POSTSEASON REPORT 2007 SHAREHOLDER PROPOSAL PROGRAMS & OTHER SHAREOWNERSHIP INITIATIVES OF THE NEW YORK CITY PENSION FUNDS & RETIREMENT SYSTEMS

Executive Summary

Program Development Process
The Pension Policy Division of the New York City Comptroller’s Office develops and implements the shareholder proposal programs of the five New York City pension funds and retirement systems. Consistent with the fiduciary obligations of the funds’ and systems’ trustees, the programs are aimed at advancing corporate governance, and corporate social and environmental responsibility reforms at selected companies in which the funds and systems are shareowners. The programs are first approved by the New York City Comptroller and subsequently presented by the Pension Policy Division to the Proxy Committee of each fund and system for review and approval. The Proxy Committee acts on behalf of its respective Board of Trustees.

The five New York City pension funds and retirement systems are:

New York City Board of Education Retirement System (BERS)
New York City Employees’ Retirement System (NYCERS)
New York City Fire Department Pension Fund (Fire)
New York City Police Pension Fund (Police)
New York City Teachers’ Retirement System (TRS)

The 2007 Programs
In 2007, New York City Comptroller William C, Thompson, Jr., on behalf of the Boards of Trustees of the New York City pension funds, submitted shareholder proposals on corporate governance issues to 32 companies requesting their boards of directors to adopt one or more of eight reforms; and shareholder proposals on fourteen specific corporate social and environmental responsibility concerns to 76 companies, requesting boards of directors either to adopt appropriate policies or to issue reports disclosing actions they took or are taking to address reported problems and to mitigate related risks.

Corporate Governance Proposals
The 2007 corporate governance programs included: a proposal for adoption of stronger criteria of director independence for members of board audit and compensation committees; a proposal for adoption of a board policy for addressing shareholder proposals that win majority votes; proposed adoption of a resolution to repeal the classified structure of boards of directors and to establish annual elections of all directors; a proposal for adoption of a policy requiring that a significant portion of future stock options granted to senior executives be performance-based; a proposal for adoption of a pay-for-superior performance standard in company executive compensation plans for senior executives; a proposed by-law amendment to establish a majority vote standard for director elections; and a proposal for adoption of a policy to allow shareholders an advisory vote to ratify the compensation of named executive officers.

Summary of Results
The Comptroller’s 2007 corporate governance proposals met with considerable success. Proposals were adopted by the board of directors at ten companies; and shareholder support for proposals was strong, with some proposals winning majority votes at 11 companies.
 
The proposal which sought the repeal of the classified structure of boards of directors and called for annual election of all directors was adopted by the board of directors at Blockbuster, Inc.; and won majority votes at the following five companies: Axcelis Technologies (91.4 percent) (subsequently adopted), Cumulus Media (60.6 percent), O’Charley’s Inc. (90.4 percent), Neurocrine Biosciences (55 percent), and Ultratech, Inc. (65.9 percent).

The proposal which called for the adoption of a pay-for-superior performance standard in company executive compensation plans for senior executives was supported by a 55.2 percent majority vote at Credence Systems and 53.3 percent at Par Pharmaceuticals. The proposal which sought the adoption of stronger criteria of director independence for members of board compensation committees was substantively adopted by the boards of directors at Packeteer Inc.; fully adopted at Cell Genesys, Inc.; and won a majority vote of 52.1 percent at Clear Channel.

The proposal for board adoption of a by-law amendment to establish a majority vote standard for director election was most successful. The proposal was submitted to nine companies. It was adopted by the boards of directors at six: Teradyne, Inc., Cooper Tire & Rubber Company, Lexmark Int’l, Rigel Pharmaceuticals, Medicis Pharmaceuticals and Journal Register Company; and won majority vote of 66.1 percent at Lear Corp.

Finally, the proposal for the adoption of a policy to allow shareholders an advisory vote to ratify the compensation of named executive officers won majority votes of 57 percent at Blockbuster Inc., the first ever majority vote in support of this proposal since it was first introduced in the U.S. by the American Federation of State, County and Municipal Employees’ (AFSCME) pension fund in 2006; and 56.8 percent at Par Pharmaceuticals.

At the annual meeting of Blockbuster, Inc., which was held on May 9, 2007, the Board of Directors gave no indication that it intended to take any action in response to the 57 percent majority vote of the company’s shareowners. As a result of the Board’s inaction, on September 7, 2007, Comptroller Thompson sent a letter (Attachment #1) to the Board of Directors asking to be informed of the action(s) the Board has taken, or intends to take, to address the proposal given its approval by a majority vote of the shareholders. Referring to the majority vote of the shareholders, Comptroller Thompson cautioned that “a board’s failure to communicate accordingly could reasonably be perceived as indifference and a lack of accountability to the shareholders—a perception that could trigger investor reactions, such as the withholding of votes in the election of offending directors.”
 
Corporate Social and Environmental Responsibility Proposals
Proposals regarding corporate social and environmental responsibility issues were submitted to 76 companies, requesting either board adoption of a specific policy or issuance of reports disclosing board policy or actions on 14 specific issues.

The corporate social and environmental responsibility program included proposals asking companies to take one or more of the following actions: implement the International Labor Organization (ILO) and UN Human Rights Norms in their international operations, and allow for independent monitoring of compliance; issue a sustainability report [i.e. disclosing social, environmental, and economic performance]; implement the MacBride Principles and allow for independent monitoring of compliance; adopt an explicit prohibition of work-place discrimination based on sexual orientation and gender identity;  report on company policy to prevent negative racial and ethnic stereotyping in products;  report on efforts to reduce carbon dioxide and other emissions from existing and proposed power plants; disclose political contributions; report on the environmental impacts of operations in Indonesia; review and report on company security arrangements with the Indonesian government and security forces; report on company policy and procedures regarding company assessment of the adequacy of host countries’ standards to protect human health, the environment, and company reputation; report to the shareholders any new initiatives instituted by management to address specific health, environmental and social concerns of survivors in Bhopal, India; institute policies to help protect freedom of access to the Internet; report on the negative social and reputational impacts of reported and known cases of management non-compliance with ILO Conventions and company legal and regulatory controls; and report on policies and procedures for minimizing customer exposure to toxic substances and hazardous components in marketed products.

Summary of Results
Proposals were adopted by the boards of directors at 28 companies; and investor support for some proposals trended upward, with a particular proposal receiving the support of a majority of the votes cast at one company.
 
The proposal which called on companies to implement the ILO and UN Human Rights Norms in their international operations was adopted by the board of directors at Bed Bath & Beyond. The proposal which asked companies to issue a sustainability report was adopted by 9 companies: Campbell Soup, Dean Foods, General Dynamics Corp., Burlington North Santa Fe, Harrah’s Entertainment, Sprint Nextel, US Bancorp, The Williams Companies, Inc., and El Paso Corporation.

Three companies—Baker Hughes, Wal-Mart Stores, and Seagate Technology—agreed to implement the MacBride Principles and to allow independent monitoring of their compliance with the Principles. Seven companies—Robert Half Int’l, Advance Auto Parts, Wesco Int’l, First Horizon Financial, Cleveland Cliffs, Armor Holdings, and Sky West, Inc.—agreed to adopt an explicit prohibition against workplace discrimination based on sexual orientation and gender identity. This proposal won a majority vote of 52.2 percent at HCC Insurance, making it the fourth management-opposed, social proposal ever to win majority support. An earlier version of the proposal, which addressed discrimination based on sexual orientation but did not include gender identity, was resubmitted to ExxonMobil. Shareholder support for the proposal continued its upward trend, with the proposal garnering 37.7 percent of the shares voted, a 3.1 percent increase over the 2006 vote of 34.6 percent.

The proposal which asked companies to disclose their political contributions was adopted at five companies: Chevron Texaco, Limited Brands, EMC Corp., Cigna Corp., and Lockheed Martin. 

Finally, the proposal which asked selected companies in the coal and electric power industries to report on their efforts to reduce carbon dioxide and other emissions from existing and proposed power plants was adopted by the boards of directors at two companies, Sempra Energy and Ameren Corporation. Overall, investor support for the proposal continued to increase, as evidenced by a 39.5 percent favorable vote at Allegheny Energy, the highest vote ever on a shareholder proposal addressing global warming and climate change risks.

Other Initiatives Regarding Climate Change Risks
The New York City Comptroller’s Office collaborated with Ceres and the Investor Network on Climate Risk (INCR) to advocate for company disclosure of climate change risks. [(Ceres is a coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges such as global climate change.) (INCR is a network of institutional investors and financial institutions dedicated to promoting better understanding of the financial risks and investment opportunities posed by climate change. INCR was launched at the first Institutional Investor Summit on Climate Risk, which took place at the United Nations in November 2003. The membership of INCR now includes more than 50 institutional investors with collective assets of over $3.7 trillion).]

On March 19, 2007, Comptroller Thompson joined with Ceres, dozens of institutional investors, and a dozen leading U.S. companies and called on U.S. lawmakers to enact strong federal legislation to address global climate change. In a statement (Attachment #2) released at a press conference in Washington, D.C., the group outlined the business and economic rationale for climate action, and called for a national policy to reduce greenhouse gas emissions consistent with targets scientists indicate are needed to avoid the dangerous impacts of global warming. The investors and companies emphasized their concerns that the uncertainty surrounding climate policy and the lack of federal regulations may be undermining the long-term competitiveness of companies by discouraging new investments in clean energy and energy-efficient technologies.

The group called for the following three actions:

•  A mandatory national policy to contain and reduce national greenhouse gas emissions economy-wide, making the sizable, sensible, long-term cuts that scientists and climate models suggest are urgently needed to avoid the worst and most costly impacts from climate change. This approach will also enable businesses and investors to make investments with a known long-term planning horizon. Wherever possible, this policy should utilize market-based mechanism, such as cap-and-trade systems, to create an economy-wide carbon price.
  
• The realignment of incentives and other national policies to achieve climate objectives, including a range of energy and transportation policy measures to encourage deployment of new and existing technologies at the necessary scale. Only governments can create the infrastructure needed to underpin the new clean energy system.

• Guidance from the Securities and Exchange Commission (SEC) and other financial regulatory bodies to businesses and investors on what material issues related to climate change companies should disclose in their regular financial reporting, so that investors can assess more accurately the effects of climate risk and opportunity in their portfolios.  

In September 2007, Comptroller Thompson joined with Ceres, the Attorney General of the State of New York, several state treasurers and comptrollers, and other leaders of public pension funds and environmental organizations in filing a petition with the SEC. The petition asked the SEC to issue interpretive guidance clarifying the obligation of publicly traded companies under existing regulations, to disclose material information concerning the effect of climate change and regulation of greenhouse gas emissions upon their financial condition and business operations. A copy of the letter of submittal is attached (Attachment #3).

On November 15, 2007, the New York City Comptroller joined with 29 institutional investors, asset managers and Ceres in a letter (Attachment #4) to leaders in the U.S. Senate and House urging their support for a final Energy Bill that will move the U.S. toward a more sustainable and secure energy future, and directly address the issue of climate risk.

NYC Comptroller Offers Comments on SEC Proposed Rules—Proxy Access
In September 2007, Comptroller Thompson, on behalf of the Boards of Trustees of the New York City pension funds and retirement systems, sent a letter (Attachment #5) to the SEC urging the Commission not to adopt either of two proposals that the SEC issued in July 2007. The first proposal would create insurmountable hurdles for public pension funds, such as having to satisfy an unrealistic criterion of share ownership and disclosure requirements, to have a proposal for by-law amendments regarding the procedures for nominating candidates to the board of directors included in company proxy materials. The second proposal would deny shareholders the right to submit any resolution pertaining to company procedures and policies governing director elections.

 In addition, the SEC sought public comment on a number of questions about the broader structure of Rule 14a-8—the shareholder proposal rule—precipitating widespread concern among institutional investors that the SEC was considering a major curtailment of the ability of shareholders to file non-binding proposals. Comptroller Thompson urged the SEC to uphold its historical purpose as envisioned by Congress at its creation in 1934—to promote stability in the markets and, most importantly, to protect investors.

On November 19, 2007, the New York City Comptroller’s Office joined with a number of the largest US and UK pension funds and urged the SEC to postpone further action on the proposals until the Commission has its full complement of five commissioners.
 
Despite the strong appeal of institutional investors, on November 20, 2007, the SEC confirmed its intention to meet on November 28, 2007 to consider whether to adopt the second proposal, which was favored by the Republican Commissioners. On November 28, 2007, in a 3-to-1 vote along political lines, the three Republican commissioners, including the chairman, Christopher Cox, adopted the proposal to give companies the right to omit shareholder proposals regarding policies and procedures governing director elections from their proxy statements. Institutional investors denounced the Commission’s action.   

View the Entire 2007 Shareholder Proposal in pdf

Archived Shareholder Proposals in PDF

View the Entire 2007 Shareholder Proposal

View Entire 2005 Shareholder Proposal

View Entire 2004 Shareholder Proposal

View 2003 ShareHolder Proposal