Forum for shareholders

4/5/2003

After a three-year bear market and nearly two years of corporate scandals, many shareholders are in a surly mood.

With the annual-meeting season just under way, stockholders are likely to be voting on a record number of ballot issues brought by share owners, says the Investor Responsibility Research Center in Washington. Nearly 1,000 shareholder proposals had been filed at publicly traded companies as of about a week ago, compared with about 800 in all of 2002, the research group said.

This year, shareholders are seeking to put limits on top executives' pay, force companies to treat stock options as expenses when the options are granted, separate the roles of chairman and chief executive officer, and adopt a variety of social and environmental principles.

“People are looking at the accounting fiascos of the last year and a half,” said Meg Voorhes, social-issues director for the investor center. “While there has been [progress made] on board independence, some issues, [like] expensing of stock options, are still unsettled.”

Shareholders “have been emboldened now,” said Tim Smith, president of the Social Investment Forum, a Washington trade association. “They [realize] they need to stand up and be counted.”

Directors of many companies are talking with shareholder groups proposing resolutions, added Mr. Smith, also a vice president of Walden Asset Management, a division of United States Trust of Boston. “The genie is out and won't go back in the bottle.”

Proxy statements are in the mail - or will be soon - for thousands of corporate shareholder gatherings to be held in coming weeks. In northwest Ohio and southeast Michigan, shareholders of 19 public companies will be invited to meetings in the usual wide array of venues - country clubs, hotels, banquet halls, company headquarters, auditoriums, college campuses, and private clubs.

Although Toledo-area annual meetings tend to be rather tame compared with those held by the very largest companies nationally, they are not entirely without fireworks.

This year, for example, shareholders of two area bank holding companies will get to vote on contentious proposals fronted by dissident stockholders.

At Pavilion Bancorp Inc., in Adrian, parent of the Bank of Lenawee, stockholders were notified that an unidentified shareholder intends to propose the elimination of stock options, bonuses, and restricted shares for executives unless they are approved by a majority of shareholders.

The firm's proxy statement carries the shareholder's contention that “a 30 percent loss in shareholder value was experienced ... during the last two years; yet bonuses and stock options continued to be given to bank officers.”

The bank countered that its bonuses and other incentives “are well in line” with those of comparable institutions, and it noted that Pavilion's total return outperformed the Standard & Poor's 500-stock average for eight years.

Croghan Bancshares Inc., in Fremont, has faced a family of dissident shareholders for several years. Again this year, Nathan Danziger, 63, and two of his relatives have peppered the proxy statement with proposals, and Mr. Danziger is trying to get a seat on the bank holding company's board.

“We think the bank has underperformed, and it's very important for shareholders to be aware of that,” said Mr. Danziger, an agent for Northwestern Mutual Life Insurance Co. in Toledo and the owner of commercial real estate in Fremont. “We decided to be vocal.”

Mr. Danziger is asking shareholders to approve a proposal requiring each director to stand for election annually instead of every three years in staggered groups. In its proxy statement, Croghan officials urged shareholders not to vote for him. It also said he had an unwillingness to work with the board of directors and management and that he had tried four years ago to engineer a merger of the company. Croghan also argued against annual election for every director, noting that the same proposal a year ago got only 19 percent of the votes cast.

Samuel Danziger, of Miami, Nathan Danziger's brother, wants shareholders to change bylaws to require directors to own at least 2,500 shares each. Croghan responded that such a rule would be too restrictive on some board members and that the thinly traded stock is often difficult to obtain in quantity.

Samuel's son Jared, of New York, proposes restricting loans to board members other than for primary homes and cars and says director loans totaled $8 million at the end of 2001. Croghan said in its proxy that director loans are tightly regulated by the Federal Reserve and that “the company's directors should be, and have been, some of the bank's best customers.”

A proposal at United Bancshares Inc., in Columbus Grove, Ohio, is likely to be less contentious. The firm wants to reduce its board from 12 to nine members, saying it no longer needs as many directors because it recently rolled three subsidiary charters into one. The board reduction also will save money, United contends.

Rurban Financial Corp. in Defiance had its spirited meeting last year. An overflow crowd of about 200 met at Kettenring Country Club for a session that went on nearly two hours after the firm reported a number of bad loans and the defection of several top officers.

This time, Rurban will meet in a Knights of Columbus hall. “This has nothing to do with saving costs,” explained Sandra Stockhorst, vice president of investor relations. The firm simply wanted larger meeting space, she said.

Toledo-area companies seem to be luckier than many nationally. General Electric Corp., for example, is dealing with as many as 25 shareholder proposals - ranging from CEO pay issues to nuclear-power-plant safety. ExxonMobil faces 23 shareholder resolutions, and as many as 17 could be voted on when the firm meets May 28 in Texas.

About 400 proposals nationally have been filed by labor unions, about double last year's number.

The national AFL-CIO tried last week to get Toledo's largest company, Dana Corp., to consider some new proposals at its annual meeting, including separating the board chairman position from the chief executive and requiring shareholder approval of the CEO's retirement package. None made it to a vote, however.

Ms. Voorhes, of the Investor Responsibility center, said 311 CEO-pay proposals were filed as of about a week ago, up from 106 in all of last year. Those cover many measures, including expensing of stock options, she said.

More than 240 shareholder resolutions involve social and environmental issues, ranging from global warming to human rights and worker discrimination.

Two area companies did not issue proxy statements for shareholder meetings.

Cedar Fair LP isn't required to because it is a limited partnership, and Owens Corning, in Chapter 11 bankruptcy, is skipping its shareholder meeting for the third straight year.

OC's stock likely will be worthless soon anyway because the firm's bankruptcy plan calls for canceling existing stock and issuing new shares for creditors, including groups representing asbestos-injury claimants.