SEC Criticized for Toughening Rules on Resolutions

THE Securities and Exchange Commission has always excluded some activist shareholder proposals. But in 1993, the SEC also began allowing companies to omit shareholder resolutions from their proxy ballots on minority hiring, employment discrimination, and foreign operations.

SEC Commissioner Richard Roberts is behind the recent change, says James Melton, author of The Socially Responsive Investor and former editor of Responsive Investing News.

Commissioner Roberts says the main problem with social and political resolutions is that too many fail to address issues of economic importance to the company. The issues should be left to Congress, he has argued.

Patrick Doherty, director of investment responsibility for the New York City Comptroller's Office, however, suspects that the change was the result of corporate pressure on the SEC.

If new SEC decisions hold, shareholder campaigns supporting divestment in South Africa, fair employment in Northern Ireland, and equal opportunity and affirmative action reporting would never have gotten off the ground, critics say. Angry shareholders have sued the SEC and companies for excluding certain resolutions from ballots. In two important cases, the courts have sided with the shareholders.

On one, the SEC ruled that Cracker Barrel Old Country Store could exclude a shareholder resolution asking the company to adopt a pledge of nondiscrimination against homosexuals. Cracker Barrel had previously announced that it would not employ gay men or lesbians. The SEC said it had reconsidered its past rulings allowing such employment-related resolutions.

But US District Judge Kimba Wood struck down that decision, saying the SEC should have allowed a period of public comment. The SEC is appealing.

In 1994, the SEC allowed companies to omit all resolutions relating to investments in Burma. ``If that decision holds,'' says Paul Neuhauser, a professor of law at the University of Iowa, ``it would exclude virtually all shareholder proposals on foreign operations of American companies.''