Electing your friends to the board isn't the only way you, as a corporate activust/dissident, might decide to use proxies. You might seek to force votes at the annual meeting, or press the board to take a stand, on a range of actions through the non-binding resolution for example: that the company will stop doing business with country X until the dictator for life in country X promises free elections.
How much of that should be allowed, and when does it become a pointless distraction that the management and incumbent board can rightly keep off the ballots?
Previous efforts by the Securities and Exchange Commission to codify principles on such points has led to the creation of rule 14a-8. Here's the URL for an outline of 14a-8 prepared by the University of Cincinnati College of Law.
http://www.law.uc.edu/CCL/34ActRls/rule14a-8.html
The present shenanigans arose over one particular provision of this rule, 14a-8(i)(8), which says specifically that a company has no obligation to present a shareholder proposal in its proxy materials if that proposal "relates to an election."
The U.S. Court of Appeals, Second Circuit, kicked over this applecart in September 2006, when it ruled in a lawsuit brought by the American Federation of State, County, and Municipal Employees against American International Group Inc. that although an issuer such as AIG can exclude rule changes that "relate to a particular election," it can't exclude rule changes that "like AFSCME's, would establish the procedural rules governing elections generally." [Emphasis added.]
The Second Circuit includes the federal district courts of Vermont, Connecticut, and New York. It seems to have gone "off the reservation" here, though. The other circuits generally understand the federal rule to mean that an issuer can exclude changes about a corporation's election rules full stop, regardless of whether their terms are "general" or "specific." By interpreting the ability to exclude narrowly, the circuit court has given shareholder activists a new target -- to try to change corporate policy by holding these meta-elections, votes about the procedures for future votes.
So the SEC has now proposed two distinct re-workings of 14a-8(i)(8). They are mutually inconsistent, but the SEC hasn't chosen between them. It has put them both out for public comment, saying, "Hey, everyone, help us decide what to do about the AFSCME case!"
In the eyes of most activists or would be activists, the SEC shouldn't do anything about the AFSCME case except embrace it.
But both of the proposals fall short of an embrace. One would allow the meta-elections, but would also set out a very restrictive set of rules about how they would be conducted. The other would disallow them completely.
Personally, I'm in favor of the third option. The SEC should reject both of its own proposals and just embrace the Second Circuit's reading, opening the doors wide (not just a crack) to meta-elections with activist intent.
Why? I'll explain tomorrow, completing this triptych.
30 September 2007
29 September 2007
Changing the Proxy Rules I
The Securities and Exchange Commission has under consideration two proposed changes to the proxy rules. Whatever change it makes will be a relatively minor adjustment to the system of "corporate governance" prevailing in the US at the moment, but there are issues of principle involved, so let's talk about this for a bit.
In fact, I'll make this a three parter, so if you're fascinated by today's entry, you'll be sure to check in tomorrow and Monday! If you're nodding off already, set the alarm for Tuesday.
For those still here: A corporation typically has a hierarchy of managers, with the C-suite at the top (CFO, COO, CEO). The managers are responsible to the board of directors, who are in some sense or other -- this is the nub -- responsible to the whole body of stockholders, the owners of the company.
The specific relations between shareholders, the board, and the management are known, generically, as "corporate governance," which I'll just abbreviate CG hereafter. Most of the CG rules are set by Delaware, where the major US corporations are generally chartered. Other states folow its lead, and any regulations at the federal levels have to build on that foundation. It is Delaware's law that requires an annual meeting, that provides for the election of directors at that meeting, that determines the issues on which the shareholders have a right to vote, and that supplies a quorum requirement.
It was a judge (technically, a vice-chancellor) in that state, Leo Strine, who in a decision handed down five years ago spelled out the reason why stockholders who disagree with the policies of a particular board of directors have a right to nominate their own alternative slate of directors and wage and campaign to elect them instead of the incumbents.
"As the nominating process circumscribes the range of choice to be made, it is a fundamental and outcome-determinative step in the election of officeholders," Strine said. "To allow for voting while maintaining a closed selection process thus renders the former an empty an empty enterprise."
So much for the foundations. Tomorrow we'll talk about what the SEC is proposing to do about the proxy/election process.
In fact, I'll make this a three parter, so if you're fascinated by today's entry, you'll be sure to check in tomorrow and Monday! If you're nodding off already, set the alarm for Tuesday.
For those still here: A corporation typically has a hierarchy of managers, with the C-suite at the top (CFO, COO, CEO). The managers are responsible to the board of directors, who are in some sense or other -- this is the nub -- responsible to the whole body of stockholders, the owners of the company.
The specific relations between shareholders, the board, and the management are known, generically, as "corporate governance," which I'll just abbreviate CG hereafter. Most of the CG rules are set by Delaware, where the major US corporations are generally chartered. Other states folow its lead, and any regulations at the federal levels have to build on that foundation. It is Delaware's law that requires an annual meeting, that provides for the election of directors at that meeting, that determines the issues on which the shareholders have a right to vote, and that supplies a quorum requirement.
It was a judge (technically, a vice-chancellor) in that state, Leo Strine, who in a decision handed down five years ago spelled out the reason why stockholders who disagree with the policies of a particular board of directors have a right to nominate their own alternative slate of directors and wage and campaign to elect them instead of the incumbents.
"As the nominating process circumscribes the range of choice to be made, it is a fundamental and outcome-determinative step in the election of officeholders," Strine said. "To allow for voting while maintaining a closed selection process thus renders the former an empty an empty enterprise."
So much for the foundations. Tomorrow we'll talk about what the SEC is proposing to do about the proxy/election process.
28 September 2007
After a brief strike
The United Auto Workers and General Motors reached an agreement Wednesday. The two day strike served like the prospect of a hanging, to focus the attention of both parties.
The gist of the agreement is this: GM wants to get out of the pension-fund management business. The UAW is willing to take over that role, given various agreements designed to smooth the transition.
The parties will create a trust, to be known as the Voluntary Employees' Beneficiary Association, or VEBA, that is expected to shift more than $50 billion worth of retiree health care obligations to the union.
From the point of view of a retiree, or a GM worker who might become a retiree at some point in the next few years, does this move in the provenance of the pension money make the stream of contracted-for payments more secure, less secure, or is it a wash? I'm not sure. It seems to me that the simply shift of the fund responsibility from one administering organization to another matters little. What matters is (a) the money coming in, (b) the money going out, and (c) the skill of the managers who handle it in the meantime.
I doubt much wil change with (c). The UAW will hire the same sort of folks to run VEBA who've beenhandling this money until now - it might even hire literally the same people to a great degree. Nor will (b) change short term. The commitments and demographics are what they are. So everything depends on (a). Will the new GM/UAW deal allow for the infusion of new cash into VEBA?
It seems to me that this is the idea, although the provisions for that infusion are rather indirect.
Wall Street loves the idea. Because it has visions of VEBA's money managers knocking at the doors of the brokerages, shouting, "puh-leeze help us make money. Puh-leez." It also has visions of Ford and newly-re-Americanized Chrysler joining the VEBA money pool too.
Come on in, the water's fine.
The gist of the agreement is this: GM wants to get out of the pension-fund management business. The UAW is willing to take over that role, given various agreements designed to smooth the transition.
The parties will create a trust, to be known as the Voluntary Employees' Beneficiary Association, or VEBA, that is expected to shift more than $50 billion worth of retiree health care obligations to the union.
From the point of view of a retiree, or a GM worker who might become a retiree at some point in the next few years, does this move in the provenance of the pension money make the stream of contracted-for payments more secure, less secure, or is it a wash? I'm not sure. It seems to me that the simply shift of the fund responsibility from one administering organization to another matters little. What matters is (a) the money coming in, (b) the money going out, and (c) the skill of the managers who handle it in the meantime.
I doubt much wil change with (c). The UAW will hire the same sort of folks to run VEBA who've beenhandling this money until now - it might even hire literally the same people to a great degree. Nor will (b) change short term. The commitments and demographics are what they are. So everything depends on (a). Will the new GM/UAW deal allow for the infusion of new cash into VEBA?
It seems to me that this is the idea, although the provisions for that infusion are rather indirect.
Wall Street loves the idea. Because it has visions of VEBA's money managers knocking at the doors of the brokerages, shouting, "puh-leeze help us make money. Puh-leez." It also has visions of Ford and newly-re-Americanized Chrysler joining the VEBA money pool too.
Come on in, the water's fine.
27 September 2007
Hung Jury
New evidence is now in confirming a widely-held hypothesis that southern California's juries will not convict a celebrity.
Yesterday, the jury that had deliberated on whether Phil Spector was guilty of the murder of Lana Clarkson informed Judge Fidler that they couldn't reach a conclusion. It appears that the final vote was 10 for "guilty," two for "not guilty."
The judge declared a mistrial. The prosecution says that it intends to try the case again. Jeopardy doesn't "attach" with a mere mistrial declaration, so double jeopardy isn't an issue. Still, most attorneys who practice criminal law will tell you that it gets harder for the prosecution on a repeat -- it's unlikely the result will be better for them.
There are exceptions, the Alger Hiss case was one of them. Just for the trip down memory lane -- Hiss stole documents from the State Department in 1938. Whittaker Chambers later produced some of them. Hiss and Chambers were part of a single CP cell in the US, funnelling such documents to the Soviets.
By 1948, when the matter became notorious in Congressional hearings, the statute of limitations had expired on any espionage charges. So when Hiss was tried, the following year, the charge was perjury -- the crime was that he had lied before the House committee when he had denied espionage.
The first trial ended in July 1949 with a hung jury. The government retried the case, and Hiss was convicted in January 1950.
One might with some plausibility attribute this difference to a change in the political atmosphere over that half-year. There may have been some sentiment among the first set of jurors that the Soviets were our ally in the recent war, so why is sharing information with them espionage exactly? If so, the sentiment was not in accord with the pertinent law. Unauthorized sharing of secrets even with the friendliest of allies is still espionage. Also, the Soviets weren't allies in 1938. Still, sentiment is always a factor in jury trials.
Perhaps over the second half of 1949 that view was fading, and the Soviets came to be seen less ambiguously as enemies in the new battle for hearts and minds, etc.
Anyway, it is a high-profile example from more than half a century ago and doesn't really affect my assessment of the prosecutions chances in a retial of Phil Spector. Slim and none.
Yesterday, the jury that had deliberated on whether Phil Spector was guilty of the murder of Lana Clarkson informed Judge Fidler that they couldn't reach a conclusion. It appears that the final vote was 10 for "guilty," two for "not guilty."
The judge declared a mistrial. The prosecution says that it intends to try the case again. Jeopardy doesn't "attach" with a mere mistrial declaration, so double jeopardy isn't an issue. Still, most attorneys who practice criminal law will tell you that it gets harder for the prosecution on a repeat -- it's unlikely the result will be better for them.
There are exceptions, the Alger Hiss case was one of them. Just for the trip down memory lane -- Hiss stole documents from the State Department in 1938. Whittaker Chambers later produced some of them. Hiss and Chambers were part of a single CP cell in the US, funnelling such documents to the Soviets.
By 1948, when the matter became notorious in Congressional hearings, the statute of limitations had expired on any espionage charges. So when Hiss was tried, the following year, the charge was perjury -- the crime was that he had lied before the House committee when he had denied espionage.
The first trial ended in July 1949 with a hung jury. The government retried the case, and Hiss was convicted in January 1950.
One might with some plausibility attribute this difference to a change in the political atmosphere over that half-year. There may have been some sentiment among the first set of jurors that the Soviets were our ally in the recent war, so why is sharing information with them espionage exactly? If so, the sentiment was not in accord with the pertinent law. Unauthorized sharing of secrets even with the friendliest of allies is still espionage. Also, the Soviets weren't allies in 1938. Still, sentiment is always a factor in jury trials.
Perhaps over the second half of 1949 that view was fading, and the Soviets came to be seen less ambiguously as enemies in the new battle for hearts and minds, etc.
Anyway, it is a high-profile example from more than half a century ago and doesn't really affect my assessment of the prosecutions chances in a retial of Phil Spector. Slim and none.
26 September 2007
collegiate gothic
I saw a neat story in the Wall Street Journal of yesterday, written by Catesby Leigh.
It concerns architecture and, in particular, the style known as "collegiate gothic." Despite the proliferation of modernist boxes on campuses, there is still an idea at large that the Ur-college building should have (Leigh's words) "picturesque asymmetries, crenellated towers, elaborate oriels, and eye-catching grostesquries."
The Hogwarts portrayed in the Harry Potter movies is prep school gothic, but it has such crucial features as the limestone and the high-ceilinged halls right.
Anyway, Leigh was writing as part of the Journal's Leisure and the Arts section, praising the architect of new construction on the campus of Princeton University. That architect is Demetri Porphyrios, who is scheduled to lecture on his designs today, in advance of the formal dedication of the new buildings tomorrow.
The new construction came about because Meg Whitman, the president and chief executive of eBay, donated milions to Princeton, and the new buildings, for both classrooms and dorms, were what the college decided to do with it.
The result? a resurrection of collegiate gothic, an "irregularly sloping landscape populated by an architectural ensemble that echoes in the imagination" and so forth.
And some of you thought there'd never be a good reason for a trip to New Jersey. Tsk.
It concerns architecture and, in particular, the style known as "collegiate gothic." Despite the proliferation of modernist boxes on campuses, there is still an idea at large that the Ur-college building should have (Leigh's words) "picturesque asymmetries, crenellated towers, elaborate oriels, and eye-catching grostesquries."
The Hogwarts portrayed in the Harry Potter movies is prep school gothic, but it has such crucial features as the limestone and the high-ceilinged halls right.
Anyway, Leigh was writing as part of the Journal's Leisure and the Arts section, praising the architect of new construction on the campus of Princeton University. That architect is Demetri Porphyrios, who is scheduled to lecture on his designs today, in advance of the formal dedication of the new buildings tomorrow.
The new construction came about because Meg Whitman, the president and chief executive of eBay, donated milions to Princeton, and the new buildings, for both classrooms and dorms, were what the college decided to do with it.
The result? a resurrection of collegiate gothic, an "irregularly sloping landscape populated by an architectural ensemble that echoes in the imagination" and so forth.
And some of you thought there'd never be a good reason for a trip to New Jersey. Tsk.
25 September 2007
Uncontrolled Growth
Our "thought for the day" comes from Michael Crichton, and from the novel that made him famous, The Andromeda Strain (1969).
"The mathematics of uncontrolled growth are frightening. A single cell of the bacterium E. coli would, under ideal circumstances, divide every twenty minutes. That is not particularly disturbing until you think about it, but the fact is that bacteria multiply geometrically: one becomes two, two become four, four become eight, and so on. In this way it can be shown that in a single day, one cell of E. coli could produce a super-colony equal in size and weight to the entire planet Earth."
The mathematics of geometrical progression is what famously freaked out the Reverend Malthus, too.
"The mathematics of uncontrolled growth are frightening. A single cell of the bacterium E. coli would, under ideal circumstances, divide every twenty minutes. That is not particularly disturbing until you think about it, but the fact is that bacteria multiply geometrically: one becomes two, two become four, four become eight, and so on. In this way it can be shown that in a single day, one cell of E. coli could produce a super-colony equal in size and weight to the entire planet Earth."
The mathematics of geometrical progression is what famously freaked out the Reverend Malthus, too.
24 September 2007
Greenspan and Clinton
Some of the most quoted passages in the book concern Greenspan's high view of Bill Clinton.
"Here was a fellow information hound and, like me, Clinton clearly enjoyed exploring ideas. I walked away impressed, yet not entirely sure what I thought. Clearly, for sheer inteligence, Bill Clinton was on a par with Richard Nixon, who, despite his obvious flaws, was the smartest president I'd met to that point. And either Clinton shared many of my views on the way the economic system was evolving and on what should be done, or he was the cleverest chameleon I'd ever encountered."
Eventually, he drops the clever chameleon theory. "I was impressed that he did not seem to be trying to fudge reality to the extent politicians ordinarily do. He was forcing himself to live in the real world on the economic outlook and monetary policy. His subsequent decision to go ahead and fight for the deficit cuts was an act of political courage."
The whole of Chapter Seven, "A Democrat's Agenda," dealing basically with the first Clinton term, gives me the impression that Greenspan was a victim of the famous Clinton charm and the strategy of triangulation that BC so often employed that charm to serve.
Clinton persuaded people like Greenspan and, say, David Gergen, that they had to help him in order to ward off the danger that lefties like James Carville or Henry Gonzalez would otherwise pose. At the same time, of course, he earned the loyalty of the Carvilles and Gonzalezes by posing as their champion against Republican wheeler-dealers like Greenspan and Gergen. So far as Greenspan was concerned, this seems to have worked perfectly, and still to be working. Cleverest chameleon, indeed.
"Here was a fellow information hound and, like me, Clinton clearly enjoyed exploring ideas. I walked away impressed, yet not entirely sure what I thought. Clearly, for sheer inteligence, Bill Clinton was on a par with Richard Nixon, who, despite his obvious flaws, was the smartest president I'd met to that point. And either Clinton shared many of my views on the way the economic system was evolving and on what should be done, or he was the cleverest chameleon I'd ever encountered."
Eventually, he drops the clever chameleon theory. "I was impressed that he did not seem to be trying to fudge reality to the extent politicians ordinarily do. He was forcing himself to live in the real world on the economic outlook and monetary policy. His subsequent decision to go ahead and fight for the deficit cuts was an act of political courage."
The whole of Chapter Seven, "A Democrat's Agenda," dealing basically with the first Clinton term, gives me the impression that Greenspan was a victim of the famous Clinton charm and the strategy of triangulation that BC so often employed that charm to serve.
Clinton persuaded people like Greenspan and, say, David Gergen, that they had to help him in order to ward off the danger that lefties like James Carville or Henry Gonzalez would otherwise pose. At the same time, of course, he earned the loyalty of the Carvilles and Gonzalezes by posing as their champion against Republican wheeler-dealers like Greenspan and Gergen. So far as Greenspan was concerned, this seems to have worked perfectly, and still to be working. Cleverest chameleon, indeed.
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