Excessive executive power and compensation are high on shareholders’ radar screens as the Canadian 2006 proxy season passes the mid-point. Dual-class share structures and human rights issues are also receiving a lot of attention from shareholders this year. Here are some highlights.
REINING IN RUNAWAY EXECUTIVE COMPENSATION
The Globe and Mail recently reported that CEO salaries jumped an average of 39 per cent since last year. In response, frustrated investors are turning to their proxies to send a message to compensation committees.
At the major Canadian banks proposals seeking to require shareholder approval for increases in executive compensation consistently received the highest support amidst a flurry of other shareholder proposals, winning an average of 8.6 per cent support. A proposal at National Bank of Canada seeking to terminate the 2000 Golden Parachute policy won 9.4 per cent of votes, the highest total of more than 25 proposals filed at major banks this year.
While compensation proposals inched toward double-digit territory in Canada, in the US some were heading into majority territory. For example, Amalgamated Bank’s proposal at Novellus asking the board to make a significant part of executive compensation performance related won 52 per cent of the vote.
LABOUR INVESTORS FIGHT DUAL-CLASS SHARES
One barrier to getting results like that in Canada is the common use of dual-class share structures, which give overwhelming voting power to corporate insiders. Labour investors are in the front ranks of shareholders challenging the use of multiple voting shares.
For several years, the Service Employees International Union (SEIU) Capital Stewardship Program has sought elimination of dual class shares at Magna International. This year, its proposal was omitted from the management proxy circular on a technical point. However, SEIU representative Jacob Leibovitch raised the issue from the floor of the Magna AGM. Leibovitch questioned why Magna CEO Frank Stronach can control more than 70 per cent of the company’s shareholder votes even though he has an equity stake of less than 5 per cent. The Canadian Press reported Stronach’s reply: people who buy houses near airports shouldn’t complain of the noise.
But Leibovitch isn’t convinced by the airport analogy. “Our members’ pension funds aren’t buying individual houses; these funds built and own a good chunk of the neighborhood,” says Leibovitch. “These pension funds, our members deferred wages, are the second largest pool of investment capital in the Canadian market next to the banks. Funds put billions of dollars into index securities for diversification purposes and selling individual stocks would defeat that purpose. In light of this, we will continue to file and push for change on behalf of our members and all shareholders.”
Quebecor World, another company with a dual-class share structure, came under fire from the Teamsters, who filed a proposal requesting that the Board of Directors seek approval from holders of subordinate voting shares at least every three years to continue the Company’s share structure. The proposal was supported by 5 per cent of the votes cast (with the multiple shares weighing heavily against.)
SHAREHOLDERS SEND STERN WARNING TO ALCAN ON UTKAL PROJECT
The shareholder proposal receiving the greatest support so far this year called for an independent review of Alcan’s controversial Utkal project in Kashipur, India. It received 37 per cent of the votes at the company’s April 27, 2006 AGM.
Alcan is a 45 per cent partner in the proposed bauxite mine and aluminum processing facility which faces opposition from local residents. The proposal, co-filed by the Oblats Missionnaires de Marie-Immaculée, a Roman Catholic order, and Ethical Funds, asked Alcan to sponsor an independent advisory committee to review the project and its social impacts.
According to a report from Reuters, Alcan CEO Travis Engen admitted that it was a “very troubled” project, acknowledging that several local people have died as a result of the dispute. Utkal has to satisfy a number of environmental and financial conditions and address the question of community support before its development can proceed, he said. “We as a management team, and certainly the board is not going to authorize a program in India, or anyplace else, where these kinds of questions continue to exist,” Engen said.”
Tibet resolution wins 10 per cent at Power Corporation
A shareholder resolution asking the Power Corporation to report on its human rights policy in Tibet garnered ten per cent of total votes and nearly 30 per cent of minority shareholder support. Power Corporation has a dual class share structure that gives 63 per cent of voting rights to the Desmarais family.
Power Corporation is involved in construction of a controversial railway between China and Tibet. Following the vote, Power Corporation Chairman and Co-CEO Paul Desmarais, Jr. acknowledged that Power is willing to examine existing voluntary frameworks for promoting and protecting human rights.
“The Ethical Funds Company is not asking for Power Corporation to divest from China,” said Robert Walker, Vice President of Ethical Funds. “We are asking that Power Corporation begin to systematically assess the human rights implications of its investment activity and implement a human rights policy to mitigate these risks. This is both warranted and prudent given the company’s exposure to investments in China and Tibet.”
Related proposals will be voted on at the Bombardier and Nortel AGMs in June.
Barrick Gold: Filers win EITI commitment
This proxy season has been as notable for the number of shareholder proposals that were filed and withdrawn as for those that have gone to a vote, including corporate governance proposals filed by the Toronto Carpenters pension fund on director election and executive compensation were withdrawn after successful negotiations as well as human rights and environmental proposals filed by mutual funds Ethical Funds Company and Inhance Investment Management.
At Barrick Gold, shareholders have secured a commitment regarding stakeholder engagement the company’s contentious Pascua Lama mine and persuaded Barrick to take two important steps to improve accountability to shareholders on key non-financial issues: endorse the Extractive Industry Transparency Initiative (EITI) and report on the Global Compact principles.
The Montreal-based Bâtirente pension fund filed a proposal asking Barrick Gold to endorse the EITI, an independent multi-stakeholder international initiative which enables extractive companies and host countries to define together, with the appropriate stakeholders, the best way to disclose the funds paid and received as a result of mining, gas and oil resource exploitation. Les Sœurs de Sainte-Anne du Quebec and the Ethical Funds Company filed separate resolutions related to Pascua Lama.