What Happens to Votes on Stockowner Proposals?

Corporate democracy depends upon stockowners being able routinely to promote actions on the governance of the corporation. Unfortunately, managements have been able to ignore votes on stockowner proposals, essentially doing whatever they choose notwithstanding the shareholder vote. Bylaws are typically bereft of any provisions governing the implementation of stockowner proposals, and it is nearly impossible for stockowners to discover the results of the vote, the require standard for passage of the proposal, the board’s subsequent deliberations on a “passed” proposal, and the stockowners’ ability to enforce a “passed” proposal.

One major company, however, does disclose these procedures to the public. Occidental Petroleum Corporation started reporting the procedural requirements governing stockowner proposals in 2003 when it was confronted with my proposal requesting that it do so, and Occidental has reported every year since.

Occidental’s 2007 proxy statement revealed the following:

“Legal effect of Approval. Each of the stockholder proposals set forth below is a request to the Board of Directors to consider a matter. If the proposal passes, the Board of Directors may consider, in its business judgment, whether to take the requested action or not, but it is not legally obligated to do so.”

(So much for requiring the Board actually to consider the requested action and make an explicit recorded decision, regardless of what that decision may be.)

“Board Action with Respect to Approved Proposals. It has been the practice of Occidental’s Board of Directors to consider matters that are approved by the stockholders and, if appropriate, to refer the matter to the appropriate Board committee for further study and recommendation to the full Board. Generally, this initial consideration and referral takes place at the next regularly scheduled meeting of the Board. Depending upon the complexity of the issue and the desire of the committee to seek advice from independent advisors, the committee usually reports to the full Board no later than the final meeting of the calendar year, which is usually held in early December. The final action taken by the Board with respect to the proposal and, if applicable, a timetable for implementation of the Board action, will be posted on Occidental’s web site.”

(There is no timeframe governing when the Board’s action will be posted on the website. Note that, for Occidental’s annual meetings in May, the deadline for submission of proposals is in late November. This schedule makes it impossible for a stockowner to base a proposal on the Board’s actions (or inactions) in December or later.)

“Stockowner Right to Enforce a Proposal. [G]enerally stockholder proposals are requests to consider a matter. If a proposal that is approved requests that the Board take, or refrain from taking, some action and the Board does not do so, then the stockholder may submit the same proposal for consideration at the next Annual Meeting . .  . . In the alternative, a stockholder may challenge the Board’s business judgment not to implement the proposal by commencing litigation in the Chancery Court of the State of Delaware, Occidental’s state of incorporation. Delaware law contains certain procedural requirements that must be followed before a suit may be commenced, including a requirement that, unless it would otherwise be futile, a demand be made on Occidental identifying the alleged wrongdoers, the wrongdoing allegedly perpetrated and the resultant injury to Occidental and the legal action the stockholder wants the Board to take on Occidental’s behalf.”

Occidental’s disclosures do not mention any prompt way for a stockowner to find out what the B0ard has done; or to obtain a copy of the minutes of the Board meeting at which the decision was made (a rather basic inspection right); or to appear before the Board or its committees to make a presentation in support of the proposal.

Occidental should not be the only corporation that explains management’s approach to addressing stockowner proposals; all companies should do so in the name of good corporate governance. Stockowners of other companies could seek this improved reporting by submitting a proposal similar to my 2003 Occidental proposal. Perhaps the Securities and Exchange Commission’s rules should be amended to require such reporting–and more.