Home   About Us   Contact Us
MENU
News
Ethics & Employees
Corporate Governance
Corporate Social Responsibility
Public Sector Governance
Links and Meetings
 
 

Corporate Governance

 

Surveys and Trends

On this page

* * *

2006 Annual Edelman Trust Barometer

(The following is a summary of an extensive report by Edelman. For more information please see their website)
 
In its far-reaching 2006 Annual Trust Barometer, Edelman, a leading international public relations firm, reports on the “state of trust” in key institutions around the world, including business, government, media and NGOs. Edelman’s public opinion surveys, known as its Trust Barometer, track trends and break down the results according to industry, region, and other factors such as the credibility of spokespeople. Using interviews with Edelman staff, the report attempts to analyze and explain its findings in terms of political, social and economic developments as well as lay out the implications the results hold for institutions.

The Barometer, which was fielded in October 2005 by WorldOne Research, consisted of a 25-minute telephone survey of opinion leaders (screened to be 35-64, have an annual income of over $75,000 or equivalent; college graduates; report being engaged in media, business, and public policy issues). 400 interviews were conducted in the US; 200 in China; and 150 each in the UK, Germany, France, Brazil, Japan, Canada, Italy, Spain, and South Korea.


Overall Trust in Institutions by Region

According to Micheal Deaver, Edelman’s Vice Chairman, the highest trust levels were found in Asia and in Brazil and the lowest in Europe. In the US, trust has been fairly consistent over the past five years, although trust in government and the media is at an all time low.

Trust in Institutions By Region

How much do you trust each institution to do what is right?

Nationality of Respondents

 

USA

Europe*

Asia**

Canada

Brazil

Business

49

42

56

57

62

Government

38

33

54

36

21

Media

30

30

56

45

53

NGOs

54

57

48

61

60

*Europe=France, Germany, Italy, Spain     **Asia= Japan, China, and South Korea

 

US Trust in Institutions: A Five Year Trend

How much do you trust each institution to do what is right?

 

2002

2004

2006

Business

44%

51%

49%

Government

48%

48%

38%

Media

35%

24%

30%

NGOs

41%

47%

54%

 

European* Trust in Institutions: A Five Year Trend

How much do you trust each institution to do what is right?

 

2002

2004

2006

Business

41%

40%

38%

Government

26%

31%

31%

Media

33%

28%

27%

NGOs

51%

41%

52%

*France, Germany, UK

The Costs of Mistrust to Companies

The Barometer reports that, “trust is more than a bonus, it is a tangible asset that must be created, sustained and built upon….just as trust benefits companies, mistrust or lost trust has costs.”

The following survey attempts to measure these costs:

Tell me if you have ever done this in relation to a company you do not trust:

Refused to buy their products or services
US: 84%
Europe: 81%
Asia: 72%
Canada: 76%
Brazil: 81%

Refused to invest in them:
US: 74%
Europe: 72%
Asia: 64%
Canada: 64%
Brazil: 57%

Trust in Companies By Industry

Recognizing that a company’s ability to gain the trust of its stakeholder is heavily influenced by perceptions of the industry to which it belongs, the Barometer seeks to breakdown levels of trust in companies by industry and area. It finds that while technology, retail and consumer products are the overall most trusted sectors globally, and Media/Entertainment and Energy the least, culture, recent history, and political circumstances have created striking variation in regions’ propensity to trust certain industries, as evidenced by the following survey:

 

How much do you trust each industry to do what is right?

 

High Rank

USA

Europe

Asia

Canada

Brazil

1

Retail

Technology

Technology

Retail

Technology

2

Technology

Retail

Automotive

CPG

Automotive

3

CPG

CPG

Energy

Professional Services

CPG

4

Investment/
Insurance

Professional Services

Retail

Pharmaceutical

Retail

5

Professional
Services

Automotive

Telecom

Financial Services

Media/ Entertainment

6

Telecom

Telecom

Pharmaceutical

Technology

Energy

7

Financial Services

Pharmaceutical

CPG

Telecom

Financial Services

8

Automotive

Media/ Entertainment

Financial Services

Investment/ Insurance

Pharmaceutical

9

Pharmaceutical

Financial Services

Professional Services

Media/ Entertainment

Telecom

10

Media/ Entertainment

Energy

Investment/
Insurance

Automotive

Professional Services

11

Energy

Investment/ Insurance

Media/ Entertainment

Energy

Investment/ Insurance

Low Rank

Back to Top

 

* * *

ISS Report on the 2006 Proxy Season: An Issue-by-Issue Review

The 2006 Proxy Season has come to an end leaving those who follow environmental, social and governance (ESG) issues with many questions: What has changed? Did the campaigns and media coverage surrounding such issues as climate change and executive pay have a real impact on corporate practices? What, if any trends, emerged? And, which companies performed better on ESG issues?

In its June/July 2006 issue of the Corporate Social Issues Reporter, of the Social Issues Service of Institutional Shareholders Services, a leading provider of proxy voting and corporate governance services and research, summarizes the 2006 Proxy Season. The following are excerpts from its report*.

* The report breaks its findings down by issue. The following issues have been omitted: animal welfare, equal employment, health issues, military issues, Northern Ireland, tobacco, violent videos, flat tax. To read about these issues as well as a checklist of key 2006 shareholder resolutions and two articles on Wal-Mart’s annual shareholder meeting and Sudan resolutions at pension funds see the full report.

Support Levels Increase for Key Social Issues Proposals

By Carolyn Mathiasen & Meg Voorhes


Investors are looking with in-creasing favor on proposals asking companies to disclose and monitor their political contributions, to expand or report on their fair employment policies, and to issue broad-based reports on sustainability.  These types of proposals have averaged more than 19 percent support so far this season, according to the results now available for votes at U.S. corporate annual meetings through June 30.  Investors also gave strong support to selected proposals on human rights and environmental issues.  In fact, 22 percent of the social issues proposals that came to votes through June 30 have been supported by more than 15 percent of the shares voted; only 15 percent of the social issues proposals that came to votes in 2004 and 2005 surpassed this level of support. 

In contrast, investors overwhelmingly dismissed proposals asking companies to drop equal treatment protections for gay employees, to review or improve animal welfare, and—in the case of tobacco companies—to restrict their marketing or to support smoking bans.  Proposals along these lines averaged less than 6 percent. 

The 177 social issues proposals that have come to votes through June represent only about half the number that shareholder advocates originally filed for this period.  Shareholder proponents withdrew many of their proposals before they came to votes, often after fruitful discussions with the corporate managements in question.  In other cases, companies were able to win the go-ahead from the staff of the Securities and Exchange Commission to omit certain proposals from their proxy statements.  (See Table 1.)

Table 1:  Status of Social Issues Proposals 2001-2006*

 

2002

2003

2004

2005

2006

Filed

268

267

327

332

329

Omitted
   As % of filed

31 (11.5)

45 (16.8)

49 (14.9)

57 (17.1)

51
(15.5)

Withdrawn
   As % of filed

89 (33.2)

91 (34.1)

81 (24.8)

103 (31.0)

97
(29.5)

Voted On

145

129

186

168

177

*for meetings January 1 through June 30


Proxy Season at the SEC
The SEC staff’s intentions concerning a new policy on business risk and social policy resolutions, applied occasionally and somewhat mystifyingly in spring 2005, became clearer in 2006.  In June 2005, the staff had issued a bulletin (14C) explaining that resolutions can be excluded as “ordinary business” issues not appropriate for shareholder scrutiny if they involve “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.”  In the spring 2006 proxy season it began issuing decisions referring back to the bulletin. 

From early calls, it looked as if the policy might decimate the 2006 slate of resolutions on health and the environment.  The staff cited it to allow three drug companies to omit proposals on their drug pricing and distribution policies that had received high support in 2005.  It also cited the bulletin in allowing the omission of three resolutions from a long-standing campaign asking companies to review the economic effects of AIDS and other pandemics on their operations, and of four proposals related to environmental issues.

In later decisions, though, the SEC staff refused to invoke the policy, disagreeing that it applied to two of the proposals in a new shareholder campaign on toxic chemicals, or that it could be used to exclude environmental proposals on Dow Chemical’s Union Carbide subsidiary in India or Chevron’s toxic waste legacy in Ecuador.  A look at the various decisions left some observers puzzled; the staff has long complained that the shareholder proposal rule puts it in the position of having to make too many judgment calls, but the necessity of deciding what involves an internal assessment of risks and what does not could be seen as taking it farther into the territory of subjectivity.

In other 2006 decisions of note at the SEC, the staff required Ford and General Motors to print proposals from conservatives who appear skeptical of global warming, which asked for information on the companies’ climate change science.  In 2004 and 2005 the staff had allowed both firms to omit very similar versions of those resolutions.  Otherwise, SEC staff decisions of the 2006 proxy season marched with precedent.  Among other things, several companies were allowed to omit proposals asking for sustainability reports on grounds that existing reporting made them moot, but this argument did not always work.  All told, the staff has allowed companies with meetings through June to omit 51 resolutions, down a little from the 57 for the corresponding period last year, as shown in Table 1.

Withdrawal Trends in 2006
Environmental issues stand out among the withdrawal agreements achieved so far this year.  Among them was the settlement of the long-running request for information from General Electric on expenses incurred in opposing cleanup of PCB-contaminated waterways in New York. Both resolutions on bottle recycling were withdrawn after solid agreements, as were a number of proposals on climate change.

In other areas, corporate America continued to separate itself from social conservatives on the gay rights issue, responding quickly to requests for amendment of EEO policies to include nondiscrimination on the grounds of sexual orientation.  Eighteen resolutions on the issue were withdrawn, leaving only five to come to votes.  Another high-profile withdrawal in the EEO category occurred after Wal-Mart posted its EEO-1 forms and comparative data on its website.

Sustainability reporting and board diversity continued to be areas often productive of withdrawal agreements.  Companies also were more likely to work out agreements on political contributions resolutions than in the past—though many more came to votes than were withdrawn.  The total of withdrawal agreements for 2006 now stands at 98, making it unlikely that the number will reach the all-time high of 113 recorded for 2005.

Summary of the 2006 Proxy Season By Issue:

Vote Calculation
What follows is a summary, by category, of the 2006 spring proxy season, including the most interesting votes, withdrawals and decisions at the SEC on whether resolutions could be omitted.  Companies at which proposals did well enough to qualify for resubmission next year are highlighted in bold face.  All vote support levels are calculated according to the formula the SEC uses to determine resubmission eligibility: the percentage of shares voted “for” out of the total voted “for” and “against,” excluding abstentions.  First-year proposals must win at least 3 percent support under the formula to qualify for resubmission an additional year, second-year proposals must get at least 6 percent, and proposals in their third year or more must score at least 10 percent.  (If the proposal fails to clear the pertinent threshold, it may not be resubmitted at the company for another three years.)

Board Diversity
Church-affiliated investors and the Calvert Group continued to search their portfolios for companies with all-male boards and to question them about changing their board selection criteria.  Fourteen resolutions were filed, but withdrawal negotiations were so successful that only three came to votes.  There were no challenges on this well-tested issue at the SEC.

Votes
A board diversity proposal from Christus Health received 10.2 percent support at Torchmark; vote results are not yet available for similar proposals at Bed Bath and Beyond and Monster Worldwide, which were voted on in June. 

Withdrawals
Calvert Group withdrew at six companies that agreed to amend their criteria for board selection to include diversity—Astoria Financial, Cheesecake Factory, Commerce Bancorp, Danaher, Panera Bread and TD Ameritrade.  (It also withdrew at Renal Care, which was sold.)  Church groups reached agreements at American Greetings, Overseas Shipholdings and Viacom and withdrew at CBS when they found they had the wrong stock.

Charitable Contributions
For 2006, two types of proposals asking for general disclosure of charitable contributions came to votes, at a total of six companies.  While both types asked corporations to disclose all charitable contributions, the supporting statements made clear that the proponents are particularly opposed to contributions to particular organizations, in one case Human Life International with Planned Parenthood and in the other case the National Legal and Policy Center with Jesse Jackson’s Rainbow/PUSH Coalition.  The fact that the SEC staff allowed these resolutions to go for ward cements a policy change signaled two and a half years ago, when the staff began to allow contributions proposals that were “facially neutral” but in which the motivations of the proponents were apparent.

Votes
The opponents of Planned Parenthood won support of about 6 percent for their resolutions asking Johnson & Johnson and Northern Trust to disclose their charitable contributions.  Of the four proposals that the National Legal and Policy Center filed, vote results are in at Boeing (10.4 percent), Citigroup (8.7 percent) and PepsiCo (5.8 percent); the Social Issues Service is still awaiting the vote result at Coca-Cola. 

Two resolutions from other proponents came to votes on charitable contributions.  A proposal protesting a donation by Kraft Foods in support of the Gay Games in Chicago this summer received 0.1 percent, the lowest vote of the season; however, Altria controls 98 percent of the voting equity in Kraft.  The Social Issues Service is still awaiting results for Trillium’s proposal asking Avon Products to report in more detail on its fundraising for breast cancer research and public awareness. 
          
Action at the SEC, Withdrawals
PepsiCo was the one company to challenge the resolution from the National Legal and Policy Center asking it to report on its charitable contributions.  The center, a Virginia-based conservative group, tried to propose resolutions in 2005 specifically questioning contributions to Rainbow/PUSH, but fell afoul of an SEC staff precedent disallowing resolutions on targeted contributions. To avoid that fate this year, it approached the issue by picking up the template of the resolutions on political contributions developed by the Center for Political Accountability (discussed under “Political Contributions,” below) and modifying it for charitable contributions.  PepsiCo argued, without success, that it should be able to omit the proposal because the proponent was actually concerned about a specific issue, rather than interested in broad disclosure, but the SEC staff disagreed.
          
Environment
The big environment category originally involved the filing of 77 proposals, 46 of which came to votes.  Activity spanned the new anti-toxics campaign from the Investor Environmental Health Network to a continued focus on climate change.  The category included some of the most significant withdrawals and omissions of the year, as well as seven of the proposals that won support of 15 percent or more of the shares voted.  (See Table 2.)

Table 2:  High Votes So Far for the 2006 Social Issues Proxy Season

Company

Resolution

Primary Filer

Vote

ISS*

American Financial Group

Report on political donations and policy

Amalgamated Bank Fund

20.0% ?

For

Amgen

Report on political donations and policy

Green Century

67.1%@

For

AT&T Inc

Report on political donations and policy

Domini

15.2%

Against

C. R. Bard

Implement ILO standards and third-party monitoring

NYC funds

32.9%

For

Caremark Rx

Report on political donations and policy

Adrian Dominican Srs.

27.7% ?

For

Chevron Corporation

Adopt comprehensive human rights policy

Society of Jesus/WI

23.9%

For

Clear Channel Communications

Report on political donations and policy

As You Sow Fdn.

20.5%

For

ConocoPhillips

Report on community hazards

Episcopal Church

34.0% ?

Against

 

Review Natl. Petroleum Reserve-Alaska

Green Century

25.8% ?

For

Dean Foods

Issue sustainability report

NYC funds

33.9% ?

For

Dominion Resources

Report on/reduce greenhouse gas emissions

Trillium

22.6%

For

E.I. Du Pont De Nemours

Report on PFOA expenses

LongView

28.9%

For

Exxon Mobil

Adopt sexual orientation anti-bias policy

NYC funds

34.6% ?

For

General Dynamics

Report on political donations and policy

Srs. of Mercy

22.4%

For

 

Issue sustainability report

not available, NYC funds

21.2%

For

General Motors

Report on climate change science

Seidenberg, M.

18.0% ?

Against

Gilead Sciences

Review pandemics' impact on business strategy

Catholic Healthcare West

25.4% ?

For

Halliburton

Review/report on human rights policy

Benedictine Srs.

23.3%

For

Home Depot (The)

Report on political donations and policy

Green Century

34.0%

For

 

Report on EEO

Walden

35.9%

For

JPMorgan Chase

Report on political donations and policy

AFL-CIO

28.9%

For

 

Review public policy advocacy

Action Fund Mgt.

27.2%

For

Leggett & Platt

Adopt sexual orientation anti-bias policy

Walden

24.7%

For

Lockheed Martin

Report on EEO

Srs. St. Francis/Phila.

25.1%

For

Lucent Technologies

Disclose political contributions in newspapers

Davis, E.

24.6%

Against

Safeway

Issue sustainability report

NYC funds

27.0% ?

For

Standard Pacific

Report on energy efficiency plans

Nathan Cummings Fdn.

39.3% ?

For

Synagro Technologies

Review and reduce toxic emissions

Mercy Investment

31.2% ?

For

Terex

Issue sustainability report

NYC funds

48.4%

For

The Boeing Co.

Adopt comprehensive human rights policy

Capuchins

25.0%

For

The Charles Schwab Co.

Report on political donations and policy

Teamsters

27.0% ?

For

The St. Paul Travelers Companies

Report on political donations and policy

Calvert

28.7%

For

Union Pacific

Report on political donations and policy

NYC funds

27.7%

For

Verizon Communications

Report on political donations and policy

Domini

33.0%

For

Washington Mutual

Report on political donations and policy

Harrington Investments

24.1%

For

Wendy's International

Label gene-engineered food

Adrian Dominican Srs.

17.6%

Against

 

Issue sustainability report

Domini

38.2%

For

Wyeth

Report on political donations and policy

Camilla Madden Trust

28.9%

For

 

Review animal welfare standards

PETA

25.4%

For

 

Report on policy on drug reimportation

MN State Bd. of Invest

25.5%

For

? = preliminary vote result

@ = management recommended vote “for”

*Recommendation by ISS benchmark policy

 

Votes:  Ten proposals relating to greenhouse gas emissions, energy efficiency or climate change came to votes from a broad array of proponents; results are in for nine, all but one of which may be resubmitted in 2007, if the proponents so choose. 

Five of these proposals were filed by proponents who believe that climate change is a major problem and that companies need to reduce their greenhouse gas emissions.  The Nathan Cummings Foundation, Sierra Club and New England Friends filed proposals asking four companies for reports on energy efficiency plans in light of growing public pressure on the issue.  Investors supported the proposal by a whopping 39 percent at Standard Pacific, according to preliminary results, a new record for support on the climate change issue.  The proposal got more modest support—of 6 to 9 percent—at D.R. Horton and Whole Foods Market; the latter had announced just before its January meeting a landmark purchase of renewable energy credits from wind farms that it said would offset 100 percent of its energy use, making it the only Fortune 500 firm to achieve this goal.  (The Social Issues Service is still awaiting results for the same proposal at Bed Bath & Beyond’s late June meeting.)  After Standard Pacific, the next highest vote for a climate-related proposal was the 22.6 percent achieved by Trillium’s resolution asking Dominion Resources to report on and reduce its greenhouse gas emissions.  Green Century’s second-year proposal asking Ford Motor to report on its lobbying activities againsttighter fuel economy was supported by 7.3 percent of the shares voted, according to a preliminary report. 

The filers of the remaining four proposals, in contrast, are dubious that climate change is happening or that companies need to take particular action about it.  Carl Olson’s and Mark Seidenberg’s proposals asking for an annual “scientific report on global warming/cooling” received 4 percent support at Ford Motor and 7 percent at Occidental Petroleum, but only 2 percent at General Motors.  A proposal along similar lines from Action Fund Management at General Electric received 6.9 percent support. 

Preliminary or final vote results are in for the six proposals on genetically engineered organisms, and all but one cleared their resubmission levels.  The highest vote—at 17.6 percent support—came at Wendy’s International, where a second-year proposal asked it to identify on its menus where it uses genetically modified ingredients.  Similar proposals received sufficient support for resubmission, albeit in the single digits, at McDonald’s and Safeway, but fell short at Yum Brands.  Proposals asking Dow Chemical and DuPont to report on the potential adverse impact associated with their development of genetically engineered plants each received about 7 percent support. 

The year 2006 was notable for several largely new shareholder campaigns on environmental issues.  One focused on protecting old forests.  International Paper and Kimberly-Clark, which source much of their fiber from Canada’s Boreal forest, the largest remaining intact forest in North America, were asked in first-year proposals from Green Century and Domini to consider phasing out the use of fiber not certified by the Forest Stewardship Council.  The proposals achieved single-digit sup port.  A related proposal from Calvert asking Weyerhaeuser to assess the feasibility of obtaining FSC certification received 5 percent support, according to a preliminary report.  The Social Issues Service is still awaiting vote results for a related proposal asking Lowes to adopt a forest protection policy in sourcing its lumber and other forestry products.

Another group of proposals focused on companies’ potentially or historically harmful impact on local communities because of toxic emissions.  The highest scoring resolution this year in this category appears to be Mercy Investment’s first-year proposal asking Synagro, whose sewage-to-fertilizer operations in the Bronx have prompted complaints, to review and reduce its toxic emissions; it received 31 percent support, according to a preliminary tally.  A first-year proposal asking Honeywell to report on how it is warning local communities around Onondaga Lake in upstate New York about health hazards resulting from pollution from its predecessor companies received 7 percent support.  The Social Issues Service is still awaiting vote results for Martha Hamblin’s second-year proposal asking Stericycle to phase out waste incineration. 
          
The Episcopal Church filed new resolutions asking ConocoPhillips and ExxonMobil to report on their environmental impacts on the communities where they operate, with particular attention to poor communities.  According to a preliminary tally, the proposal won 20 percent support at ConocoPhillips, one of the highest votes in the environmental arena this season, and 10 percent at Exxon.  Proposals from Green Century asking Du Pont and Dow Chemical to report on how they might reduce the threat of potential catastrophic chemical releases from their facilities each received about 7 percent support.  

Two proposals looked at the damage to communities outside the United States.  A  second-year New York City proposal focused on the 1984 toxic disaster in Bhopal, India, asking Dow, which subsequently acquired the company whose factory caused the disaster, to report on “ any new initiatives instituted by management to address specific health, environmental and social concerns” of the Bhopal survivors.  It received just over 6 percent support, according to preliminary results.  At Chevron, a Trillium proposal asking the company to report on its legal and public relations expenses connected to past pollution caused by Texaco drilling sites in Ecuador received 8.4 percent. 

A shareholder focus on toxic chemicals was also evident in several proposals that asked companies to consider reformulating their products or services to avoid or reduce the use of toxic chemicals, or in the case of retailers, to reduce the number of products they stock with toxic ingredients.  The highest-scoring proposal in this category was at Du Pont, where LongView won 28.9 percent support for its request that the company report on “the feasibility of an expeditious phase-out of the use of PFOA in the production of all DuPont products.”  Perfluorooctanoic acid, a chemical essential in the production of fluoropolymers used in Teflon and a host of other products, is biopersistent and is found in the blood of nearly all Americans; in January, a scientific advisory board to the EPA found that PFOA is a “likely carcinogen.”  According to preliminary results, Green Century achieved 9 percent support for its first-year proposal asking Servicemaster to report on the feasibility of phasing out synthetic pesticides in its TruGreen ChemLawn lawn care business.  Domini won just under 9 percent support for its proposal asking Becton Dickinson to review the use of brominated flame retardants in its medical supplies and devices.  Proposals from Boston Common Asset Management at CVS, and from Green Century at Whole Foods, each won about 10 percent support.  A vote result is not available yet for Domini’s proposal at Avon Products.
 
As You Sow’s proposal asking Apple Computer to report on ways to improve its computer recycling program was also motivated by concern over toxics, since computers contain significant levels of lead, mercury, cadmium, and hexavalent chromium; the first-year proposal won 9.3 percent support.

Five proposals came to votes that focused on conserving natural resources—such as water—and natural habitats.  The top-scorer may be Green Century’s first-year proposal asking ConocoPhillips to report on “the potential environmental damage that would result from drilling for oil and gas in the areas inside the National Petroleum Reserve – Alaska”; preliminary results indicate it won 26 percent support.  Green Century also asked both Chevron and Exxon for a second time to report on the potential environmental damage that would result from the company drilling for oil and gas in protected areas such as IUCN Management Categories I-IV and Marine Management Categories l-V, national parks, monuments, and wildlife refuges (such as the Arctic National Wildlife Refuge), and World Heritage Sites.  Both proposals received less spectacular support of around 8 percent, but enough to clear the resubmission threshold of 6 percent.  Harrington Investments won 6.9 percent support for its proposal that Coca-Cola report on “the potential environmental and public health damage of each of its plants, affiliates and proposed ven tures extracting water from areas of water scarcity in India.”  No vote result has been reported yet for the Sierra Club’s proposal on water use at Peabody Energy. 

On the question of nuclear power plant safety, religious investors got 8 percent support for their proposal asking Ameren to report on the pros and cons of getting a 20-year extension of its operating license at the Callaway nuclear plant.  No tally is available yet for the AFL-CIO’s proposal at Progress Energy asking for improvements in plant security.

Withdrawals on climate change
Proponents continued to have good success negotiating withdrawals on climate change issues at energy companies.  The standard proposal asking for a report on greenhouse gas emissions was withdrawn at Anadarko Petroleum, Devon Energy, Peabody Energy and four Midwestern utilities when the companies promised to do the report.  The withdrawals at the utilities  Alliant, Great Plains, MGE and WPS came after they agreed to disclose how they are preparing for regulatory controls on greenhouse gas emissions, including potential impacts on existing and proposed power plants.  Also withdrawn in the climate change area were three proposals at ExxonMobil.  The company argued that its publication of a February 2006 report on greenhouse gas emissions and energy use trends, called Tomorrow’s Energy, meant that it had substantially implemented all three proposals, and the proponents decided to withdraw. 
          
The Sisters of St. Dominic, an early leader in the climate change shareholder campaign, withdrew a resolution asking General Motors to reduce greenhouse emissions.  The company has significantly increased its reporting on climate change in the last year.

In the related campaign on energy efficiency in buildings, proponents were able to achieve four withdrawals when the companies agreed to provide significant amount of information on energy usage and energy efficiency measures and goals.  The withdrawals came at Home Depot, Liberty Property, Lowe’s and Simon Property.

Other environmental withdrawals
A number of other important withdrawals were registered in the environment category.  Early in the year, church shareholders ended a decade-long campaign to get General Electric to disclose information about the costs of an effort to delay cleanup of PCBs, especially in the Hudson River.  The company published extensive information on PCB costs in a letter to the SEC arguing that its long-running shareholder resolution on the issue was now moot, and the church proponents agreed.

Only one proposal in the new campaign on toxic substances was withdrawn—a proposal to Johnson & Johnson asking for a report on reformulating cosmetics to meet European Union standards.  The withdrawal came after the company agreed to continue meeting with the proponent, Citizens Funds, to ensure greater transparency and safer products.
          
Walden Asset Management was able to withdraw both of this year’s proposals on bottle recycling—at PepsiCo and Coca-Cola, with the latter withdrawal coming at the last minute after the company had published the proxy statement.  Both companies agreed to seek quantitative and national goals and a timeline for increased recycling, through a multi-stakeholder process. 

Domini Social Investments withdrew one of its resolutions asking companies to report on “the feasibility of phasing out our company’s use of non-FSC [Forest Stewardship Council] certified fiber within 10 years.” The withdrawal came at the Limited, where the proponents had been concerned that 95 percent of the 400 million Victoria’s Secret catalogs it prints each year use virgin fiber paper with little or no recycled content. Domini told the Social Issues Service the withdrawal took place after the company agreed to “conduct a feasibility study and implementation plan for increasing the use of recycled content and FSC-certified fiber in” its paper.

Action at the SEC
As discussed in the overview of SEC activity above, most of the omissions of environmental resolutions involved application of a policy spelled out June 25, 2005, in SEC staff bulletin 14C, which said companies should be able to exclude resolutions that involved evaluation of the business risk of operations that adversely affect the environment. 
          
Environmental omissions that cited bulletin 14C involved a New York City proposal to Newmont Mining on the environmental effects of operations in Indonesia, resolutions from the Service Employees International Union Master Trust asking Wachovia and Wells Fargo to report on the effect of the challenges created by global climate change on business strategy, and a resolution from the Nathan Cummings Foundation asking Ryland Group to “assess its response to rising regulatory, competitive and public pressure to increase energy efficiency.”  (All told, eight companies had received the energy efficiency proposal for spring meetings, but only Ryland had challenged.) Although CVS and DuPont were not allowed to exclude resolutions in the new toxics campaign as ordinary business under the risk assessment policy, Wal-Mart was successful in getting its new toxics resolution excluded on ordinary business grounds for a different reason.  The resolution asked for a report “evaluating company policies and procedures for systematically minimizing customers’ exposure to toxic substances in products….”  The staff agreed with the company’s argument that the roposal constituted ordinary business because it “seeks to micro-manage the company’s retail business practices and inventory of products.”  The resolution at CVS asked about the feasibility of reformulating private label cosmetics products—raising the question of whether it might have been excludable if the company had made Wal-Mart’s simpler argument instead of getting into risk assessment.

Equal Employment
Proposals in the EEO category were largely familiar, including a handful of the resolutions asking for disclosure of EEO-1 information that have been around since social policy resolutions first appeared in the 1970s and the now much larger New York City-led campaign to get companies to amend their EEO policies to bar discrimination against gay employees.  There were also a handful of resolutions from conservatives asking companies to drop sexual orientation from their EEO policies.

 

Table 3.  Support Levels for Selected Social Issues
Through June 30, 2006

 

Subject

# of resolutions voted on as of 6/30/2006

Average support*
(%)

Average support for similar proposals in 2005

Animal Welfare

17

5.8

4.0

Board Diversity

3

Not available

12.7

Charitable Contributions

8

6.3

6.4

Energy &Environment

 

 

 

       Climate Change

10

11.7

10.8

       Nuclear Power

2

Not available

 

       Genetic Engineering

6

8.5

6.3

       Other

27

11.3

9.1

Equal Employment**

12

15.6

18.4

Executive Pay/Social Link

7

9.6

8.4

Global Labor Standards

13

9.9

11.9

Human Rights

8

13.4

9.3

Military Contracting

4

7.8

5.9

Northern Ireland

5

11.0

10.4

Political Giving/Ties

35

19.6

10.3

Sustainability Reporting

8

26.5

18.2

Tobacco

8

3.5

2.7

*    Average vote results are still preliminary.
**   Includes four proposals in 2006 that asked companies to restrict their EEO policies by deleting reference to sexual orientation.  When these are removed, the average support for proposals asking for expansion of or reports on EEO policies was 26 percent in 2006 and 20 percent in 2005.


Votes
Five proposals came to votes concerning non-discrimination on the basis of sexual orientation or sexual identity.  Results are only in for two, but they suggest that investors continue to show strong support for these proposals.  According to preliminary results, the resolution asking Exxon to amend its company non-discrimination policy to include sexual orientation received just under 35 percent support.  If confirmed, this represents the highest vote ever for this proposal at the company.  The proposal was first filed in 1999, receiving 6 percent support, and has gained support with each consecutive year.  A similar first-year proposal at Leggett & Platt also did well, winning 24.7 percent. 
          
Investors also showed strong support, as they have in past years, for proposals asking companies to report on their EEO policies with regard to women and racial minorities.  At Home Depot, a second-year proposal along these lines, prompted by the company’s reversal of a 2001 decision to provide statistical data to shareholders on its work force by race and sex, won 35.9 percent, up nearly six percentage points from 2005.  At Lockheed Martin, a similar proposal from religious investors won 25.1 percent the first time out.  In 2004, the Equal Employment Opportunity Commission determined the company allowed a racially hostile work environment for black employees “to grow in intensity” at its plant in Meridian, Miss., where a white employee in 2003 fatally shot six other employees, five of whom were black.  The EEOC also filed suit against the company in 2005 alleging race discrimination at other facilities.  An EEO proposal at Yum Brands, however, appears to have lost ground; it received 9.2 percent, down from 13 percent in 2005. 

In contrast to the above proposals, resolutions from social conservatives asking companies to drop protections for gays and lesbians from their EEO policies fared poorly.  Of the four that came to votes, only Rob ert Hurley’s proposal at Ford Motor did well enough, at 4.8 percent support, to be eligible for resubmission.  Proposals at American Express, Bank of America and JPMorgan Chase received support of 2 percent or less. 

Withdrawals
Once again, resolutions asking companies to add sexual orientation anti-bias policies to their EEO statements found favor in the corporate world.  Proponents were able to withdraw 14 of 18 of those proposals because companies agreed to amend their EEO policies or demonstrated that they had already had gay rights policies in place.  The withdrawals were registered at Baldor Electric, C.R. Bard, CenturyTel, Computer Sciences, Convergys, Cooper Tire & Rubber, Emerson Electric, Fortune Brands, General Dynamics, Halliburton, Paccar, Strayer Education, Goodyear Tire & Rubber and Sherwin-Williams.  On top of that, proponents withdrew four of five proposals asking companies to implement the more extensive Equality Principles on Sexual Orientation after reaching agreements.  Those withdrawals came at Aquila, DTE Energy, Oneok and Wendy’s.

Proponents also reached two withdrawal agreements in the long-running campaign to get companies to release their equal employment data.  One of those agreements culminated in the withdrawal of a highly publicized shareholder resolution to Wal-Mart.  The withdrawal came after the company posted its entire EEO-1 form along with comparative data on its website.  A large coalition of SRI funds and church groups had been proposing a resolution since 2002 asking the company to release its EEO-1 data.  Against the backdrop of the largest workplace bias lawsuit in U.S. history, votes for the proposal had increased steadily, from 11.3 percent the first year to 18.8 percent in 2005.

Walden Asset Management also withdrew a resolution asking for EEO reporting after receiving information from Donaldson.

Activity at the SEC
There were no SEC decisions involving the now well-tested proposals on EEO reporting and adding sexual orientation nondiscrimination statements.  Companies made unsuccessful stabs at getting the SEC staff to let them omit the new proposals for dropping sexual orientation protections from their EEO policies, although they were allowed to delete some of the inflammatory supporting statement as false and misleading. 

Executive Pay and Social Issues
The number of resolutions on linking executive pay to social performance measures dropped to nine from 19 in 2005 and 17 the year before that.  Many of the proposals were requests that companies take general social performance into their calculations rather than tie pay to specific social questions.
          
Votes
Proposals asking that executive compensation be linked to improvements in the company’s social or economic performance came to votes at Amgen, AT&T, Du Pont, Exxon and Ford Motor.  The highest of the votes, albeit preliminary, came at ExxonMobil, where Northstar appears to have won about 13 percent support for its proposal asking for a report comparing total pay in 1995 and 2005 for the CEO to that of its lowest-paid workers and considering whether executive pay is excessive or should be moderated in times of employee layoffs.  A similar proposal at AT&T, filed by Harrington Investments, won 11.9 percent support.  A second proposal at Exxon, from the School Sisters of Notre Dame, asked that executive compensation goals include meeting explicit environmental and social performance criteria as well as financial criteria; it received 9 percent, according to a preliminary estimate.  At Ford Motor, a first-year proposal from an individual shareholder asking that the board consider “linking a significant portion of senior executive compensation to progress in reducing lifetime product greenhouse gas emissions from the company’s new passenger vehicles” got 4.8 percent, according to a preliminary tally.  The DuPont Workers have struck out with their third-year proposal at DuPont, however; it fell somewhat short of the 10 percent resubmission threshold it needed to clear.  No vote result is available yet at Amgen. 
          
In addition to the proposals on how executive pay is formulated, a third-year proposal from Northstar asking for a report on the distribution of stock options by race and sex at Wal-Mart received 10.2 percent support, down a few percentage points from the previous two years. 
          
Activity at the SEC
In an interesting call at the SEC, the staff told Corrections Corporation of America that it could omit a resolution from Mercy Investment Program asking that “the board’s compensation committee, when setting executive compensation, include social responsibility as well as corporate governance financial criteria in the evaluation.”  The supporting statement “recommended” that the criteria include protection of prisoners’ human rights; consistent standards for health care; “compliance with fair labor standards so that employees and their supervisors are trained appropriately and compensated justly for the management of immigration facilities, prisons and prisoners”; and fairly priced services such as phone calls. Corrections Corp. argued successfully that the resolution should be omitted on ordinary business grounds because fundamentally it dealt with general compensation more than executive compensation.

Corrections was the only company to challenge a 2006 proposal asking for a link between executive pay and performance on social issues. Those resolutions have traditionally made it past SEC staff scrutiny, but in 2005 media companies were allowed to omit resolutions on the effects of the depiction of smoking on teen smoking rates, when the companies argued successfully that the proponents were trying to camouflage the ordinary business issue under the guise of executive pay. It’s not clear whether these 2005 and 2006 decisions spell real trouble for the executive pay route for getting resolutions on specific social issues in proxies.

Global Labor Standards
The number of resolutions on global labor issues increased marginally in spring 2006—to 26—and the number of withdrawals increased as well.

Votes
Vote results are in for nine of the 13 proposals that came to votes asking companies to report, improve or monitor the labor standards in their global operations and supply chains.  Of these, the top vote-getter by far is the New York City pension funds’ request that C.R. Bard develop, implement and monitor a code of conduct for its operations and suppliers based on the eight core conventions of the International Labor Organizations and the UN Norms for Transnational Corporations.  It won 32.9 percent support; a factor in the high vote may have been the company’s admission that it did not have a labor code for its suppliers. 
          
The other vote results so far are in the single digits.  Of New York City’s remaining proposals on instituting global monitoring of the core ILO conventions, the ones at Altria, Cooper Industries and Kimberly-Clark cleared their resubmission levels, but a fourth-year proposal at Hasbro fell short, as did another New York City proposal focusing on Disney’s operations in China. 
          
As for other proponents in this area, Michael Saville won nearly 8 percent for his second-year proposal at IBM asking for a report on the risk to the company’s image from its globalization strategy.  Global Exchange had an unusually low support level of under 2 percent at Hershey for its proposal concerning child labor on cocoa plantations, but 78 percent of the voting power in the company is held by a single shareholder:  the Hershey Trust Co. 
          
Withdrawals
Proponents withdrew 10 of the global labor proposals.  Seven of the withdrawals were negotiated by the New York City pension funds, the leading proponent of proposals on international labor standards, but also one that usually insists on substantial concessions from companies before agreeing to withdraw.  This year it withdrew at Avon Products, Chico’s, Ford Motor, Limited Brands, Mattel and Timberland after reaching agreements.  The seventh withdrawal came at DuPont, when it realized that a recent proposal had failed to receive enough support for resubmission.
          
The other global labor withdrawals were negotiated by Domini at Apple, where the company unveiled a comprehensive code, and by LongView at Colgate-Palmolive, where the company agreed to produce a report for shareholders later this year on what risks it sees that globalization presents to its operations.  The Missionary Oblates withdrew at GE when the company agreed to continue discussions on global standards.
          
Activity at the SEC
The IUE-CWA Employees Pension Fund proposed a resolution asking GE to issue a report evaluating “the risk of damage to GE’s brand name” from outsourcing.  The company argued that the resolution should be omitted under the new risk management policy, even though it didn’t deal with health or the environment, and the SEC staff, without comment, agreed.  The same proposal had survived an SEC challenge in 2004.
          
Also omitted on ordinary business grounds was a proposal from As You Sow asking Wal-Mart’s board to amend the company’s EEO policy to “bar intimidation of company employees exercising their right to freedom of association.”

Human Rights
As usual the human rights category in 2006 was all over the map, ranging from requests for general human rights policies to resolutions dealing with very company-specific issues such as Freeport McMoRan’s payments to the military in Indonesia.
          
Votes
Investors gave strong support this year to proposals that asked companies to adopt comprehensive human rights policies or to report on how they implement such policies.  While such proposals earned 11 percent on average in 2004 and 15 percent in 2005 at the two to three companies each year where they came to votes, the three such proposals this year—at Boeing, Chevron and Halliburton—earned support ranging from 23 to 25 percent; religious investors were the filers in each case.  Proponents have fared somewhat less well with proposals that focus on companies’ operations in particular countries.  Harrington Investments’ proposals asking 3M, Illinois Tool Works and IBM to adopt a set of principles for their operations in China earned only single-digit support, but still managed to clear their resubmission thresholds.  New York City lost out, though, with its second-year proposal questioning Freeport McMoran about its payments to the Indonesian military and to Coca-Cola about its operations in Colombia, where a worker at a Coca-Cola bottling plant was killed in anti-union violence 10 years ago. 
          
Withdrawals
The New York City pension funds withdrew their resolution on ExxonMobil’s security relationships with the Indonesian government, which received 7.6 percent support last year.  Fund representatives had received presentations from ExxonMobil on its work in Indonesia on rolling out compliance with the U.S. State Department’s Voluntary Principles on Security and Human Rights, and the company agreed to undertake the requested review. 
          
Boston Common Asset Management and a Swedish proponent, GES, withdrew their new resolution asking Marriott to adopt a human rights policy prohibiting the sexual exploitation of children on Marriott premises.  The proponents were particularly concerned about reports of sexual exploitation of minors in several hotels in Costa Rica, including a Marriott.  A representative of Boston Common Asset Management explained that Marriott agreed to a substantive dialogue on the issue and had already established an internal task force made of up senior management to review how Marriott can address the issue.
          
The Brethren Benefit Trust withdrew a proposal to Burlington Resources on a matter of long-running concern for the group—treatment of indigenous peoples in areas slated for mineral development in the Amazon.  The proposal was withdrawn when Burlington was taken over by ConocoPhillips. 
          
Religious groups withdrew resolutions asking for general human rights policies after satisfactory discussions with Monsanto and Visteon.  A China principles proposal was also withdrawn, at Cummins Engine, after the company promised a report on implementation of its supplier code.
          
Action at the SEC
The SEC staff allowed Cooper Industries to omit a resolution asking for a report on its human rights policy on grounds that it was too similar to a proposal on the company’s global labor standards, which was filed first.

Political Contributions
The broad-based shareholder campaign to get companies to provide information on political contributions continued into a third year, at about the same level (36 were proposed for spring 2006) but with higher votes and a few more withdrawals.  As in the past, the proponents, following a template developed by the Center for Political Accountabilty, a Washington think tank, asked for a listing of contributions made with corporate funds, the companies’ policy on contributions and the name of the decisionmakers.  Some of the proposals, for the first time, also asked for a reporting of dues paid to trade associations.  In addition, Evelyn Y. Davis continued her long-time campaign to get companies to disclose political contributions in newspapers or to affirm political nonpartisanship.
          
Votes
Thirty proposals came to votes from January through June that generally followed the Center for Political Accountability template, although the primary filers included labor unions, religious investors and SRI funds.  Preliminary or final results are now available for 26 of these proposals; with only three exceptions, all received support of 10 percent or more, and all but one earned support for resubmission.  Although these proposals have averaged double-digit support from investors from their inception, they got a further boost this year when ISS’ benchmark voting policy began to support them on a case-by-case basis.  The top scorer—at 67.1 percent—was Green Century’s proposal at Amgen, where management recommended a vote in favor.  Other notably high—but not passing—votes came at American Financial Group (20 percent support), Caremark (27.2 percent), Clear Channel Communications (20.5 percent), General Dynamics (22.4 percent), Home Depot (34 percent), JPMorgan Chase (28.9 percent), Charles Schwab (27.0 percent), St. Paul Travelers (28.7 percent), Union Pacific (27.2 percent), Verizon Communications (33 percent), Washington Mutual (24.1 percent) and Wyeth (28.9 percent).  Proposals also won enough support to be eligible for resubmission at Abbott Laboratories, AT&T, Bellsouth, Chevron, ExxonMobil, IBM, Monsanto, Pfizer, Target, Chubb, Wachovia and Wal-Mart.  Perhaps the one loser in this group is the Teamsters’ third-year proposal at Citigroup; it received 9.9 support, just shy of the 10 percent threshold it needed to clear. 
          
The growing investor support for improved disclosure of corporate political contributions may have helped to boost the results for at least one of Evelyn Y. Davis’s perennial proposals asking companies to take out ads in major national newspapers to disclose their political contributions; she received 24.6 percent support this proposal at Lucent Technologies.  Another explanation, though, is that Lucent shareholders, frustrated by the company’s low share price, used the Davis proposal as a vehicle to express their frustration with management.  (Indeed, Davis won only 3.3 percent support for the same proposal at PepsiCo and 5.0 percent at Bank of America.)  Her proposal asking Home Depot to take various steps to ensure that employees are not coerced into supporting political causes favored by management got 12 percent support; results are not yet available for the same proposal at Continental Airlines. 
          
Action Fund Management's request that JP Morgan Chase report on its procedures for “identifying and prioritizing legislative and regulatory public policy advocacy activities” received 27.2 percent support.
          
Withdrawals
Proponents were able to withdraw resolutions at Bristol-Myers Squibb, Coca-Cola, Eli Lilly, McDonald’s, Southern and Staples when the companies provided all the requested information.  The FL-CIO also withdrew at SunTrust when the company promised not to donate funds for campaigns in favor of Social Security privatization.
          
Action at the SEC

Pfizer, which received the expanded proposal, now releases all of the information requested by the original resolution, but not its trade union dues.  It went to the SEC to argue that it could omit the proposal because it was substantially implemented.  The SEC disagreed, requiring Pfizer to bring it to a vote.  The vote, though, dropped three points from the previous year.

Sustainability Reporting
Investors continue to evince relatively strong support for requests to companies to issue broad-based sustainability reports, and hundreds of multinational companies now prepare such reports according to the format developed by the Global Reporting Initiative, an offshoot of a joint project by the Ceres environmental group and the United Nations Environmental Program.  The number of resolutions proposed on the subject this year continued to fall back a bit, hitting 18 for the spring proxy season, and proponents worked out agreements on about half of these.  The supporting statement of most of this year’s resolutions recommended that the companies use the Global Reporting Initiative guidelines.  Earlier attempts to incorporate GRI in the resolved clause of sustainability proposals had been knocked out at the SEC, but the staff went along with the approach of using it in the supporting statement. 
          
Votes
Of the nine proposals that came to votes through June, the highest vote so far took place at Terex for a proposal sponsored by the New York City funds.  It won 48.4 percent.  Notably high votes also came in at Wendy’s (38.2 percent), Dean Foods and Safeway (34 and 27 percent, respectively, according to preliminary results) and General Dynamics (21.2 percent).  The 10.5 percent “for” vote at Wal-Mart was down substantially from the 16 percent recorded last year, a reflection, perhaps, of investors’ response to new environmental initiatives the company has announced and to management’s promise to issue a report on various corporate responsibility issues by spring 2007.  (See related story on Wal-Mart annual meeting, p. 15.)  The lowest vote—6.4 percent—came at Kellogg, despite the fact that the company does not issue a stand-alone environmental report, now a common corporate practice, nor offer much in the way of hard data on its corporate responsibility performance.  (No vote results are available yet from Kroger’s June 22 meeting.)
          
Withdrawals
Proponents withdrew sustainability report requests at American International, AT&T, Black & Decker, Caterpillar, Chesapeake Energy, Chubb, Illinois Tool and Marsh & McLennan after companies either agreed to produce reports or to assess the costs and benefits of developing such reports.
          
Action at the SEC
The SEC staff agreed that Honeywell and Raytheon could omit sustainability report requests as moot because the reporting they were doing was the equivalent.  Wendy’s, though, failed to make the case that it had substantially implemented the proposal.
          
Banking Issues 
A new proposal from NorthStar Asset Management asked Wells Fargo to prepare a report that provides explanations of racial and ethnic disparities in the cost of loans it provides.  It got 7.3 percent support.        

Back to Top

* * *

CalPERS’s 2006 Focus List Highlights Poor Corporate Governance Performers

Institutional investors are increasingly paying attention to the degree to which corporations are fully transparent in their reporting to shareholders and the extent to which top management and the Board of Directors operate to ensure that they are seen to be accountable to shareholders. When CalPERS speaks, then the impact on the investment community is profound. CalPERS, has over $208 billion of investment funds under its management. The organization represents than 1.4 million public workers and their families, and more than 2,500 public employers.

The 2006 Focus List, published on April 19, 2006, singled out Brocade Communications, Cardinal Health, Clear Channel Communications, Mellon Financial, OfficeMax, and Sovereign Bancorp. According to CalPERS Board President Rob Feckner, “The stock performance and governance of these companies is unacceptable to us and other shareowners. We are urging them to make such improvements as requiring majority voting for directors, removing excessive takeover defenses that prevent shareowners from amending company bylaws, and accounting for their performance."

Methodology:  CalPERS screens more than 1,800 U.S. corporations in its research that leads to the Focus List. It narrows the list of candidates to 15 to 20 companies based on their long-term stock performance, corporate governance practices, and an economic value-added (EVA ®) evaluation. CalPERS explains that it, “uses EVA ® and stock performance to identify companies where poor market performance is due to underlying company specific operating performance problems as opposed to industry or extraneous factors alone. EVA ® measures a company’s net operating profit after tax, minus its cost of capital.”

Model: The value of this kind of report rests in its details. The issues that CalPERS highlights reflect topics of concern to a rising number of institutional investors. The pressure from CalPERS comes at a time when investors are increasingly pressing the management of mutual funds to become more active and critical in this area and to use their formidable investment power to call for governance reforms in a manner similar to that displayed by CalPERS.

Results: The following comments on the companies on the Focus List comes from the CalPERS press release (detailed analysis on each company is to be found at www.CalPERS.org) :

Brocade Communications has a 67 percent supermajority requirement for amending key portions of the company’s charter and bylaws that is the target of a CalPERS shareowner proposal. Brocade lost 68 percent of its stock value in the past five years.

Cardinal Health, which provides products and services to health care providers and manufacturers, has excessive severance benefits and a 75 percent supermajority requirement to change bylaws. It has significantly underperformed its peers over the past five years, gaining only 17 percent in value compared with 109 percent for the industry.


Clear Channel Communications, a diversified media company that owns hundreds of radio stations, has excessive executive compensation and severance agreements, and lost 42 percent in stock value over the past five years compared with a 26 percent decline for industry peers.

Mellon Financial, which operates as the holding company primarily for the Mellon Bank, is the target of a CalPERS shareowner proposal to remove the company’s requirement of a 75 percent majority vote to amend company bylaws. It was placed on the Focus List after its stock fell by 2 percent compared with a 58 percent gain for industry peers over the five-year period that ended on March 31, 2006.

OfficeMax, a U.S. provider of office supplies, technology products and solutions, and furniture, has takeover defenses that are excessive – including an 80 percent supermajority requirement to amend bylaws. It performed well below its peer group for the past five years.

Sovereign Bancorp, a holding company for Sovereign Bank serving commercial clients, has excessive takeover defenses, including 80 percent supermajority requirements to amend specific charter and bylaw provisions, limited shareowner rights, and the rare provision of severance agreements for directors. Sovereign underperformed industry peers in the past year.

Back to Top

* * *

Singapore Leads In Asian Corporate Governance

Singapore remains the top ranking country among 10 Asian economies in the area of corporate governance standards, according to a report by Asian Corporate Governance Association (ACGA) and CLSA Asia-Pacific MarketsAccounting Education reported on December 27, 2005, that the report, CG Watch 2005: The Holy Grail, assessed the quality of corporate governance in 10 Asian markets with data from 496 listed companies. Hong Kong was one percentage point behind Singapore at 69%; India and Malaysia retained third and fourth place, respectively, at 61% and 56%; next was Taiwan at 52%; Korea slipped below Taiwan and shared the next place with Thailand with both at 50%;  then Philippines 46%, China 44% and Indonesia 37%.

Back to Top

* * *

OECD Highlights Need for Corporate Governance Reforms in China

Organization for Economic Cooperation and Development (OECD) in a new report on September 7, 2005. China needs to make wide-ranging changes in the way it runs its public and private sectors if it is to continue on a stable growth path leading to full integration into the world economy, according to a new report from the OECD.

The following is the statement issued by the OECD: Governance in China reviewed the state of governance in China’s public and private sectors. It concludes that the country’s governance arrangements as they stand at present suffer from a number of serious fault lines, particularly in relation to China’s public finances and social stability.

The report is the latest in a series of studies conducted by the OECD in co-operation with the Chinese government under a co-operation program launched in 1995. China is not a member of the OECD, but it participates in the work of some OECD committees. OECD countries and China have a shared interest in helping China to develop its economy in a stable manner.

To date, China has already taken some steps to improve its public and private governance, the OECD report acknowledges. However, it observes, laws and regulations are often applied in an unsystematic manner and can be skewed by special interests.

China has made progress in strengthening the budget management and civil service systems – the two main pillars of public administration – but many weaknesses remain, leading to inefficiencies.  Public resources that could be used to finance social services are absorbed by efforts to shore up loss-making state-owned companies and prevent default on loans they have received from state-owned banks. Local government structures are burdened by heavy spending obligations without appropriate matching revenues or an effective system of transfers. 

Decisions on public capital expenditure are taken by the National Development and Reform Commission, while the budget is managed by the Ministry of Finance. Staffing decisions with regard to public employees down to a certain level are made by yet another body, without compulsory co-ordination. In addition, the OECD noted, organizational and co-ordination problems result from the co-existence of structures inherited from the past with new institutions.
The OECD observed that economic growth alone will not solve all these problems, and recommends that China should:

  • reform relations across levels of government, so as to ensure that local authorities act in accordance with national objectives in relation to issues such as the rural/urban balance, redistribution of wealth, the environment and central control versus local autonomy.
  • ensure greater consistency among laws affecting a particular area and see that laws mandating broad principles are accompanied by more specific regulations for implementation.
  • consolidate the framework for the market economy by giving market participants a level playing-field in terms of laws and regulations.
  • establish a sound competition policy approach as a means to reduce market segmentation and local protectionism, consolidate the intellectual property rights regime and further restructure state banks and industries. 

In another report on China, the OECD’s first economic survey of the country,  the OECD stated that, “China could overtake the US and Germany to become the largest exporter in the world in the next five years. By then, Chinese goods and services could represent as much as 10% of global trade compared with 6% at present.”

OECD said the current pace of economic growth – averaging more than 9% annually over the past two decades – shows no sign of slowing. But although economic dynamism has helped reduce the number of Chinese living in absolute poverty, income levels are still low and inequality is on the rise, not only between the cities and rural regions – average incomes in the countryside are only one third of those in the cities – but also within the more prosperous coastal provinces.

Back to Top

* * *

 


Useful Sites...


ethics

l


Transparency International

ethics

More Links...