membership on its board of directors." With this legal precedent, future
resolutions will have to recommend restricting the proxy advisors to covering issues other than
"We will continue to submit the SAVI proposal at more companies,
with the goal of getting a majority vote," said Latham. "It takes time to build understanding and
acceptance of a new idea."
"I believe the SAVI resolution will grow quickly once it
becomes known," said James McRitchie, Editor of "Corporate Governance," "especially among those,
such as unions and social investors, who are thinking long-term in a market dominated by short-term
thinking. The concept will help them tie their own resolutions to shareholder value in order to
pick up the endorsement of proxy advisors."
The SAVI proposal is only the tip of a
broader vision of Latham's to develop a system of Corporate Monitoring Firms (CMFs) that would
enhance shareholder power within corporations. He foresees proxy advisory firms expanding to more
proactive roles as CMFs, such as negotiating management compensation packages and nominating
directors, and vying for shareholder interest based on their record and position on issues.
"In companies adopting Corporate Monitoring, the main arena for determining corporate policy on
controversial issues may be in the platforms of competing Corporate Monitoring Firms," said Latham.
"One CMF may position itself as more environmentally friendly, for example. I see it as something
like political parties."
Although Corporate Monitoring Project's vision of corporate
democracy may be far fetched to some, their SAVI proposal could go a long way toward making
individual shareholders more informed and involved corporate owners. The Whole Foods vote may be
only the beginning of an uphill battle for SAVI proponents, but there is still room for optimism
that this idea will catch on in years to come.
"I see the proposal as another good
governance measure like independent directors and believe that forward looking companies will come
to embrace the concept," said McRitchie of "Corporate Governance." "Companies with justifiable
measures on their ballots concerning compensation, mergers, or other corporate issues, should
welcome independent analysis and verification."
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