Shareholders’ Meetings

Top executives of large corporations lead a cloistered life. Sitting in their executives suites they are far removed from the sweat and gritty reality of their workers on assembly lines, in mines or behind counters. These moguls have their private dining rooms, private washrooms, private jets, private country clubs and private meetings with their counterparts at the pinnacles of business and government.

One day a year, at the annual public shareholders’ meetings, they have to meet some people proposing changes in corporate policy. These people are part owners in the company. They are part of the asserted legitimacy of the corporation–the electorate to whom these executives are allegedly responsible. Company presidents and chief executive officers like to refer to shareholder democracy as a way of proving that they are not powers unto themselves, but instead are accountable to their stockholders.

For over half a century, critics have called this shareholder democracy a sham, a rigged election system that would make the Kremlin blush. The top executives pick the Board of Directors and perpetuate them in office under a. rubber stamp election process almost never contested and almost always receiving 99 plus percent of the voted shares. The separation of ownership (the shareholders) from control (the managers) is virtually complete, except for a takeover struggle by another company or a professional corporate raider.

One would think that top executives would not want to tamper with this sham because it has been effective, nonetheless, in projecting a legitimacy to corporate power. The head of American Telephone and Telegraph (AT & T) or Exxon can and do say that their decisions are legitimate because they are ratified or not rejected by millions of shareholders. They never mention that most of the shares are controlled by institutional holders, from banks to pension funds, and that they have many procedural locks on individual shareholders to keep them in their place.

It seems that in recent years, some civic and church groups have discovered that with a few shares they can place their proposals in the company’s proxy materials and voice their complaints and suggestions at the annual shareholders’ gathering. The controversial issues have covered nuclear power hazards, toxic waste dumps, investment in South Africa, corporate bribery and perks, consumer health and safety policy and many other claimed adverse impacts on society.

None of these activities are very costly to these companies. The Securities and Exchange Commission (SEC) reports that AT & T spent an average of $22,450 on shareholders’ proposals it accepted and only $3,740 on proposals that were rejected.

Nevertheless, many chief executives can’t take it anymore. The one day a year is too much on their nerves. The tiny opening in the shareholder door is too large. They want to close it further to shut out these pesky proposals that sometimes get press and air important matters. So when Reagan became President, they saw their chance and asked the SEC to erect some more barriers to shareholder participation through the proxy machinery.

This month the SEC gave them part of their demands. By a 3 to 1 vote the agency decided that anyone offering resolutions hold at least $1,000 worth of a company’s stock for at least one year.

In addition, the commission’s new rules require that a losing resolution has to obtain at least five percent of the vote for it to be acceptable for resubmission the following year. The SEC’s action could have been worse; it declined to accept corporate demands that management be allowed to set its own rules governing how its owners can have access to the proxy materials. In so doing the SEC actually saved top management from destroying its own self-serving myth that the shareholders are the ultimate bosses.

The reaction to the SEC’s rules is predictable. The shareholders and corporate responsibility movement will move to organize better the pooling of shares by long term small shareholders. There will be more calls and mailings by civic groups to existing stockholders to send their proxies to them. In an ironic way, the SEC’s obstructions may provoke shareholder activists into enlarging their organization and their muscle.

If, in turn, the SEC responds in three or four years with more hurdles, the results will be the same: less surface legitimacy for the public corporation and more motivation for the activists. The managers of Goliath. Inc. would have been better off to take their one unnerving day a year. and let the status quo stay undisturbed.