Four of the largest pension funds are turning up the heat on Walt Disney Co. and pressing to elect their own nominees to the media giant’s board at its upcoming annual meeting. But their underlying motive also seems to be to pressure the Securities and Exchange Commission to issue its final proposed rules for proxy access.
Last week, The California Public Employees' Retirement System, the New York State Common Retirement Fund, the AFSCME Employees Pension Plan, and the Illinois State Board of Investment announced a joint proposal that would give shareholders the right to nominate directors to the board of The Walt Disney Co.
If the proposal receives a majority of votes at Disney's 2005 annual meeting, a group of shareholders would be able to nominate up to two directors to Disney's 11-member board at the company's 2006 meeting.
Negotiation Placeholder
The proposal is similar to the one that four pension funds, including AFSCME, the New York State Common Retirement Fund and CalPERS prepared for Marsh McLennan earlier in the year. However, that proposal was withdrawn before the annual meeting after the financial services company nominated former federal prosecutor Zachary Carter to its board.
The four pension funds were also discussing a possible compromise with Disney, but filed the proposal literally hours before the deadline for it to get in the proxy for the 2005 annual meeting, which will take place in about six months.
“We were up against a deadline but we are still talking with them,” confirms John Chartier, a spokesman for the New York Common Retirement Fund. “With Marsh-McLennan, we filed a resolution and started a dialogue with them.”
“We were in negotiations,” confirms Richard Ferlauto, director of pension investment policy with AFSCME, “so we needed a placeholder before the filing deadline.”
Several of the pension funds, however, concede that part of their motivation with the Disney resolution is to send a message to the SEC. It’s already a year since the commission unveiled its plan that would have allowed shareholders to nominate directors under certain circumstances—a plan that generated a record number of comments and spawned a rare roundtable discussion.
McEntee
"We look forward to Commissioner Donaldson’s support this fall," said AFSCME Employees Pension Fund Chairman Gerald McEntee in announcing the shareholder resolution. "While this tool would be used infrequently," he noted, "Disney is a classic example of a case for when proxy access would be appropriate."
“It does put pressure on [SEC Chairman William] Donaldson because we fully intend to use the proxy access rule in 2005,” confirms Ferlauto.
The First Of Many?
“It’s a high profile situation and the SEC recognizes this is one more reason it must adapt the proposed rules,” asserts Bill Atwood, executive director of the Illinois State Board of Investment.
The SEC's original proposal would have applied only to a shareholder who owned more than 5 percent of a company's shares for two years, and only after one of two triggers were tripped. One trigger would require that a shareholder (or group of shareholders) owning at least 1 percent of voting shares outstanding for at least a year to submit a proposal that receives more than 50 percent of the votes at an annual meeting. The other trigger would be tripped if one of the company's own nominees for the board received "withhold" votes on more than 35 percent of the proxies cast at the meeting.
Together, the four pension funds own more than 18 million shares of Disney's total 2.05 billion shares outstanding. But because that's not quite 1 percent, the funds wouldn't have been able to rely on one of the SEC’s proposed initial triggers.
But, at last year’s annual meeting they would have crossed the other initial threshold when more than 35 percent of all shareholders who voted withheld their votes for Disney Chairman Michael Eisner. “Then we would have gone out and got 5 percent to sign on for this slate [if proxy access were law],” Atwood adds.
Even so, the pension funds warn that the Disney resolution could be the first of a number of similar initiatives filed with other companies in the upcoming proxy season.
Warns Ferlauto, “This submission will probably be the first at several companies that have boards we think failed to provide appropriate leadership.”
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