Majority Vote Proposals
The Carpenters fund remains the single biggest filer on the topic in 2007, with 53 proposals filed already, and with fund officials planning to file more. Most of the funds' proposals are advisory, according to corporate affairs director Ed Durkin, requesting that boards amend company governance documents to provide for director elections by majority vote, while reserving the plurality vote standard for contested director elections.

While the text of the proposal does not deal with post-election issues, the supporting statement notes that, "with a majority vote standard in place, the board can then consider action on developing post-election procedures to address the status of directors that fail to win election."

The Carpenters fund is telling targeted companies that a combination of a majority vote standard and a post-election director resignation policy would "establish a meaningful right for shareholders to elect directors, while reserving for the board an important post-election role in determining the continued status of an unelected director." This, the fund argues, "represents a true majority vote standard."

The union fund tells ISS that the proposal has been filed for 2007 meetings at companies that have failed to address past investor support for measures seeking majority vote policies and at companies with director-resignation policies, whereby director nominees who receive more "withhold" votes than "for" votes must tender their resignation to the board, which, at its discretion, can accept or reject the offer.

More than 150 companies have since June 2005 adopted some form of a director-resignation policy, dubbed the "Pfizer" model for the company that first adopted the measure. Companies adopting the policy say it provides the board sufficient flexibility to continue meeting fiduciary requirements while, concurrently, empowering shareholders.

Resignation policies recently became more enforceable as a result of Delaware corporate law amendments that took effect in August. In addition, the American Bar Association in June revised the Model Business Corporation Act, which is the basis for most state corporate laws, to give companies and shareholders a greater ability to adopt director resignation policies. That, say policy proponents, obviates the need for boards to go beyond the Pfizer model.

While many companies adopted Pfizer policies in an attempt to satisfy shareholder concerns, labor fund officials continue to argue that such measures fail to give investors a meaningful say in corporate elections.

Companies Take Action
In recent months, an increasing number of firms have agreed to labor proponents' demands to adopt both majority voting and a director resignation policy, an approach known as the "Intel" model. Durkin reports that the Carpenters have withdrawn proposals at nine companies, including Bank of America, Deere, General Electric, Kimberly-Clark, Lehman Brothers Holdings, and Textron, after the companies agreed to change their election policies. In addition, Walt Disney, First Data, Schering-Plough, and Zimmer Holdings have agreed to adopt majority voting in response to proposals from the Sheet Metal Workers International Association (SMWIA).

The Carpenters fund also withdrew proposals at Chubb and Pitney Bowes--where shareholder approval is required for bylaw changes--when the firms agreed to put management-supported proposals to adopt majority voting on their 2007 annual meeting agendas.

Other large companies that recently instituted or announced plans to adopt majority voting include Humana, Qwest Communications, AT&T, Bristol-Myers Squibb, Lexmark, Cummins, and McKesson, according to news reports. In the past year, at least 90 companies have adopted a majority election standard, according to ISS data.

"Companies now seem to realize that this is a reasonable next step to take," Durkin said, adding he expects the number of companies to implement majority voting, and thus have proposals withdrawn, will grow.

Durkin also expects to see withdrawals on proposals filed by building trade funds at 12 Ohio-incorporated companies where plurality voting is mandated under state law. The fund is urging them to reincorporate to Delaware. Ohio lawmakers are to consider legislative changes to address the standing plurality requirement. The Ohio State Bar Association's Council of Delegates approved an amendment on Nov. 3, and the issue could come before the legislature as early as this spring. Durkin notes that these proposals were filed as a "basis for moving the issue forward."

The Carpenters fund reports that it withdrew its proposal at Wickliffe, Ohio-based Lubrizol after the company agreed to support the legislation, and SMWIA says it has withdrawn a proposal at Cincinnati Bell after reaching an "amicable resolution" with the company.

Binding Majority Vote Proposals
The Carpenters plan to file binding majority vote proposals at companies where the issue has twice been put to a vote and where average investor support amounted to more than 45 percent.

Fund officials expect there will be approximately 15 such proposals. One of these binding proposals, filed at Verizon Communications, has been withdrawn. A majority vote proposal at the telecommunications giant had received 61.3 percent support in 2006, and 43 percent support in 2005, but the company was in the process of considering a change when it received the 2007 proposal, Durkin notes. The Carpenters also withdrew a binding proposal at Marsh & McLennan, which has adopted majority voting. AFSCME has said it intends to file binding proposals, but has yet to disclose where, as this article goes to press.

Proxy Access
Another issue that is likely to receive considerable attention is proxy access. Thus far, AFSCME--and co-filers including public pension funds for New York, North Carolina, and Connecticut--has filed only one such proposal: at Hewlett-Packard. The resolution faces a no-action challenge by the company at the Securities and Exchange Commission. In a Nov. 3 letter, lawyers for Hewlett-Packard argued that a federal appeals court ruling requiring the inclusion of a similar proposal at American International Group (AIG) is not binding on agency staff and that Hewlett-Packard, a California-based company that plans to hold its annual meeting in that state, falls outside the court's jurisdiction.

The SEC has twice scheduled and cancelled meetings that would address how the AIG decision would affect future shareholder proposals on the issue. Richard Ferlauto, director of pension and benefit policy at AFSCME, has warned that the fund may sue if Hewlett-Packard seeks to omit the proxy access resolution in light of the commission's ambiguity on the subject. "If the company... attempts to omit the proposal, we will seek to enforce our rights in court," Ferlauto told ISS.

*Staff Writer Thaddeus C. Kopinski contributed to this article. A longer version of this 2007 preview article appears in the current issue of the Corporate Governance Bulletin. For ISS clients and others not receiving the Bulletin, subscriptions can be purchased by visiting the ISS Bookstore and clicking on "Newsletters."