Proxy Voting in Today's Corporate Climate

Management proposals usually receive the majority of votes. However, due to corporate scandals that resulted in huge losses to shareholders in 2002 and 2003, institutional and individual investors are using their proxies in an effort to make management more accountable. In addition, regulatory changes like Sarbanes-Oxley and the New York Stock Exchange listing rule changes are helping to increase management accountability.

Corporate scandals are a result of deficient corporate governance and conflicts of interest. Corporate governance refers to the relationship between management, the board of directors and the shareholders of a company. Management runs the business and is overseen by the board of directors. The board of directors, in turn, is accountable to shareholders. During the bull market of the 90s, when stock prices were high and benefiting shareholders, corporate management generally was not held accountable by boards. Ultimately, in the most extreme cases, like Enron and Tyco, shareholder value was completely destroyed by lack of management accountability.

In this post-Enron climate, corporate governance has been recognized as a cornerstone of shareholder value. The largest pension funds in the world, like CalPERS and TIAA-CREF, are taking very active positions on what were in the past "routine" or automatically approved items such as the election of directors or the ratification of auditors. Socially responsible investors like the General Board have a history of attention to a company's governance. The General Board is committed to monitoring best corporate governance practices and to voting all proxies on behalf of its participants in order to continue protecting shareholder value.

Shareholder proposals typically do not receive a majority of the votes, and in fact, often receive 10% or less of the votes cast. However, even these percentages indicate to management that there is a significant number of shareholders who are unhappy. These resolutions, often accompanied by media and consumer campaigns, can harm a company's reputation or result in a potential loss of revenue.

For institutional investors like the General Board, votes in support of our resolutions are used both to communicate shareholder concerns to corporate management and to initiate further dialogue to address these concerns.