Mining for Corporate Truth ; Emboldened by Progress on Accounting Standards, Reformers Push for Change across Such Issues as Worker Rights, Ecofriendliness, and Executive Pay

By Laurent Belsie writer of The Christian Science Monitor | The Christian Science Monitor, March 31, 2003 | Go to article overview

Mining for Corporate Truth ; Emboldened by Progress on Accounting Standards, Reformers Push for Change across Such Issues as Worker Rights, Ecofriendliness, and Executive Pay


Laurent Belsie writer of The Christian Science Monitor, The Christian Science Monitor


It's one cycle investors can count on: After every crash comes reform.

It happened in 18th-century Britain after the collapse of the South Sea Bubble. It happened in early 20th-century America after revelations of corporate corruption and again, with a vengeance, after the 1929 crash.

Not surprisingly, reformers are gearing up again to repair Wall Street. The only question is whether investors are mad enough this time to generate far-reaching reforms or only limited ones.

So far, Congress has passed limited changes, mostly on accounting issues. But with corporate America on the defensive, some ethicists want to limit executive pay and make boards more independent from management. Liberal reformers hope to ride investor discontent farther, expanding financial disclosure to include a closer look at environmental and labor activities.

It's not clear how much momentum these fractured movements can generate. But a key shareholder victory last fall, federal reforms about to kick in, and a level of reformist activity not seen in years all have put wind in their sails.

"It's my belief that this is the year we're going to see investors stand up and get counted," says Tim Smith, senior vice president at Walden Asset Management and president of the Social Investment Forum, a trade association for socially concerned investors.

One reason hopes for reform look so good is that stock performance in the past three years has looked so bad.

Wall Street's debacle - along with a string of revelations stretching from shady accounting practices to outright fraud - caused Congress to pass the Sarbanes-Oxley Act last year.

Now, the Securities and Exchange Commission is finalizing the rules, which reduce conflict-of-interest problems for accounting firms and tackle other accounting issues.

Activists who want to take bolder steps are buoyed by a historic victory of a shareholder resolution last November. Typically, social and environmental resolutions are symbolic events. They don't succeed if management opposes them. But at its annual meeting last fall, CBRL Group (which owns Cracker Barrel Old Country Stores) agreed to write into its employment policies an explicit ban on gay discrimination.

The move came after the nondiscrimination measure garnered 58 percent shareholder (including proxy) approval - the first time a social-issue resolution opposed by management has ever won a majority in the United States. Reformers hope the vote will energize shareholders at other companies to challenge management.

"There's a psychological hurdle or barrier that's been overcome," says Meg Voorhes, a director at the Investor Responsibility Research Center in Washington, D.C. "It makes it easier."

A wave of resolutions

So far this year, shareholders have proposed even more resolutions for corporate annual meetings - 926 - the highest in at least six years, Ms. Voorhes says.

Nearly a third of those resolutions would limit compensation for executives, including stock options, whose abuse at some corporations has caused widespread anger among investors.

Other investors are taking their grievances to the courts. Last year, they filed 224 class-action suits against a wide range of corporations from WorldCom to Tyco International, according to a new study by Stanford Law School Securities Class Action Clearinghouse. …

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