Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 14, 1991 TAG: 9104110019
SECTION: BUSINESS PAGE: E-1 EDITION: METRO
SOURCE: LESLIE WAYNE THE NEW YORK TIMES
DATELINE: LENGTH: Long
Kmart Corp. has agreed to seek shareholder approval next month to phase out its "poison pill" takeover defenses within four years.
Avon Products Inc. and Sears, Roebuck & Co. have agreed to meet regularly with a shareholder advisory group.
Boise Cascade Corp. revised its rules to give dissident shareholder proposals a better chance of passing.
Other companies have instituted confidential shareholder voting and eliminated "golden parachutes" that benefit executives in the event of a takeover.
Many companies are giving in to stave off shareholder votes that threaten less favorable results, and to develop loyal shareholder followings that can help fend off takeovers.
The growing sophistication of institutional investors, whose holdings have increased to more than half the stock in American corporations, also has made companies more responsive recently. Public employee pension funds, once passive, have learned how to rally other shareholders.
"It makes absolutely no sense for a corporation to act in a hostile manner against its shareholders," said Owen Knauer, head of investor relations at Kmart. "I don't think large corporations have had much experience with this type of relationship. But our view was: `Why go through a hassle with a major shareholder? Why not talk things out.' "
At Kmart, the State of Wisconsin Investment Board submitted a 1990 proxy proposal asking that important takeover defenses require approval by shareholders, not just the board. The measure failed, getting a majority of shares voted but not the required majority of all shares. Subsequent talks yielded the plan that Kmart will present to shareholders next month.
The Wisconsin fund, with $20 billion, and the California Public Employees Retirement System, known as Calpers, with $61 billion, are the most prominent among those putting pressure on executives and boards to heed shareholder views.
The United Shareholders Association, a group founded by T. Boone Pickens, the corporate raider, to represent smaller investors, successfully has pursued the same sorts of issues as the pension funds.
Many companies are making concessions on issues that public-employee funds have pursued for years.
"We are seeing the early stages of what will be very, very healthy dialogues," said Howard Sherman, a vice president at Institutional Shareholders Services Inc., a Washington proxy advisory firm. "The two sides are looking to find some common ground and a partnership."
The funds often take aim at poorly performing corporations on the notion that as corporate governance improves so will performance. Corporations facing a hostile attack are often the most willing to talk.
Companies find it a lot cheaper to keep big shareholders happy than to protect themselves by finding new, friendly investors.
"If you take this to the logical conclusion, a corporation can create a class of patient investors through dialogue and not have to resort to the exorbitant prices of private placements and white squires," said Sherman of Institutional Shareholders Services. "This, in turn, can lower a company's cost of capital and increase profitability."
Richard Koppes, general counsel for the California employees fund, said the decline in hostile takeovers actually has enhanced the pension funds' influence at many companies.
"Things are just snowballing," he said. "The raiders are gone because the money is not there, and the power is now in the votes."
Not all companies, however, are eager to cooperate. "There are still some hard-core boards and CEOs who have that old Victorian feeling that shareholders should be seen and not heard," said John C. Wilcox, managing director at Georgeson & Co., a New York proxy solicitation firm. "There are still many directors who grew up when shareholders were passive and trusting, and that's no longer the case."
The Wisconsin Investment Board has filed proxy proposals after failing to persuade Pfizer Inc., United Technologies Corp. and United Telecommunications Inc. to alter their poison-pill provisions.
The California fund has failed to reach agreements with Hercules Inc., Northrop Corp., Scott Paper Co. and Whirlpool Corp. on a number of issues.
But the successes are significant. At Avon, which was recently under attack by a major shareholder, Chartwell Associates, that wanted greater board representation, James E. Preston, Avon's chairman, conferred closely with executives of the California fund.
The fund had failed last year to win approval for a proxy proposal seeking a shareholder advisory committee. This year, as the fund prepared to offer the proposal again, Avon agreed to a less formal arrangement, holding semi-annual meetings with several public and corporate pension funds.
"Boards are now more willing to engage in constructive dialogue with these groups," said Thomas Knight, an Avon senior vice president. "We've been through this slavish process of cleaning up our balance sheet and restoring our core business to health, and we want to reach out to our owners."
At Sears, Edward Brennan, the chief executive, pledged to meet with managers of the California fund twice a year after the fund agreed to drop a proxy proposal calling for a nine-member committee to advise the corporate board.
"We're always willing to meet with individual large shareholders," said David Shute, Sears' general counsel.
Boise Cascade accepted a proposal from the California fund that failed in a proxy vote last year. The fund wanted shares not voting to be eliminated from any proxy tallies; the board had counted them as "no" votes. When Boise's chief executive, John Fery, went to meet with the fund's managers in California after the measure's consideration last year, he "told us it made a lot of sense to him," said Koppes, the fund's lawyer.
Vincent Hannity, the Boise director of investor relations, said the company wanted to avoid another battle over the proposal this year. "If there is any way to resolve proxy issues without submitting them to shareholders, we'd prefer to do it that way," he said.
"Whenever you take a formal public position, you will have people taking the opposite position, and then you have a fight on your hands."
Shareholder groups besides the pension funds also are exerting pressure. United Shareholders has gained agreements from Baxter International Inc., Consolidated Freightways Inc., General Signal Corp., Unisys Corp. and Weyerhaeuser Co. for confidential voting and the elimination of golden parachutes.
"Five years ago, we couldn't get a phone call returned," said Ralph Whitworth, president of United Shareholders, based in Washington. "Now a lot of companies don't want to take proxies to a vote because it could cast a disparaging light on management. So they'd rather deal with us."
by CNB