The news is bittersweet: Shareholders have come a long way, but one of the key organizations that helped individual stockholders exercise their rights is about to fold its tent.
The United Shareholders Association (USA), which has battled for improved shareholder rights for the last seven years, will disband at year-end, says Ralph Whitworth, the group’s president. The group’s mission-to reform shareholder proxy rules and stir national debate on shareholder rights-has been 90 percent accomplished, Whitworth says.
“We saw ourselves as catalysts. We wanted to set goals, get things done and then move on,” says Whitworth. “We could stay around as a watchdog group. But the only method we can use is harassment-embarrass our targets in the media. And we don’t see ourselves nipping at the heels of Corporate America indefinitely. That isn’t constructive and it was never our goal.”
To be sure, shareholders have won significant victories in the last seven years. However, small shareholders still have a long way to go. And experts believe it may be rough sledding without United Shareholders.
“This is a real blow to us,” says Nell Minow, principal of Lens Inc., a Washington, D.C.-based investment company. “Even institutional investors often relied on initiatives sponsored by USA to get their message across. This really leaves a void.”
Noteworthy achievements
To understand what USA accomplished and what remains to be done requires a bit of explanation.
When United Shareholders was founded in 1986, Wall Street was in the throes of takeover mania. And T. Boone Pickens, USA’s founder, was in the thick of the activity, making hostile runs for Gulf Oil, Unocal, Diamond Shamrock and others.
Where some shareholders won by getting premium prices for their stock, company managers often got ousted when takeovers were successful. As a result, some responded to the takeover threat by creating “golden parachutes,” which pay managers huge sums to quit; staggered boards, on which only a few directors can be ousted each year; and “poison pills,” which sabotaged bidders who came in without management’s blessing. Many corporations still employ these tactics.
But the most troubling trend was staggered voting rights, which reduced the voting rights of common shareholders and increased the voting power of a handful of company insiders. That was done by creating two classes of stock. But one class had several times the voting power of the other.
United Shareholders commissioned studies that revealed the negative effect of these corporate changes and launched a massive letter-writing campaign that ultimately resulted in an Securities and Exchange Commission prohibition against exchange offers for stock with different voting rights. The SEC ban was later overturned, but stock exchanges continue to voluntarily enforce the rule.
USA also staged a battle on the issue of shareholder communication. Until last year, SEC rules didn’t allow shareholders to talk to one another about how they planned to vote on upcoming issues. Thanks in part to a protracted lobbying effort that resulted in USA members sending more than 5,000 letters and telegrams to the SEC, the rules were changed late last year. It is now far simpler for shareholders to galvanize support for-or opposition to-corporate proposals.
Attacked excessive pay
USA also took up the issue of runaway executive pay, sponsoring studies designed to expose excessive pay packages. Last August, the government limited corporate tax deductions for pay that’s considered excessive based on a host of standards meant to measure pay and performance.
And United Shareholders launched an annual list of 50 companies that were most in need of shareholder reform. With USA’s help, initiatives were sponsored to improve shareholder rights at these companies. In the first year of the “Target 50” program, most companies didn’t bother to return USA’s calls, Whitworth notes. But by 1993, the average USA proposal got 44 percent of the votes. And of the 50 companies targeted, 22 opted to negotiate agreements with USA rather than fight.
Negotiated settlements between companies and shareholders are becoming the rule rather than the exception, adds Richard Koppes, general counsel for the California Public Employees Retirement System. And that underscores the fact that shareholder rights have progressed light-years from where they were when USA started.
But where it now costs roughly $50 for a USA member to sponsor an initiative, it usually costs upward of $5,000 to hire an attorney and sponsor an initiative on your own, Minow notes.
That could drastically reduce the number of investors willing and able to battle company managers who act without shareholder interests in mind, experts agree.
Although USA will dissolve at year-end, Whitworth wants to continue the education function. But he has not yet been able to find another group willing to accept the responsibility for handling studies and passing out information.
