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As this year’s proxy season comes to an end, the continuing rise in shareholder proposals shows that investors are increasingly willing “to put their mouth where their money is,” says Bruce Goldfarb. He’s in a good position to know: Goldfarb is GC of Georgeson Shareholder Communications Inc., a proxy solicitation firm based in New York. He recently spoke with Emily Barker, editor in chief of D&O Advisor, a sibling publication of Corporate Counsel, about trends in investor activism. Q: Which shareholders are filing the most proposals right now? A: In the past couple of years, the two probably largest groups of shareholder activists in terms of shareholder proposals have been the labor unions and individual shareholders � what in the past would many times be characterized as “gadfly investors.” It’s only been in the past couple of years that proposals from individual investors were even taken seriously by corporate America. The institutional investors have changed their point of view. If the proposal touches upon a subject area of concern to institutional investors, they will vote in favor of it, regardless of the proponent. Q: Are there other notable shareholder constituencies not filing proposals? A: The public pension funds do submit shareholder proposals, but they don’t use it as their sort of first-choice tactic. They like to be more involved in discussions with the company and have a dialogue outside this process. In fact, we do see that there are more proposals in 2004 from public pension funds than there were in 2003, but it’s a significantly lower number than we’re seeing from labor unions. Q: How should boards respond to nonbinding resolutions that garner a majority of shareholder votes? A: It’s not really a one-size-fits-all situation. But if I were to generalize, it’s important that directors take seriously the resolution and ponder and contemplate the points raised by the resolution. I can’t say the board must take action based on the situation. That really is for the board in many cases to exercise their business judgment. Of course, there are consequences to not taking action, and the board needs to be aware of the consequences. Inactivity could lead to having the proxy advisory services, including ISS � Institutional Shareholder Services � recommend that their clients withhold support for the directors when they’re next up for election. So taking no action may result in lost support for the directors from the shareholders at large. Q: How many votes should a shareholder proposal get before directors need to pay attention to it? A: In light of the proposed [Securities and Exchange Commission] rule allowing for shareholder access to management proxies, the real threshold is if the proposal garners in excess of 35 percent of the shareholder vote. That’s the current proposed trigger to allow shareholder access. While 20 percent may be a take-notice number, the reason for concern would be 35 percent. Q: How is today’s atmosphere of heightened attention to corporate governance being reflected in the results of shareholder votes, if at all? A: Institutions, who have always been active in terms of voting, are much more willing to consider all sides of an issue and more willing to support proposals from shareholders, outside of proposals that come from management. We’re also seeing and hearing from individual investors that they have concerns that need to be met. However, we don’t really see the voting level from individual investors increasing that much. Q: What trends have you seen this year? A: We’re going to see an awful lot of proposals, and they’re going to be in the areas that were most prevalent in 2003. A significant amount of proposals are going to be about executive compensation issues: stock option plans, implementation of executive compensation plans, expensing stock options. We’re also seeing proposals dealing with poison pills [shareholder rights plans], whether you should redeem or vote [shares] on the issuance of a poison pill, and the classification or declassification of boards [whether all directors should be elected at the same time or have staggered terms]. The other issue [on which] labor unions have submitted a number of proposals is that companies have an independent board chairman. That is not a requirement from any of the exchanges. So these are proposals that are going beyond the [new listing requirements] from the New York Stock Exchange or Nasdaq.

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