Pension Funds Urge SEC Action on Proxy-Access Issue

March 26, 2003 ( - Attempting to spur action by Securities and Exchange Commission (SEC), five public pension funds have written to SEC Chairman William Donaldson.

Currently, the American Federation of State, County and Municipal Employees (AFSCME) has a half-dozen pending shareholder proposals seeking access to company proxies for shareholder director nominees.   In a letter to Donaldson, the public pension funds said, “continued inaction by the commission will effectively kill the possibility that these proposals will be voted on at this year’s annual meetings because of proxy material printing deadlines and other logistical issues,” according to a Dow Jones report.

The public pension fund letter was signed by:

  • The California Public Employees’ Retirement System
  • Connecticut Retirement Plans & Trust Funds
  • The State of Wisconsin Investment Board
  • The State of Michigan Retirement Systems
  • New York City Comptroller William Thompson Jr

Union Vote

AFSCME’s action stems from a staff opinion letter by the SEC’s Division of Corporation Finance allowing Citigroup Inc to omit a proposal by the union granting more sweeping shareholder proxy access shareholder proposal.    Often referred to as a “no-action letter,” the SEC communication is not legally binding, but companies routinely follow the advice offered. Shareholders and corporations have the right to appeal the staff rulings’ to the full Commission if the ruling raises a significant policy issue.

Appeal AFSCME did, offering up a binding proposal that calls on Citigroup to require inclusion on a company’s proxy statement and proxy card the name of one board candidate – if nominated by shareholders owning at least 3% of company stock . The union’s employee pension fund, currently owns 791,000 shares of Citigroup shares, or less than 1% of the bank’s outstanding shares.

Currently, only candidates that are nominated by an incumbent board of directors are included on the ballots that companies distribute to their shareholders. If shareholders want to nominate a candidate, companies are not required to mention the candidate or to include that candidate’s name on the ballot. If a shareholders’ candidate wants support, they must bear the expense of printing, distributing and collecting their own ballots, as well as their own campaign material.

AFSCME argues that such measures amount to spending large sums of money in what is essentially a proxy contest, action normally only required during hostile-takeover bids.

Until recently, the SEC staff had found that proxy access proposals, as well as other proposals related to board elections, should be included in a company’s proxy materials. AFSCME’s appeal seeks to reinstate the prior position of the staff and get a first time, formal ruling from the full Commission, according to the Dow Jones report. Five other similar proposals, submitted to Exxon Mobil, Bank of New York, Eastman Kodak, AOL Time Warner and Sears, Roebuck, would be effected by a Commissions ruling.

Public Pressure

The letter from the five pension funds said they consider the failure by the SEC to take any action on this matter “to be little more than a pocket veto by the commission.”  Additionally, “such inaction will raise further questions about the commission’s commitment to expanding the rights of shareholders and facilitating tools they can use to protect their investments,” the pension funds added.

In November, the AFSCME sent a letter to 150 public funds seeking support in initiatives giving shareholders more access to proxy statements (See  AFSCME Urges Public Fund Corp. Governance Activism ).