From: Daniel Stranahan
Dear Commissioner Cox and Secretary Morris,
The Needmor Fund, an active shareholder, is submitting comments on the above referenced Releases addressing proxy and shareholder resolution processes.
The Needmor Fund is a family foundation based out of Toledo OH, where it was founded by Duane and Virginia Stranahan 50 years ago. The Fund's original endowment was made possible by the success of the Champion Sparkplug Company, which remained in family control until 1987. Indeed, the values that helped make Champion a successful and profitable company are carried on in the Needmor Fund's commitment to communities and to social justice. Our Board firmly believes its fiduciary duty to include both the oversight and protection of our investments as well as the alignment of our investments with our charitable mission, which is to work with others for social justice. As a private foundation, we manage assets that receive favorable tax status. Since all our assets receive favorable tax status, we endeavor to employ all our assets to advance our mission, not just the small percent we pay out annually in grants. Therefore, we screen all our bond and equity portfolios, invest in community based financial institutions and exercise our right to vote proxies, and file or co-file shareholder resolutions that support our mission. At the Needmor Fund, shareholder activism is a core part of our philanthropic program.
Over the past fifteen years, The Needmor Fund has filed or co-filed upwards of 25 shareholder resolutions on issues of social justice. It is our experience that these resolutions have resulted in broad social and economic benefits. Most have received significant support (8-48% of the voting shares) from other shareowners. Shareholder resolutions educate owners about issues of which they might otherwise be ignorant, and enable them to advocate for their and the company's interests. The resolutions always result in respectful and informative dialogue between management and shareowners, and most again result in reasonable and cooperative solutions. Many are even withdrawn before a vote after agreement was reached. The resolution process gives management a chance to listen and respond to shareowners concerns before they result in negative publicity, divestment, boycotts, lawsuits or other costly actions. Many of our resolutions have positively changed corporate policies in areas of equal opportunity employment rights for all minorities, workplace accessibility, board diversity, responsible lending and executive pay. Shareholder resolutions have also helped limit damaging practices like allowing executives to sit on or select their own compensation committees or hiring auditors that have large consulting contracts with a corporation. Shareholder democracy creates checks and balances to management's self-interest, increases serious dialogue and understanding between shareowners and management, and encourages corporations to address social and environmental concerns before they threaten the bottom line.
The social and economic benefits of the current process outweigh the costs to corporations and the SEC of administering the resolution process. The current process, which insures public discussion of legitimate shareholder concerns at annual meetings, is working. The current SEC review process does a good job of eliminating inappropriate resolutions. Non-binding resolutions protect corporations from being forced to implement popular but economically unfeasible proposals. Corporations should not be allowed to “opt out” of this process. In fact, we would prefer to see more stringent efforts to encourage corporations to make their annual meetings timely and accessible and to open board nominations to shareholders. We do not believe that electronic “chat rooms” or any informal or decentralized processes, while possibly useful to enhance a corporate communication, can replace a single, central forum for public discussion of corporate policy and performance. While we understand that there are costs and, perhaps, “nuisances” to administering a fair and democratic process, we believe that this is a reasonable price to pay for the privilege and responsibility of extending corporate ownership, risk and rewards to a diverse group of shareholders. Please do not allow corporations to “opt out” of the existing process. Please do not replace the tried and true annual meeting with untested technological substitutes.
One testimony to how well the current system is working is the robust response many shareholder resolutions have received in the past few years. Non-binding, social, environmental and corporate governance resolutions have been receiving ever-larger votes, sometimes majorities. At Occidental Petroleum (OXY) for instance, The Needmor Fund, which owns a relatively small number of shares, was the lead filer on a “Say on Pay” resolution that received 48% of the vote this spring. Additional "Say on Pay" resolutions led by Needmor have also received 40% votes. The positive impact of a good resolution bears no relationship to the wealth or size of the holdings of its originator. Similarly, many good resolutions, like those on executive pay, climate change or vendor standards, begin with a small number of supporters but, over time, gain a much larger following. This is evidence that the shareholder resolution process functions as a valuable early warning system to alert corporations to relevant emerging issues. Increasing the minimum required shares to submit a resolution would seriously undermine the shareholder's authority, and is, needles to say, anti-democratic.
The SEC should stand proudly behind its own history of protecting investors. Do not tarnish your credibility as a regulator by entertaining proposals from those who consider shareholder democracy is a nuisance. The nuisance of this democracy can be gladly borne if we consider the evils its absence would unleash.