Three More Companies Act On Investor Recommendations

A growing number of companies are suddenly listening to what their shareholders have to say.

In just the past couple of weeks alone, at least three companies announced new governance rules, apparently in response to majority votes at their shareholder meetings earlier in the year. Now, remember, those votes were not binding.

"Companies are more responsive to shareholder concerns, particularly if they are expressed in majority votes," acknowledges Carol Bowie, director of governance research at the Investor Responsibility Research Center.

Delta

For example, Delta Airlines announced a number of enhancements to its Corporate Governance Program which it says is intended to assure that its policies meet the requirements of the Sarbanes-Oxley Act and the New York Stock Exchange's new corporate governance listing standards.

Among the changes:

Establishing independence standards for members of the Board;

Adopting revised corporate governance principles relating to the Board's composition, function, structure and responsibilities, and

Amending the charters of the Board's Audit, Personnel & Compensation and Corporate Governance Committees.

Delta also said it has voluntarily acted on a couple of shareholder proposals that received majority votes at its 2003 annual meeting.

For one, it will seek shareowner approval for future severance agreements with senior executives that provide benefits exceeding 2.99 times the sum of the executive's salary plus bonus.

Now, keep in mind that at its 2003 annual meeting, a related proposal was supported by 54 percent of the votes, according to the IRRC. This compares with 32 percent who supported a similar resolution in 2002 and 37 percent in 2001.

Stock Options

Delta also said it plans to expense stock options. At this year’s annual meeting, 61.4 percent of shareholder votes favored this policy. "A lot of companies see the writing on the wall," acknowledges IRRC’s Bowie.

The company did qualify in a press release, however, that it will expense stock options in 2005 once FASB has adopted a standardized valuation method. It explained that it wouldn’t make sense to expense stock options prior to FASB's adoption of a standardized valuation method because it would create multiple changes in reporting if FASB adopts a different stock option expensing method than the one chosen by Delta and result in financial statements that are not comparable to its industry peers. "Currently only one major airline expenses stock options," it noted.

Making The Split

Meanwhile, two companies — Clorox and Freeport-McMoRan Copper & Gold — said they will split the chairman and CEO jobs. "That’s surprising," says Bowie. "Not many companies do that."

$1.9 billion gold and copper miner FCX chose to split the two top jobs even though at its 2003 annual meeting a related proposal only fetched 23 percent of the vote.

Also, earlier in the year the company agreed to elect all of its directors annually after related proposals garnered 54.5 percent of the votes in 2001 and 79 percent of the votes in 2002.

Clorox chose to split the chairman and CEO jobs even though it never received a related shareholder proposal, according to Bowie.

"It’s unusual to take this step," she adds. "It’s a concept that hasn’t caught on in the U.S. But, we’re in a new environment. A lot of companies that might have ignored [these votes] or were slow to act on these proposal in the past, now are reacting."