Should labor be allowed to make shareholder proposals?

Washington Law Review

Volumn 73, Issue 1, 1998, Pages 41-70

  Thomas, Randall S ^a   Martin, Kenneth J ^b  

^a UNIVERSITY OF IOWA COLLEGE OF LAW   (United States)

^b NEW MEXICO STATE UNIVERSITY   (United States)

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EID: 0346408809     PISSN: 00430617     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (155)

1. We will refer to these entities collectively as "labor" groups.
2. 17 C.F.R. § 240.14a-8(1997).
3. Rights Plans are one of the most powerful antitakeover defenses available to a target company. See generally Randall S. Thomas, Judicial Review of Defensive Tactics in Proxy Contests: When Is Using a Rights Plan Right?, 46 Vand. L. Rev. 503 (1993). They were originally developed to deter two-tiered front-end-loaded tender offers that coerced shareholders into tendering into the offer for fear of receiving a poor price for their shares in the back end of the transaction. See Moran v. Household Int'l, Inc., 500 A.2d 1346, 1356 (Del. 1985). Subsequently, their use has spread to precluding shareholders from accepting all-cash, all-shares premium-priced tender offers. From the viewpoint of target management, one very important advantage of Rights Plans is that they can be adopted without shareholder approval.
4. For recent reports on labor's activism in its role as a shareholder, see Aaron Bernstein, Labor Flexes Its Muscles - As a Stockholder, Bus. Wk., July 18, 1994, at 79 (stating that union-mounted proxy fights have quadrupled since 1992);
5. David Cay Johnston, Teamsters Are Challenging GE Chiefs Compensation, N.Y. Times, Mar. 3, 1997, at D2 (discussing Teamster's pension fund's placement of shareholder resolutions in GE proxy statement for 1997 annual meeting to cap executive base salaries of top five GE executives at one million dollars);
6. Paul Sweeney, Clash By Proxy, Across The Board, May 1996, at 21 (discussing labor union activism during 1996 proxy season);
7. Frank Swoboda, AFL-CIO Changing Its Tactics; Union To Expand Advertising, Corporate Campaigns Against Employers, Wash. Post, Feb. 20, 1997, at C2 (announcing AFL-CIO plans to increase stockholder campaigns against range of employers in 1997 proxy season). These labor groups also occasionally have launched their own solicitations to force change more directly. See, e.g., United Mine Workers of Am. v. Pittston Co., Fed. Sec. L. Rep. (CCH) ¶ 94, 946 (D.D.C. Nov. 24, 1989) (discussing labor union solicitation of proxies to obtain shareholder approval of its proposals without using Rule 14a-8).
8. For a more complete discussion of labor's current shareholder initiatives, see Stewart J. Schwab & Randall S. Thomas, Reinventing Corporate Governance: Shareholder Activism By Labor Unions, 96 Mich. L. Rev. (forthcoming Feb. 1998).
9. One startling characteristic of the current labor actions is the number of labor-sponsored independent solicitations of shareholders seeking shareholder approval of actions without resort to the company's proxy statement A number of difficult legal issues are raised by these solicitations and the company's opposition to them. For example, if the company knows that labor groups are going to solicit shareholders before the annual meeting, but the labor groups have not done so at the time the company issues its annual meeting proxy materials to shareholders, can the company send out the materials without mentioning the impending labor solicitation and then exercise discretionary authority to vote the proxy it receives back from shareholders against any labor proposals that are made at the meeting? See Randall S. Thomas & Catherine T. Dixon, Aranow & Einhorn on Proxy Contests for Corporate Control § 9.01[E][3] (3d ed. 1998) (discussing SEC rulings on scope of discretionary authority); Schwab & Thomas, supra; Idaho Power Co., SEC No-Action Letter, Mar. 13, 1996, available in 1996 WL 114545.
10. See, e.g., Judith H. Dobrzynski, Teamsters Hit a Nerve on Directors, N.Y. Times, Mar. 22, 1996, at D1 (discussing Teamsters pension fund list of 23 least valuable directors and its implications for corporate governance reform). One important question that we do not address in this Article is whether labor's shareholder proposals have a positive (or negative) effect on the target companies' performance. In research currently in progress, we are examining the impact of different sponsors' shareholder proposals on various measures of economic performance. We are also examining what factors lead shareholders to target certain companies and not others.
11. Schwab & Thomas, supra note 4.
12. Corporate campaigns have been described as multi-tactic pressure campaigns directed at a company (or companies) by a union engaged in collective bargaining, wage disputes, or the protest of workplace grievances. Id. See infra Part IV.A (further discussing corporate campaigns).
13. See Stephen Baker, The Yelping over Labor's New Tactics, Bus. Wk., Oct. 23, 1995, at 75;
14. see also Elizabeth Walpole-Hofmeister, Corporate Campaigns: Business Leaders Blast Union Tactics; House Hearings Planned for November, Daily Lab. Rep. (BNA), Sept. 22, 1995, available in Westlaw, BNA-DLR Database (reporting that American Trucking Association had sent letter to SEC asking that it change its rules to permit companies to refuse to include union-sponsored resolutions in proxy statements that are submitted in midst of corporate campaign).
15. See Letter from Daniel R. Barney, Senior Vice President & General Counsel, American Trucking Associations, to Arthur Levitt, SEC Chairman, & Steven M.N. Wallman, SEC Commissioner 1 (Sept. 21, 1995) (on file with author) [hereinafter ATA Letter]. The ATA proposes that the SEC permit companies to exclude shareholder proposals when: (a) during or within a defined period in advance of the planned start of collective bargaining at the company or of the expiration of a collective bargaining agreement (as well as during the pendency of any administrative or judicial proceedings with respect to either) or when a union organizing campaign is ongoing, imminent, or threatened; and (b) the proponent is the union or a member or retiree of the union that is engaged in such organizing or collective bargaining activities. Id.
16. We do not address specifically the merits of Rule 14a-8 itself, only its application to labor shareholder proposals.
17. The ownership variables include the fraction of shares owned by institutional holders and the fraction of shares owned by insiders.
18. Rule 14a-8(b)(2), 17 C.F.R. § 240.14a-8(b)(2) (1997).
19. See Questar Corp., Preliminary Proxy Statement, Mar. 18, 1996, at *34, available in Westlaw, EDGAR Database, Filing 96535686 (setting forth corporation's statement in opposition to United Food and Commercial Workers Union shareholder proposal seeking to get company to adopt confidential shareholder voting, in which company tells shareholders that company believes that this particular shareholder proposal is part of corporate campaign against Albertson's and all other corporations with links to Albertson's through its directors and officers);
20. see also Union Pacific Corp., Supplemental Proxy Materials, Apr. 4, 1996, at *2-3, available in Westlaw, EDGAR Database, Filing 96544406 (corporation's letter to its shareholders urging them not to sign any proxy card from Teamsters labor union that might be sent to them as part of solicitation effort by union).
21. See Schwab & Thomas, supra note 4, for many other examples of press coverage of these contests.
22. Id.
23. See William W. Bratton & Joseph A. McCahery, Regulatory Competition, Regulatory Capture, and Corporate Self-Regulation, 73 N.C. L. Rev. 1861, 1906 (1995);
24. Patrick S. McGurn, Growth of Union Activism Is Byproduct of 1980s, IRRC Corp. Governance Bull., Jan./Feb. 1994, at 5, 5. This was not the first time that labor groups had used Rule 14a-8. In the early 1980s, the American Airlines pilots' union (and some other labor groups) had used it for some very specialized purposes. Telephone Interview with William Morley, Senior SEC Official (1997).
25. See, e.g., Allen Michel & Israel Shaked, Takeover Madness: Corporate America Fights Back 244-55 (1986) (explaining "Employee Benefit Plan Defense" in context of Dan River's 1982 battle with Carl Icahn);
26. see also Vineeta Anand, Employee-Shareholders an Angry New Voice, Pensions & Investments, Apr. 4, 1994, at 26. Anand notes: [T]he surge in shareholder activism by employees and labor unions is coming back to haunt corporations that have put millions of shares in the hands of workers through employee stock ownership plans, pension funds, or stock option programs since the mid-1980s, reckoning they could count on employees as allies in hostile takeover bids. Id.
27. McGurn, supra note 16, at 5 (quoting Teamsters President Ron Carey).
28. Id.
29. See id.; see also Is Recovery in Sight? Don't Look at Payrolls, N.Y. Times, Apr. 15, 1991, at D1 (stating that foreign and domestic competition and "huge" debt contributed to rising unemployment).
30. McGurn, supra note 16, at 5.
31. Katherine Van Wezel Stone, Labor and Corporate Structure: Changing Conceptions and Emerging Possibilities, 55 U. Chi. L. Rev. 73 (1988).
32. McGurn, supra note 16, at 5.
33. Id.
34. Id.
35. Id. at 6. See generally Joseph Raphael Blasi & Douglas Lynn Kruse, The New Owners: The Mass Emergence of Employee Ownership in Public Companies and What It Means to American Business (1991) (documenting rapid growth of, and forecasting continued increases in, employee ownership of public corporations);
36. Elana Ruth Hollo, The Quiet Revolution: Employee Stock Ownership Plans and Their Influence on Corporate Governance, Labor Unions, and Future American Policy, 23 Rutgers L.J. 561 (1992) (reporting statistics on ESOP stock ownership in significant number of large American corporations).
37. Hollo, supra note 26, at 588-89.
38. Thus, the pension funds of the Sheet Metal Workers, the International Brotherhood of Electrical Workers, and the United Food and Commercial Workers Union were founding members of the Council of Institutional Investors (CII). By 1993, one-quarter of the CII's membership was union funds. McGurn, supra note 16, at 6.
39. See Bratton & McCahery, supra note 16, at 1906. For further discussion of poison pills and other antitakeover devices, see Thomas & Dixon, supra note 4, ch. 20.
40. See Bratton & McCahery, supra note 16, at 1908 n.166.
41. Ted Jaenicke, Shareholder Proposals Gain Higher Votes But Fewer Victories, IRRC Corp. Governance Bull., May/June 1991, at 1, 1.
42. See, e.g., id. at 3-4 (summarizing voting results on proposals regarding golden parachutes, classified (staggered) boards, independent directors, nominating committees, director stock holdings, cumulative voting, supermajority requirements, executive compensation, and limits on director terms).
43. See McGurn, supra note 16, at 6.
44. See infra notes 95-96 and accompanying text.
45. See McGurn, supra note 16, at 6.
46. Jayne Elizabeth Zanglein, Pensions, Proxies and Power: Recent Developments in the Use of Proxy Voting To Influence Corporate Governance, 7 Lab. Law. 771, 787 (1991).
47. McGurn, supra note 16, at 6 (quoting resolutions from IUD's Constitutional Convention in 1992).
48. Id. (quoting resolutions from IUD's Constitutional Convention).
49. See Patricia B. Limbacher, DOL Peeking Over Proxy Shoulders, Pensions & Investments, Mar. 6, 1995, at 1;
50. Patrick S. McGurn, DOL Issues New Guidelines on Proxy Voting, Active Investing, IRRC Corp. Governance Bull., July/Aug. 1994, at 1.
51. For further discussion of the impact of the 1992 amendments to the proxy rules, see generally Thomas & Dixon, supra note 4, § 6.02, and Thomas W. Briggs, Shareholder Activism and Insurgency Under the New Proxy Rules, 50 Bus. Law. 99 (1994).
52. Rule 14a-1(1)(2), 17 C.F.R. § 240.14a-1(1)(2) (1997). Under this new rule, in most circumstances a security holder who does not otherwise engage in a proxy solicitation can state how it intends to vote and its reasons for its vote, provided that the security holder makes the communication in a published or broadcast opinion, a speech in a public forum, a press release, a statement, or an advertisement Assuming compliance with the prescribed conditions, Rule 14a-8 proponents therefore may avail themselves of this provision for exempt voting announcements to influence the vote of their fellow shareholders without risking even proxy antifraud liability.
53. Rule 14a-2(b)(1), 17 C.F.R. § 240.14a-2(b)(1). There are several important restrictions attached to this qualified exemption, including the conditions that the shareholder cannot seek "directly or indirectly, either on its own or another's behalf, the power to act as proxy for a security holder," and that the shareholder cannot be a member of any Rule 13D group that has not disclosed it will not engage in a control transaction. Id.
54. Id. For further discussion of the effect of the new proxy rules on shareholder voting, see Thomas & Dixon, supra note 4, § 6.02.
55. For the full text of this bulletin, see 59 Fed. Reg. 38,860 (July 29, 1994) (codified at 29 C.F.R. pt. 2509).
56. Interpretive Bull., 29 C.F.R. § 2509.94-2 (1996).
57. Patrick S. McGurn, Labor Again Takes Lead Role in Activism, IRRC Corp. Governance Bull., Nov./Dec. 1994, at 3, 3 [hereinafter McGurn, Labor Takes Lead];
58. see also Bernstein, supra note 4, at 79 (reporting that unions accounted for 70 proxy battles and 7 of the 11 victories registered by shareholders during 1994); Patrick S. McGurn, Controversy Swirls Around Labor Unions' Shareholder Activism, IRRC Corp. Governance Bull., Jan./Feb. 1994, at 1, 3 [hereinafter McGurn, Controversy Swirls] (discussing proposals filed before actual votes taken).
59. Patrick S. McGurn, Labor, IRAA Spark Active 1995 Shareholder Campaign, IRRC Corp. Governance Bull., Nov./Dec. 1994, at 1, 1.
60. Id. at 1; McGurn, Labor Takes Lead, supra note 46, at 3.
61. McGurn, supra note 47, at 1.
62. See Rule 14a-8, 17 C.F.R. § 240.14a-8 (1997). For a more complete description of the mechanics of Rule 14a-8, see Thomas & Dixon, supra note 4, ch. 16.
63. Rule 14a-8(a), 17 C.F.R. § 240.14a-8(a).
64. Rule 14a-8(a) establishes four threshold eligibility requirements for shareholders seeking to make proposals. These requirements specify: the number of proposals a shareholder can submit; the minimum number of securities a shareholder must own to make a proposal; the latest date by which a shareholder can submit proposals; and the shareholder's attendance at the meeting to present the proposal.
65. Rules 14a-8(c)(1)-(13), 17 C.F.R. § 240.14a-8(c)(1)-(13), set forth 13 circumstances under which companies may omit proposals from their proxy materials. Management has the burden of demonstrating the validity of its view that a proposal may properly be omitted. Rule 14a-8(d), 17 C.F.R. § 240.14a-8(d).
66. Rule 14a-8(b)(1), 17 C.F.R. § 240.14a-8(b)(1).
67. Rule 14a-8(e) states that if the issuer includes a proposal and the issuer plans to also include a statement in opposition, the issuer must, no later than 30 days prior to the date when the issuer files preliminary copies of the proxy statement with the SEC, forward to the proponent a copy of the statement in opposition. If the proponent believes that the statement in opposition is false or misleading, it must promptly appeal to the SEC in writing and must provide the issuer with a copy of the appeal. Rule 14a-8(e), 17 C.F.R. § 240.14a-8(e).
68. Rule 14a-8(b)(2), 17 C.F.R. § 240.14a-8(b)(2).
69. Under Rule 14a-8(d), if management intends to omit a proposal it must submit a letter to the SEC stating its reasons at least 80 days before it files its preliminary proxy material. Submissions to the SEC must include copies of the proposal, any supporting statement received from the proponent, a statement of reasons as to why the issuer deems the omission to be proper, and, if the issuer has based its reasons for omission upon matters of law, a supporting opinion of counsel. The issuer must also forward to the proponent a copy of the statement of reasons why the issuer deems the omission of the proposal to be proper.
70. Thomas & Dixon, supra note 4, § 16.02.
71. Roosevelt v. E.I. Du Pont de Nemours & Co., 958 F.2d 416 (D.C. Cir. 1992) (holding that private cause of action exists to enforce Rule 14a-8).
72. Thomas & Dixon, supra note 4, § 16.04.
73. Rule 14a-8(c)(4), 17 C.F.R. § 240.14a-8(c)(4).
74. Rule 14a-8(c)(7), 17 C.F.R. § 240.14a-8(c)(7). We should also mention that there are other grounds on which the company can seek no-action relief from the SEC. In particular, companies have sometimes been successful using Rule 14a-8(a)(4) as a grounds for excluding a labor shareholder proposal. See Thomas & Dixon, supra note 4, § 6.04.
75. See 17 C.F.R. § 240.14a-8(d) (requiring company seeking to exclude shareholder proposal to file proposal, proponent's supporting statement, and company's statement of reasons supporting exclusion with SEC); Statement of Informal Procedures for the Rendering of Staff Advice with Respect to Shareholder Proposals, Exchange Act Release No. 12,599, [1976-1977 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 80,635, at 86,604 (July 7, 1976) (describing SEC staff procedures with respect to reviewing and commenting on company statements regarding proposal exclusion).
76. Patrick S. McGurn, SEC Holds Key to Labor Union Shareholder Proposals, IRRC Corp. Governance Bull., Jan./Feb. 1994, at 9.
77. Schwab & Thomas, supra note 4.
78. As now-Justice Ginsburg has described shareholders' informational rights: "Access to management proxy solicitations to sound out management views and to communicate with other shareholders on matters of major import is a right informational in character, properly derived from section 14(a) . . . ." Roosevelt v. E.I. Du Pont de Nemours & Co., 958 F.2d 416, 421 (D.C. Cir. 1992). Congress recognized the need to provide not only for disclosure of matters management intended to present to a vote, but also for shareholders to be given a "reasonable opportunity to present their own proposals and views to their fellow security holders." S. Rep. No. 85-700, at 3 (1957).
79. This exclusion was confined to personal claims or grievances against the issuer or its management prior to its amendment in 1972. The 1972 amendment extended it to cover personal claims or grievances against any person. See Adoption of Amendments to Rules 14a-5 and 14a-8 Under the Exchange Act, Exchange Act Release No. 9784, [1972-1973 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 78,997, at 82,149 (Sept. 22, 1972). In 1983, the Commission amended subsection (c)(3) (now (c)(4)) to add the following clause: "or if it [the proposal] is designed to result in a benefit to the proponent or to further a personal interest, which benefit or interest is not shared with the other security holders at large . . . ."
80. Amendments to Rule 14a-8 Under the Securities Exchange Act of 1934 Relating to Proposals by Security Holders, Exchange Act Release No. 20,091, [1983-1984 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 83,417, at 86,205 (Aug. 16, 1983). Modified from the version initially proposed in 1982 to avoid disqualification of a shareholder proposal based on the proponent's personal commitment to, or intellectual or emotional interest in, the subject-matter, this amendment was "intended to clarify the scope of the exclusionary paragraph and to insure that the security holder proposal process would not be abused by proponents attempting to achieve personal ends that are not necessarily in the common interest of the issuer's shareholders generally." Id. at 86,205.
81. In codifying this exclusionary ground in 1948, the SEC noted: [I]n a few cases security holders have abused this privilege [the right to submit shareholder proposals] by using the rule to achieve personal ends which are not necessarily in the common interest of the issuer's security holders generally. In order to prevent such abuse of the rule, but without unduly restricting the privilege which it grants to security holders, the amendment places reasonable limitations upon the submission of such proposals. Adoption of Amendments to Proxy Rules, Exchange Act Release No. 4185, 13 Fed. Reg. 6678, 6679 (Nov. 5, 1948).
82. See Proposed Amendments to Rule 14a-8 Under the Securities Exchange Act of 1934 Relating to Proposals by Security Holders, Exchange Act Release No. 19,135, [1982 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 83,262, at 85,352 (Oct. 14, 1982). Tracing the evolution of this interpretive approach, the SEC explained that the staff originally had sought to reduce the subjectivity of the (c)(4) analysis by interpreting it narrowly to compel issuers to demonstrate a "direct relationship between the subject matter of a proposal and the proponent's personal claim or grievance." Id. at 83,351. Such a relationship was apparent where the proposal, or its supporting statement, revealed on its face the existence of a personal grievance. Id. at 85,351-52. In the release, the staff found the following: [I]ncreasingly sophisticated proponents and their counsel began to draft proposals in broad terms so that they might be of general interest to all security holders, rather than in narrow terms reflecting the personal interests that motivated their submission. A contemporaneous development was the increased use of the security holder proposal process as a tool to bring pressure upon issuers to serve some personal interest of the proponent. These developments limited the efficacy of the staff's efforts to establish an objective test for determining the applicability of the rule and, consequently, a more subjective analysis has resulted. This more subjective analysis has been reflected in letters which indicated that a proposal, despite its being drafted in such a way that it might relate to matters which may be of general interest to all security holders, properly may be excluded under paragraph (c)(4), if it is clear from the facts presented by the issuer that the proponent is using the proposal as a tactic designed to redress a personal grievance or further a personal interest. Id. at 85,352.
83. See id. at 85,351.
84. Louis Loss & Joel Seligman, 4 Securities Regulation 2020 (1990).
85. See, e.g., Phillips-Van Heusen Corp., SEC No-Action Letter, Mar. 11, 1997, at *12, available in LEXIS, Fedsec Library, Noact File (alleging that union's proposal was motivated by desire to foster organizing campaign of its affiliate); Dow Jones & Co., SEC No-Action Letter, Feb. 10, 1997, at *12, available in LEXIS, Fedsec Library, Noact File (alleging union's proposal was submitted to pressure management to concede in contract negotiations); Frontier Corp., SEC No-Action Letter, Jan. 23, 1997, at *3, available in LEXIS, Fedsec Library, Noact File (same).
86. See Securities: SEC Streamlining Its Handling of No-Action Letters, Quinn Says, Daily Rep. for Executives (BNA), June 15, 1995, available in LEXIS, News Library, Drexec File [hereinafter SEC Streamlining]
87. (reporting remarks of Linda C. Quinn, director of SEC's Division of Corporation Finance, at 7th Annual General Counsel Conference, June 13, 1995).
88. Linda C. Quinn, 7th Annual General Counsel Conference, 1995. Id. (reporting remarks of Quinn).
89. See id. (reporting remarks of Quinn).
90. See McGurn, supra note 64, at 9; Anand, supra note 17, at 26; Leslie Seism, Labor Unions Increasingly Initiate Proxy Proposals, Wall St. J., Mar. 1, 1994, at C1.
91. See Daniel M. Taitz & Lance J. Gotko, Shareholder Communications, 976 PLI/Corp. 133, 168 (1997) (reporting SEC's intent to require "smoking gun" physical evidence to show abuse of proposal process); Dow Jones & Co., SEC No-Action Letter, Feb. 8, 1995, at *2, available in LEXIS, Fedsec Library, Noact File (noting absence of documented evidence from union proponent, "acknowledging that [its] proposal was intended to enhance the union's bargaining power" as reason for staff belief that (c)(4) could not be relied upon to exclude proposal).
92. See McGurn, supra note 64, at 10 (quoting William E. Morley, senior associate director of SEC's Division of Corporation Finance).
93. McGurn, supra note 64, at 9 (comparing opposite SEC responses to similar arguments for omission presented by Dow Jones and Consolidated Freightways respectively); Anand, supra note 17, at 27 (comparing opposite fates of similar requests for no-action relief made by Motorola and Southwestern Bell respectively). In some cases, the SEC's approach seems easily defensible. For example, the SEC refused to concur that Consolidated Freightways, Inc. could exclude from its proxy materials a labor shareholder proposal requesting that the board of directors take any necessary steps to remove the requirement that 80% of the outstanding shares be voted to change the structure of the board. Consolidated Freightways, Inc., SEC No-Action Letter, Jan. 25, 1995, at *32, available in 1995 WL 28836. The company contended that the union was actively pursuing a corporate campaign designed to "harass and pressure" the company in connection with the union's efforts to organize at the company's non-union operating subsidiaries, and in order to achieve other labor-related goals. Id. at *1. The proponent countered that there was no possible connection between the elimination of a super-majority requirement and the advancement of the union's interests in organizing or collective bargaining. The proponent emphasized that, by insisting that the employee-shareholders did not truly care about corporate governance issues, the company was refusing to acknowledge that the proponents had a stake in the financial future of the company equal to that of other shareholders. Id. at *21. The SEC concluded that the company had not met its burden of establishing that the proposal was submitted by the union to redress a personal claim or grievance. The proposal was thus not excludable under Rule 14a-8(c)(4). Id. at *32. In another situation, Merck & Co. was permitted to omit from its proxy materials a shareholder proposal that the company implement a policy of using construction companies whose work force is unionized. Merck & Co., Inc., SEC No-Action Letter, Feb. 7, 1994, at *7, available in 1994 WL 33556. The company argued that the proposal was designed to further the union's personal interest and was thus excludable under Rule 14a-8(c)(4). Id. at *4. Specifically, the company argued that the proposal was "designed to result in the hiring of members of the Proponent union and its affiliates . . . to the exclusion of non-union members," and that this benefit would not be shared with the company's other security holders. Id. at *5. In addition, the company contended that the union had used a variety of other tactics in the past to achieve the goal set out in the proposal. Id. The SEC concurred in the company's view that the proposal dealt with a personal interest of the labor union proponent that was not shared with the securities holders at large and thus could be omitted under the personal grievance exception. Id. at *7; see also Staff Rules on Shareholder Proposals on Labor Unions, Communications, Pay, 26 Sec. Reg. & L. Rep. (BNA) 240 (Feb. 18, 1994); Dow Jones & Co., SEC No-Action Letter, Jan. 24, 1994, available in LEXIS, Fedsec Library, Noact File (allowing omission of proposal submitted by shareholder union officials).
94. For instance, in two 1995 no-action requests the SEC did not issue a no-action letter to companies seeking to exclude these types of proposals. In the first instance, the SEC rejected Caterpillar, Inc.'s claim that it should be able to exclude two corporate governance shareholder proposals made by a labor pension fund. Caterpillar, Inc., SEC No-Action Letter, Jan. 13, 1995, at *14, available in LEXIS, Fedsec Library, Noact File. The company asserted that the proposals were excludable under Rule 14a-8(c)(4). Id. at *3. The company noted that a union related to the proponent had been on strike at several U.S. company facilities and that the union had used company stockholder meetings to air labor grievances in the past. Id. at *5. The proponent, however, argued that there was absolutely no connection between the submission of the shareholder proposals and the other matters at issue between the company and the union. Id. at *2. The SEC refused to allow the company to rely on Rule 14a-8(c)(4) as a basis for omitting the proposals, noting that the company had not met its burden of establishing that the proposals were submitted by the union to redress a personal claim or grievance. Id. at *14; see also Staff Refuses To Concur in Omission of Shareholder Proposals on Directors, 27 Sec. Reg. & L. Rep. (BNA) 197 (Jan. 27, 1995). Similarly, the SEC refused to concur that Avondale Industries could exclude from its proxy materials shareholder proposals requesting that the board of directors be declassified, that a compensation committee be created, that confidential voting be implemented, that the company redeem its Rights Plan, and that shareholders be granted greater control over changes in the company's bylaws. Avondale Indus., SEC No-Action Letter, Feb. 28, 1995, at *3, available in LEXIS, Fedsec Library, Noact File. The company argued that the proposals were not intended to advance the interests of the company's shareholders but rather to advance the union's efforts to unionize the company. Id. at *57. The company further contended that the union proponents were in fact "using the shareholder proposal process as a tool to bring pressure on the Company in connection with the Union's organization efforts." Id. at *59. The union countered that the proposals were designed to provide a general benefit to all shareholders in that they related to "empowering shareholders and holding management more accountable to the owners." Id. at *20. The union further argued that the exercise of the employees' rights of association under the National Labor Relations Act should not lead to the forfeiture of their ownership rights under the securities laws, and that employee-owners have the same rights as non-employee owners. Id. at *20-21. Finally, the union pointed out that the company's claim that the "true intention" of the union proponents was "to harass management as opposed to protecting] . . . the economic interests" of the company's shareholders lacked factual support. Id. at *21-22. The SEC found that the company had not met its burden of demonstrating that the proposals were submitted with the intent of redressing a personal claim or grievance of the union proponents and refused to conclude that the proposals were designed to result in a benefit to the union proponents uniquely. The proposals were thus not excludable under the personal grievance exception. Id. at *3. The SEC recently proposed to alter the approach it takes in applying the personal grievance exception.
95. Amendments to Rules on Shareholder Proposals, Exchange Act Release No. 34-39,093, Sept. 18, 1997, available in 1997 WL 578696. Under the proposed approach, if the proposal (including its supporting statement) is "neutral on its face," the Division will "automatically express 'no view,' rather than concur or decline to concur in [the proposal's] exclusion." Id. at *8. Thus, the Division would no longer seek to determine the motivation of the shareholder proponent in submitting a proposal neutral on its face. A company receiving a response of "no view" would be able to omit the proposal from its proxy materials if it believes it has sufficient evidence to support its contention that the neutral proposal reflects a personal grievance or special interest. This change in the administration of 14a-8(c)(4) would not affect a proposal that relates to a personal grievance or special interest on its face (i.e., is not neutral). Id.
96. Rule 14a-8(c)(7), 17 C.F.R. § 240.14a-8(c)(7) (1997).
97. See Thomas & Dixon, supra note 4, § 16.04[G].
98. Cracker Barrel Old Country Store, Inc., SEC No-Action Letter, Oct. 13, 1992, at *18, available in 1992 WL 289095.
99. New York City Employees' Retirement Sys. v. SEC, 843 F. Supp. 858 (S.D.N.Y. 1994), rev'd in part, 45 F.3d 7 (2d Cir. 1995).
100. Due to an injunction, the SEC had suspended issuing any advice with regard to the ordinary business exclusion pending the outcome of this lawsuit. See, e.g., Ken Bertsch, Court Reverses Cracker Barrel Decision; Equal Employment Resolutions in Doubt, IRRC News for Investors, Jan. 1995, at 1, 1.
101. See SEC Streamlining, supra note 73
102. (reporting remarks of Linda C. Quinn, director of SEC's Division of Corporation Finance, at 7th Annual General Counsel Conference, June 13, 1995).
103. See Bertsch, supra note 85, at 1.
104. Humana, Inc., SEC No-Action Letter, Oct. 17, 1990, at *7, available in 1990 WL 286980; see also Company May Omit Proposal that Would Require It To Recognize Specific Union, 22 Sec. Reg. & L. Rep. (BNA) 1561 (Nov. 2, 1990).
105. Humana, Inc., SEC No-Action Letter, at *1, available in 1990 WL 286980.
106. Id. at *7.
107. In another paper, one of the authors examines this question more closely. See Schwab & Thomas, supra note 4.
108. See Michael A. Calabrese, What Labor Wants: A Union Perspective on Pension Fund Shareholder Activism, Corp. Governance Advisor, Jan./Feb. 1994, at 24, 25.
109. Id. at 26.
110. Patrick S. McGurn, Labor Steps Up Use of 'Corporate Campaigns,' IRRC Corp. Governance Bull., Jan./Feb. 1994, at 7, 7.
111. United Mine Workers of Am. v. Pittston Co., Fed. Sec. L. Rep. (CCH) ¶ 94,946 (D.D.C. Nov. 24, 1989).
112. Id. at 95,267.
113. McGurn, Controversy Swirls, supra note 46, at 1.
114. Consolidated Freightways, Inc., Proxy Statement, Mar. 21, 1994, available in LEXIS, Fedsec Library, Edgarp File, Filing 94516840.
115. Scism, supra note 76, at C1 (quoting James Allen, Vice President of Consolidated Freightways).
116. William Goodling, Subcommittee Begins Review of Corporate Campaigns and Salting, Cong. Press Release, Oct. 27, 1995.
117. Elizabeth Walpole-Hofmeister, Organizing: Union 'Salts' Being Used To Apply Economic Pressure, House Panel Told, Daily Lab. Rep. (BNA), Nov. 1, 1995, available in Westlaw, BNA-DLR Database.
118. Elizabeth Walpole-Hofmeister, Organizing: Union 'Salts' Being Used To Apply Economic Pressure, House Panel Told, Daily Lab. Rep. 1995, Id.
119. Congressman Hoekstra said, "I find the idea of hiding behind either the First Amendment or the National Labor Relations Act in order to put a company out of business patently offensive. It may be legal, but that certainly doesn't make it right." Elizabeth Walpole-Hofmeister, Organizing: Union 'Salts' Being Used To Apply Economic Pressure, House Panel Told, Daily Lab. Rep. 1995, Id.
120. Elizabeth Walpole-Hofmeister, Organizing: Union 'Salts' Being Used To Apply Economic Pressure, House Panel Told, Daily Lab. Rep. 1995, Id.
121. ATA Letter, supra note 9.
122. Id. at 2 (quoting Exchange Act Release No. 4185 (Nov. 5, 1948) (interpreting Rule 14a-8's exclusion of "personal grievances")).
123. Exchange Act Release No. 4185 (1948) Id.
124. (quoting Exchange Act Release No. 4185 (interpreting Rule 14a-8's exclusion of "personal grievances")).
125. Letter from Robert Lenhard, Michael Zucker, & Ed Durkin, American Federation of State, County & Municipal Employees, AFL-CIO, to Arthur Levitt, SEC Chairman, & Steven M.N. Wallman, SEC Commissioner 6-9 (Oct. 26, 1995) (on file with author) [hereinafter AFSCME Letter]. At least one union has claimed that the ATA proposals would curtail the union's ability to engage in active monitoring of corporate management as required by the DOL. Letter from Frank Hanley, General President, International Union of Operating Engineers, to Arthur Levitt, SEC Chairman, & Steven M.N. Wallman, SEC Commissioner (Nov. 8, 1995) (on file with author).
126. AFSCME Letter, supra note 107, at 3; Letter from William Patterson & Bartlett Naylor, Office of Corporate Affairs, International Brotherhood of Teamsters, AFL-CIO, to Arthur Levitt, SEC Chairman, & Steven M.N. Wallman, SEC Commissioner, 7-9 (Nov. 16, 1995) (on file with author) [hereinafter Teamsters Letter].
127. AFSCME Letter, supra note 107, at 5; Letter from Morton Bahr, President, Communications Workers of America, AFL-CIO, to Arthur Levitt, SEC Chairman, & Steven M.N. Wallman, SEC Commissioner 3-6 (Nov. 21, 1995) (on file with author) [hereinafter Communications Workers Letter].
128. AFSCME Letter, supra note 107, at 7; Communications Workers Letter, supra note 109, at 6-9; Letter from Donald S. Miller, Executive Director, Teachers' Retirement Board, City of New York, to Arthur Levitt, SEC Chairman, & Steven M.N. Wallman, SEC Commissioner 1 (Nov. 21, 1995) (on file with author); Teamsters Letter, supra note 108, at 10-12.
129. AFSCME Letter, supra note 107, at 8-10.
130. Letter from Sarah A.B. Teslik, Executive Director, Council of Institutional Investors, to Arthur Levitt, SEC Chairman 2 (Nov. 14, 1995) (on file with author).
131. Communication Workers Letter, supra note 109, at 10-11.
132. See supra note 66 and accompanying text. Companies thus bear the burden of demonstrating that an otherwise acceptable proposal should be kept off the ballot because it falls within one of Rule 14a-8's substantive exclusions.
133. We chose 1994 as our sample year because the ATA Letter focused on current labor proposals. The 1992 proxy rule amendments are widely viewed as having facilitated shareholder communication and collective action on shareholder proposals. We wanted to use data from the period after the institution of these changes so that we could examine the issues raised by the ATA under the current regulatory regime. The 1994 proxy season was long enough after the proxy rule changes to insure that shareholder proponents were aware of them.
134. Checklist of 1994 Shareholder Proposals, IRRC Corp. Governance Bull., July/Aug. 1994, at 17, 17-31;
135. Checklist of 1994 Shareholder Proposals, IRRC Corp. Governance Bull., Jan./Feb. 1994, at 22, 22-32.
136. See infra p. 74.
137. These categorizations are the same as those used by Jonathan M. Karpoff et al., Corporate Governance and Shareholder Initiatives: Empirical Evidence, 42 J. Fin. Econ. 365 (1996).
138. The five most popular board composition issues are repealing a classified board (37), imposing board inclusiveness (15), implementing an independent nominating committee (11), implementing an independent compensation committee (7), and limiting director tenure (6).
139. The two most popular compensation-related issues are capping executive pay (43) and disclosing executive compensation (15).
140. The two most popular voting issues involve cumulative voting (34) and confidential voting (24).
141. The most frequently occurring items involving miscellaneous issues are rotating the annual meeting location (4), disclosing political contributions (4), imposing political nonpartisanship (4), and changing the annual meeting date (3).
142. External corporate governance issues exclusively involve voting on poison pill provisions.
143. See infra p. 75.
144. To the best of our knowledge, the shareholders placed in the individual category are unaffiliated and not acting on behalf of labor groups. However, it is possible that some of these proposals should be treated as labor proposals and grouped with the labor union proposals. See infra Part V.C.
145. See Rule 14a-8(c)(7), 17 C.F.R. § 240.14a-8(c)(7) (1997).
146. See Rule 14a-8(c)(4), 17 C.F.R. § 240.14a-8(c)(4).
147. See Infra p. 76.
148. See infra p. 78.
149. See ATA Letter, supra note 9, at 3 n.3. The results for the 1995 proposals included in Table 4 are not strictly comparable to the 1994 results reported in the remainder of the paper. However, because the ATA only identified a small number of "conflict of interest" proposals, we include them in the table in order to calculate some measures of statistical significance. In addition to the proposals shown in Table 4, the ATA identified an executive compensation proposal at Dow Jones & Co. All of the other proposals were "Internal Corporate Governance" proposals. In order to make meaningful statistical comparisons, we focused on comparisons between different sponsors' proposals within the "Internal Corporate Governance" category. The Dow Jones & Co. proposal at issue received 2% of the favorable votes. The average for all executive compensation proposals was 12.8%. See Table 3, infra p. 76.
150. The values of the t-statistics are as follows: (1) ATA subsample vs. all other internal corporate governance proposals: 0.39; (2) ATA subsample vs. all other labor internal corporate governance proposals: -0.75; (3) ATA subsample vs. public institutions, internal corporate governance proposals: 0.39; (4) ATA subsample vs. private institutions, internal corporate governance proposals: 1.74 (significant at the 20% level of confidence); and (5) ATA subsample vs. individuals, internal corporate governance proposals: 0.71.
151. In particular, see James A. Brickley et al., Corporate Voting: Evidence from Charter Amendment Proposals, 1 J. Corp. Fin. 5, 21-22 tbl. 3 (1994) (finding positive relationship between insider ownership and votes cast for management antitakeover proposals);
152. James A. Brickley et al., Ownership Structure and Voting on Antitakeover Amendments, 20 J. Fin. Econ. 267, 272 tbl. 1 (1988) (finding significant relationship between institutional shareholder ownership and votes cast against management proposals).
153. See Harold Demsetz & Kenneth Lehn, The Structure of Corporate Ownership: Causes and Consequences, 93 J. Pol. Econ. 1155, 1163 (1985) (providing similar treatment of this variable).
154. See infra p. 79.
155. We considered including an additional variable for stock ownership by the proponent of each proposal. This variable would eliminate any possibility that our results would be biased in favor of proposals made by larger shareholders that hold a greater number of shares than smaller holders. We cannot determine in many cases how many shares were held by the shareholder proponent because companies frequently do not disclose this information. However, we do not believe that these values would be large enough to seriously bias our results. In the cases where we determined (by looking at SEC no-action letter enclosures) the number of shares held by the proponents, their percentage ownership levels were below one percent of the company's stock. Finally, it bears repeating that we are seeking to determine all shareholders' interest in a proposal. The fact that a proponent has made a proposal in which it is interested in the outcome does not mean it no longer has an interest as a shareholder. It certainly continues to be taxed by the company to pay for its pro rata share of the costs associated with the proposal.