A fix on the shareholder focus.

• Author: Sargent, Joseph
• Position: Proxy processes in corporate governance

As corporate governance heads into the millennium, look for a combination of lingering issues and technological and global developments to propel proxy campaigns.

THE 1999 PROXY SEASON was characterized by a mixture of high-profile confrontation and lower-profile conciliation. Some shareholders scored wholesale victories in their various public campaigns ranging from proxy contests to forcing companies to submit poison pills for approval. Other shareholders achieved more low-key success by successfully negotiating with companies to make gains in board contests and on other governance fronts.

Shareholders will continue to focus on these traditional governance areas as the millennium approaches, but at the same time dramatic advances in electronic proxy processes and the continued globalization of corporate governance will propel the governance movement into new and uncharted waters.

Poison pills

During the merger mania of the 1980s, scores of companies instituted poison pills as a way of insulating themselves from hostile aggressors. These devices act as an antitakeover mechanism by offering existing shareholders the right to purchase shares at a discount to dilute the holdings of a potential acquirer. Because most of these pills had terms of 10 years, the mid- 1990s saw a wave of pills that were due for renewal.

In the 1999 proxy season, companies continued to adopt or renew poison pills at a torrid pace. Through the first five months of 1999, more than 200 companies either adopted new pills or renewed existing ones. Dead-hand provisions, which allow only a board's continuing directors to redeem the pill, have become increasingly popular among companies seeking to insulate themselves from hostile overtures, despite some state court rulings invalidating such features.

When shareholders targeted a company's poison pill, it usually led to some action. The 1999 proxy season saw the success of numerous bylaw amendments aimed at removing poison pills or allowing shareholders to vote on them. Teachers Insurance Annuity Association -- College Retirement Equities Fund (TIAA-CREF), the world's largest pension system, scored two victories in the first-ever votes on shareholder resolutions to put dead-hand provisions to a shareholder vote (at Bergen Brunswig Corp. and Lubrizol Corp.).

Many of the companies that have faced shareholder scrutiny of their pills this season have adopted one or more shareholder-friendly features that will make their pills easier for shareholders to swallow. The three most popular of these features are:

1. Putting the pill up to a shareholder...