August 21, 2007

Activism on the Rise: CalPERS Doubles Shareholder Proposals

Recently, the California Public Employees’ Retirement System announced that it had doubled the number of shareholder proposals submitted to companies in fiscal 2007, bringing the number of proposals to 33. CalPERS reports that only six out of the 33 proposals actually appeared in proxy materials, with several proposals withdrawn “mostly in response to companies’ agreement to adopt the proposed corporate governance practices.” CalPERS also noted that all six of its proposals appearing in proxy ballots received investor votes averaging over 60 percent.

CalPERS increased its proxy solicitor pool from one to three in order to campaign for more votes. Further, CalPERS reports that it stepped up “policy reform engagements” with the SEC, the NYSE, the European Union and the Tokyo Stock Exchange.

One interesting trend is that while activism by organizations such as CalPERs has certainly increased, the workload for the SEC on shareholder proposals has steadily declined over the past few years. In a speech last week, John White indicated that the Staff has received and responded to 356 no-action letter requests seeking to exclude shareholder proposals this fiscal year, compared to 370 for the same period last year. These numbers are down sharply from roughly 450 no-action requests in 2005 and 2004. Less no-action requests at the SEC no doubt signals more success on the negotiation front, and perhaps more instances of companies running shareholder proposals rather than going through the process of seeking to exclude them.

Carol Stacey Speaks on Interaction with the SEC Staff and Current Accounting Issues

Former Corp Fin Chief Accountant Carol Stacey has been on the interview circuit these days in her new role as a Vice President at the SEC Institute. In this interview with, Carol talks about such things as her perspective on communications with the SEC Staff, complexity, and the future of IFRS and convergence.

On the topic of further SEC guidance on materiality, Carol notes: “I think the staff of the SEC and potentially the commission itself will look at some other areas of materiality, as the staff has already talked publicly about doing. There are some areas that people struggle with all the time, like if you find an error in a quarter, what’s material to a quarter versus a year? That’s one area the staff is looking seriously at and they’re talking to some groups from the outside to get their views. I wouldn’t be surprised to see the staff come out with something along those lines. So far it’s been staff-level guidance in the form of staff accounting bulletins, and I wonder if the commissioners are thinking at some point about whether they need to provide guidance themselves. There have been so many calls for them to do something.”

In terms of what this sort of SEC materiality guidance might look like, Carol states: “The qualitative factors in, for instance, SAB 99, suggest to investors that if you somehow trip one of these qualitative factors, it’s material. A lot of people have struggled with that because the qualitative factors are mainly geared toward a small error being qualitatively material. And there are other situations where you could have a quantitatively larger error that’s immaterial and it could be for various reasons, such as it’s a break-even year. But there are no good quantitative factors that address that in SAB 99, so the SEC could step back and say they need more robust materiality guidance that really covers a lot more fact patterns that the one that SAB 99 covers. Maybe they won’t issue a new definition per se but more helpful guidance to help people in different situations.”

FCPA Legislation Introduced

Two members of the House of Representatives are interested in significantly raising the stakes for violations of the Foreign Corrupt Practices Act. Earlier this month, Congressman Gene Green (D-TX) and Congressman Tim Ryan (D-OH) introduced a bill that would require persons and entities to certify that they have not violated foreign corrupt practices statutes before being awarded government contracts. The bill has been referred to the House Committee on Oversight and Government Reform. The recent high profile of FCPA cases has no doubt attracted this Congressional interest, and the business implications of this legislation would be severe for the multinational companies that you typically see as the subjects of FCPA investigations.

Reputation and Communications Implications of the Whole Foods Message Board Fiasco

While the Whole Foods Markets takeover of Wild Oats Markets was put on ice yesterday by the U.S. Court of Appeals for the DC Circuit, perhaps the most notable thing to date arising from that transaction has been the revelation last month that Whole Foods CEO John Mackey had been posting anonymous messages about his company and Wild Oats Markets on a Yahoo message board.

In this podcast, Rhoda Weiss, the National Chair and CEO of the Public Relations Society of America (PRSA), provides insight on the corporate reputation and communications issues arising in the Whole Foods situation, including:

– What is the PRSA?
– How important are ethical considerations to public relations professionals in their day-to-day work and in the way they advise clients and senior management?
– What does PRSA’s Code of Ethics basically say, and how does it apply to an executive’s misuse of Internet-drive communications and social media?
– From PRSA’s standpoint, what are the ethical implications of corporate executives engaging in online discussion forums under an assumed name – particularly in discussing anything of material significance about their own companies?
– What should the recent Whole Foods situation in general tell CEOs and other corporate executives about the do’s and don’ts of using social media?
– What about the trust factor – what is the impact on the level of trust that people have in a company when a key executive is accused of wrongdoing?
– How might a company best respond when faced with “white-collar” crises that are management driven?

– Dave Lynn