Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 22, 1990 TAG: 9004190144
SECTION: BUSINESS PAGE: BUS3 EDITION: METRO
SOURCE: The Baltimore Sun
DATELINE: LENGTH: Long
On the outside, it seems corporations in the '90s may become targets of special-interest lobby groups as corporations of the '60s did.
Recently, for example, the three companies that sell most of the canned tuna in the United States said they would stop buying tuna caught in nets that also trap and kill dolphins. Three weeks ago, AT&T dropped its $50,000 annual contribution to Planned Parenthood Federation of America because of a letter-writing campaign mounted by the Christian Action Council, an anti-abortion group.
Environmentalists hailed the decision by H.J. Heinz Co., owner of the Star-Kist brand; Van Camp Seafood Co., which markets Chicken of the Sea tuna; and Bumble Bee Seafoods Inc. to buy only "dolphin-safe tuna." Heinz's action represents "the most important step for protecting dolphins since the passage of the Marine Mammal Protection Act" almost 20 years ago, said David Phillips, director of the Earth Island Institute, which has campaigned against the use of nets that drown dolphins.
The Christian Action Council, in Falls Church, Va., runs at least 400 anti-abortion centers across the country. The group has targeted four more corporations for action similar to that taken against AT&T because, in the words of council public policy director Doug Scott, "We don't think corporations should be involved in politics. We're saying put us on an even keel financially with these organizations (such as Planned Parenthood) and the debate becomes a lot easier."
On the inside, increasingly fractious public pension funds and other investment fund holders of major blocks of a company's stock - called "institutional stockholders" - are insisting on having a greater say in internal corporate decision-making.
When General Motors Corp., for example, began searching for a successor to Chairman Roger G. Smith, the California Public Employees Retirement System - the nation's largest public pension fund - asked to be briefed on details of the process.
Several times in the last year, "Calpers," as the Sacramento, Calif.-based pension fund is known, has broken the tradition that institutional stockholders always take management's side in a controversy.
Calpers has been called the most activist fund of its kind in the nation for its attempts to persuade directors at UAL Corp. and Honeywell Inc. to listen more closely to institutional stockholders' demands. At Lockheed Corp.'s annual meeting last month, Calpers became the first institutional stockholder to take a public stand against management by officially casting its vote for a new slate of directors proposed by Dallas investor Harold C. Simmons. The Simmons slate won only 40 percent of the votes cast by shareholders, according to preliminary results released recently.
The best thing for a pension fund manager to do when he thinks a company is mismanaged is to "participate in corporate governance," or internal decision-making, said Howard D. Sherman of Institutional Shareholder Services Inc., a Washington-based publishing and consulting firm.
But other experts say that when outside lobby groups and institutional stockholders get involved in decisions that rightly belong to management, the whole business community suffers.
"Between the takeover environment and political activism, we're taking away from corporate boards the ability to take the long-term view, because they're constantly being confronted with issues that have limited scope," said John J. Woloszyn, head of the securities law division at the Baltimore law firm Frank, Bernstein, Conaway & Goldman.
The social issues upon which corporations have been called to account in the past have been far from limited.
In the '60s, companies such as Dow Chemical Co. were the target of protests for manufacturing products such as napalm used in the Vietnam War.
In the '80s, companies from across the entire corporate spectrum were urged either to sever their ties with South Africa or to adhere to a code of conduct, called the Sullivan Principles, promising that subsidiaries still doing business in South Africa would not engage in racially discriminatory practices.
After the U.S. Supreme Court's decision to hand power to regulate abortion back to the states, it was only a matter of time until the abortion issue landed on the corporate threshold.
The AT&T Foundation, the philanthropic arm of American Telephone & Telegraph Co., decided to end its $50,000 in annual contributions to Planned Parenthood Federation of America after a year of "an unprecedented number of expressions of concern from employees, customers, suppliers and shareowners," the foundation president, Reynold Levy, said in a letter to Planned Parenthood in March.
Even though the AT&T contributions had been restricted to teen education programs and other programs aimed at helping families and teen-age parents, the foundation could not distinguish adequately between support for those programs and support for Planned Parenthood's increasing "abortion rights advocacy," Levy added.
While Levy did not mention the Christian Action Council in his letter, Planned Parenthood Federation President Faye Wattleton charged in a response directed to AT&T Chairman Robert E. Allen that the decision to cut off funding was prompted by that group "and other anti-abortion extremists."
"You have demonstrated that a small band of zealots can successfully harass a major corporation," Wattleton wrote.
Planned Parenthood has canceled its contract with AT&T for a new $350,000 telephone system. Supporters are also being urged to donate their AT&T stock or proxies to Planned Parenthood so that the organization "can have a greater influence over the corporation's [AT&T's] policies," according to a news release.
Issues such as abortion make corporate governance "a very complicated responsibility these days. Corporations have so many different constituencies that they must try to take into account," said William Paternotte, director of research at Alex. Brown & Sons, a Baltimore brokerage.
In addition to groups urging social action, directors must now contend with a community of institutional stockholders who are far better informed about corporate affairs and far more willing to act on that information than ever before.
One reason for the new activism of institutional stockholders is their rapid growth. From 1980 to 1989, the percentage of all U.S. stocks held by institutions rose from 29 percent to 43 percent, according to the Securities Industry Association.
A Columbia University study found that in the top 50 companies in the United States, institutional investors own 52 percent of the equity. City and state pension systems alone reportedly have $600 billion in assets.
Some institutional stockholders are so large that they can't simply sell their holdings if they disagree with management policy, said Ted Jaenicke, a senior analyst with the Investor Responsibility Research Center in Washington.
These stockholders "hold so much of the market to begin with" that "they feel they must work within management instead," Jaenicke said.
Federal law is also fueling the new activism. A series of guidelines promulgated by the U.S. Department of Labor since February 1988 says that managers of employee benefit plans have a legal or "fiduciary" duty to use extra care in voting on management issues.
"It's tough enough for directors to figure out what's best for a broadly based group of stockholders," said James J. Hanks Jr., chairman of the corporate department at the Baltimore law firm Weinberg and Green. "When you throw into that mix the interests of non-stockholders, you're asking directors to do the nearly impossible."
by CNB