The American Federation of State, County and Municipal Employees pension plan said it will submit binding proxy access proposals at insurance giant American International Group and Eastman Kodak.
McEntee
“We believe that insider influence on the AIG board has prevented it from effectively monitoring its business practices and providing needed checks and balances on executive management,” said Gerald McEntee, chairman of the AFSCME Employees Pension Plan. According to McEntee, AFSCME proposals “are aimed at giving shareholders the voice they have been denied by insisting that failed boards be more responsive to investors.”
The announcement comes just a week or so after the Securities and Exchange Commission overruled itself and told The Walt Disney Co. it can keep off of its proxy a resolution sponsored by AFSCME, the California Public Employees' Retirement System, the New York State Common Retirement Fund and the Illinois State Board of Investment.
The SEC initially rejected Disney assertion that the pension fund’s proposal was excludable under both 14a-8(i)(3), which says proposals containing false and misleading statements may be omitted, and 14a-8(i)(8), which says proposals relating to the election of directors may be excluded, the Investor Responsibility Research Center explains.
Other Cases: Verizon, Qwest and Marsh
Originally, it looked like the resolution would break ground and potentially open the director nomination process to shareholders.
However, after several appeals from Disney attorney Martin Lipton of Wachtell, Lipton, Rosen & Katz, the SEC changed its mind.
“This was a surprise,” admits Richard Ferlauto, director of pension investment policy with AFSCME. “Being such a highly visible company coming out of a large withhold vote and compounded by the contentiousness of the proxy access rule, I thought it was fully vetted the first time around.”
Last year, the SEC permitted Verizon and Qwest to exclude similar proposals from their proxies, based on Rule 14a-8(i)(8).
That rule permits the exclusion of shareholder proposals if they “relate to an election for membership on the company’s board of directors or analogous governing body,” points out Rosemary Lally of the IRRC. She explains in a report that the Commission has said the principal purpose for the rule is to “make clear, with respect to corporate elections, that Rule 14a-8 is not the proper means for conducting campaigns or effecting reforms in elections of that nature, since other proxy rules…are applicable thereto.”
Lally adds that the SEC decision also said the proposal could be excluded because it would create a shareholder nomination procedure that is different from the procedure in the proposed proxy access rule, also known by numerologists as Rule 14a-11. “The proponents in those cases acknowledged that they did not meet the definition of ‘qualified shareholder’ found in proposed Rule 14a-11 and would not trigger the mandatory inclusion of director nominees,” she explains. “The proponents asked Qwest’s board to consider adopting the same procedure on a ‘voluntary’ basis.”
The SEC said Verizon could omit its proposal from the proxy for the same reason, Lally noted.
The pension funds hammered out a compromise with Marsh & McLellan early last year, which resulted in a mutually acceptable outside director, and the pension funds agreed to withdraw their proposal.
Need For Guidance
“AIG should follow the example of Marsh & McLennan and work with shareholders to add an independent director to its board and remove corporate insiders,” AFSCME’s McEntee said in a statement.
AIG said it would not comment. Kodak also did not comment.
Ferlauto believes the Disney resolution was denied by the SEC because it differed slightly from the Commission’s proxy access rule’s length of ownership requirements while the Verizon and Qwest measures were denied because they slightly differed from the wording in the SEC’s proposed proxy access rules. “It’s hard to take an 87-page document and compress it into 500 words,” he concedes. “It’s always something.”
Meanwhile, Halliburton is trying to fight a similar measure sponsored by AFSCME and other pension funds shortly after they proposed the Disney resolution back in the fall. But, Ferlauto insists the wording for this resolution is identical to the SEC’s proxy access proposal.
The Kodak and AIG resolutions, however, are much different from the resolutions submitted to Disney, Verizon, Qwest and Halliburton because they don’t try to mimic the SEC’s proposed rule. And, unlike the earlier ones, the Kodak and AIG resolutions are binding.
It’s just as well, given that AFSCME does not own more than 1 percent of either company’s voting stock—which is one of the required triggers under the SEC’s proxy access proposal, the IRRC points out.
Why the strategy change? Very simply, Ferlauto and his cohorts are trying to figure out the SEC’s hot button on this issue. “I’m trying to get the SEC to clarify its thinking,” he explains. “I want to get some direction. It emphasizes the need for the SEC rule immediately.”
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