Corporate Activism and Governance-How Can You File a Proposal?

Shareholder activists frequently submit proposals for the annual proxy to effect changes in corporate governance. Only rarely are these binding on the board...shareholders, for the most part, do not have the power to initiate corporate governance changes...proxies are essentially non-binding polls.

However, according to CFO magazine, more and more companies have made changes in their corporate governance practices after receiving majority, or strong minority support for certain shareholder proposals.

Institutional Shareholder Services (ISS) completed its analysis of the 2006 proxy voting results. Investors are becoing more "vocal" or active. Eight of 11 different measures received more support for change this year compared to last year.

Two of these measures received more than two-thirds support on average among shareholders:

1. Repeal of classified boards
2. Elimination of supermajority voting

Classified boards represent a structure in which only about one-third of all directors are elected each year. Consequently, there is at least two-thirds representation of the "old" team which consequently retains its majority control. Supermajority voting is a system whereby a big majority of the votes of shareholders is required to effect change, consequently making such change unlikely, or improbable.

Among the 40 proposals that called for repeal of classified boards, the support was 68%. Of the 19 proposals to eliminate supermajority voting, 69% voted for elimination. These are strong signs of dissatisfaction to a board which ignores them at their peril.

In total there were 35 proposals that got over 50% support. Contrast this with just two years ago where, on average, support for shareholder proposals was less than 12%.

Always vote the proxy. Express yourself. The sands are shifting and corporate governance is becoming slightly democratized. If you don't vote, you are getting exactly what you deserve...more of the same. In some cases, that is wonderful, but if you are dissatisfied, when you fail to vote, you have only yourself to blame.

Secondly, consider submitting a shareholder proposal for the next annual meeting. Obviously, the more serious the proposal, and the better factually supported, the higher the likelihood of its being supported by other shareholders. Every proxy statement contains language regarding the submission of a shareholder proposal. Be forewarned, company managements despise this and will fight you tooth and nail. However, if you are serious changing the direction of a company and bringing in some changes in corporate governance, it can be done, and done without bearing any legal costs. I encourage you to e-mail me if you need help in starting this process.

Here is an example of the language that you should look for in the proxy statement. To be clear, I am NOT advocating any change in the governance of Caterpillar, I have merely selected it as an example of a proxy with clearcut language. As well, I hold no position in CAT.

Stockholder Proposals for the 2007 Annual Meeting
If you would like to submit a proposal for possible inclusion in the company's 2007 Proxy Statement, our Corporate Secretary must receive it on or before December 29, 2006.
Under Caterpillar bylaws, a stockholder may bring a matter to vote upon at the annual meeting by giving adequate noticeto our Corporate Secretary. To be adequate, that notice must contain information specified in our bylaws and be received by us not less than 45 days nor more than 90 days prior to the annual meeting. If, however, less than 60 days notice of the meeting date is given to stockholders, notice of a matter to be brought before the annual meeting may be provided to us up to the 15th day following the date notice of the annual meeting was provided.

A company management serves at the pleasure of its shareholders who are the true owners of the enterprise. Act like an owner and protect your interests.

Disclaimer: Neither I, my family, or clients have a position in Caterpillar.