Shareowner-Sponsored Board Nominations

Investors should determine whether and under what circumstances Shareowners can nominate individuals for election to the Board or vote to remove Board Members. By doing so they can force the Board or management to take steps to address Shareowner concerns and improve the Company's financial performance.

Investors should determine how the Company handles contested Board elections.

Shareowner-Sponsored Resolutions

Investors should determine whether and under what circumstances Shareowners can submit resolutions for consideration at the Company's annual general meeting.

Shareowners are entitled to bring non-binding resolutions to a vote of the shareholders as part of the company's annual meeting process. They may bring resolutions on a wide variety of topics. U.S. SEC Rule 14a-8 governs Shareowner-sponsored resolutions. It appears to do more to protect corporations from shareowners: the SEC rule allows a corporations thirteen circumstances under which it can ignore a Shareowner's resolution. Investors, however, must understand what they can do if the Board or management fails to act in the best interests of all Shareowners. The ability to propose needed changes can prevent erosion of Shareowner value. This could pressure the Board or management to change the way they do business.

Investors need to determine how many votes are needed to pass a resolution, whether Shareowners can request a special meeting to address special concerns, and whether proposals benefit all Shareowners or just those making the proposals.

Advisory or Binding Shareowner Proposals

Investors should determine whether the Board and management are required to implement proposals that Shareowners approve.

The Company may tend to ignore those proposals that have been approved but are not binding. Investors should determine whether the Company has implemented or ignored such approved proposals before and whether there are any regulatory concerns about implementing these proposals.

Practice Question 1

True or False? A Company should have a nomination committee of Independent Board Members. The only way to nominate a new Board Member is through the nomination committee.

Correct Answer: False

Shareowners should be able to nominate individuals for election to the Board under certain circumstances.

Practice Question 2

Select the incorrect statement(s) regarding good corporate governance practices.

I. Board Members cannot have any material relationship with the Company other than as a Board Member or Shareowner of the Company.
II. Board Members cannot use Company assets.
III. If a Shareowner-approved proposal is not binding, the Company does not have to implement it.

A. I and II
B. I and III
C. I, II and III

Correct Answer: C

I. Independent Board Members cannot have any material relationship with the Company other than as a Board Members or Shareowners.
II. Board Members cannot use Company assets for personal use.
III is true. However, this would be a sign of weak corporate governance.

Practice Question 3

Which of the following are problems that an effective corporate governance system would mitigate or eliminate?

I. Proxy voting is not permitted.
II. Board Members are unable to conduct in-depth evaluations of the issues affecting the Company's business.
III. A company requires a simple two-thirds vote for passing a Shareowner resolution and a simple majority vote to pass Board-sponsored initiatives.
IV. The only way for Shareowners to submit resolutions to consider specific issues is at the Company's annual general meeting.

A. I, II and IV
B. I, III and IV
C. I, II, III and IV

Correct Answer: C

These are all warning signs of weak corporate governance.