Number 3-96
September 1996

• Corporate Secretaries must assert ability to "add value"
• From the Chairman
• Commission seeks volunteers to speak "plain English"
• Membership campaign features exciting "sur-prizes"
• National committees unveil new Society publications
• Update seminar focuses on proxy, governance issues
• Some tips for preparing for the new Section 16 rules
• The 50th National Conference in pictures and words
• Middle Atlantic Chapter hosts fall "Essentials" seminar
• Commentary - A brief guide to abandoned property compliance
• Commentary - How shareholder proponents try to skirt Rule 14a-8
• Society Notes
• Promotions and New Positions

Members of the Society's 50th Anniversary Committee were honored at the National Conference moments before the world premiere of a video history of the Society was broadcast on giant screens in the hotel ballroom. From left are Penn Holsenbeck, David Smith, Richard Hays, John Goetsch, Judith Cion, Archie Bankston and Committee Chairman Gerald Burger.

Corporate Secretaries must assert ability to "add value"

Those statements provided the theme for remarks delivered at the Seattle National Conference by Gloria Santona, Vice President, Secretary and Associate General Counsel of McDonald's Corporation. Santona proceeded to describe numerous ways that corporate secretaries can and should add value within their corporations - both to enhance their companies' governance and administrative efforts and to assure the secretaries' job security at the same time.

The "adding value" theme was also at the heart of remarks delivered by John Rintamaki, Secretary of Ford Motor Company, during the Beyond the Basics seminar held in New Orleans last March. Rintamaki entitled his interactive address "Thriving in a Changing Corporate Environment" and stressed the need for today's corporate secretaries to adapt quickly and decisively to change in order to protect and expand their jobs.

Still other recent Society programs and publications have focused on the importance of corporate secretaries' asserting their ability as corporate administrators, communicators and boardroom advisers. And the 1997 National Conference Committee, under the leadership of Nick Calise of The BF Goodrich Company, has adopted "adding value" as a key theme of next year's conference in Boston July 9-13.

Just how can corporate secretaries add value to their companies? Santona noted several key ways:

• First of all, become an expert in corporate governance. Keep up with developments in the governance area and become an adviser to the board on governance, reviewing for directors both developments in the governance arena and how your company measures up against other companies. (David Smith sounded a similar message in his article in the Spring 1996 newsletter calling for establishment of a "Chief Governance Officer" position at many corporations, to be filled most logically by the Corporate Secretary);
• Use participation in trade groups and professional associations (such as the Society) to better understand and influence governance legislation and regulation.
• Become an expert in executive compensation issues. Develop an understanding of what management and the board want to accomplish and what shareholders are seeking.
• Improve communications with directors, actively seeking comments about the adequacy and timeliness of information provided the board. Also become a resource for information on board self-evaluation programs and processes.
• Create opportunities to communicate matters of importance to shareholders, such as using the proxy statement to communicate corporate governance principles or setting up dialogues between management and key investors.
• Stay ahead of trends and be in a position to serve on a team organized to deal with crises.
• Become a leader in cost savings, such as reducing the size and expense of the annual meeting, finding ways to lower transfer agent fees or lowering printing and typesetting expenses by exploring electronic media alternatives.

Rintamaki also stressed the importance of continuing education and technological "growth" for Corporate Secretaries, asking for a show of hands to the following questions:

• "How many of you have attended a meaningful course or seminar in the last two years (aside from this one) on corporate governance, the management process, office technology or written or speaking communication?
• "How many of you subscribe to various professional publications relating to directors, the corporate process, and the like?
• "How many of you regularly use a laptop computer away from the office? A cellular phone? A pager? Frequently explore the Internet, particularly for SEC filings and other business information items?
• "How many of you maintain a home office with a computer, modem and fax machine?"

Rintamaki urged his audience to explore and welcome new opportunities to expand their jobs and thereby enhance their worth to their companies.

Santona closed her remarks in a similar vein, noting that "there is no one model for success, but a continuing focus on quality, efficiency and customized service will guarantee our future successes."

FROM THE CHAIRMAN

As the Society begins its second 50 years, our board of directors will be working to identify and define the core skills that are most important to the Corporate Secretary and then to work with the national staff and the Education Committee to determine how best to deliver the most current information and quality training to our membership. The Society currently offers a considerable number of resource opportunities to its members. Here are some of those options:

• involvement in activities of local chapters or national committees (with the networking offered through these contacts);
• the summer National Conference;
• fall regional conferences;
• four annual national seminars;
• the Society's website at http://www.ascs.org - be sure to register your own e-mail address when you visit;
• current publications, such as the new monograph on minute writing and the report on corporate board practices, produced under the direction of our Corporate Practices Committee;
• formal and informal surveys of member practices; and
• inquiries to the Core Document Files and other reference sources at the National Office via phone, fax, or the newly established Fax-on-Demand service.

This fall, I encourage all of our members to utilize one of more of the listed resources. The fall regional conferences, local chapter meetings, Essentials Seminar in Washington on October 31-November 1 and Issues Update Seminar in New York November 21-22 all offer an opportunity to hear from and exchange ideas with both outside experts discussing issues or current interest and Corporate Secretaries providing insights on how they have dealt with practical realities of their position. By becoming involved, members can also place themselves in a better position to help shape the resources delivered by the Society in the future. It is most important that members' ideas for improvement and change be delivered to the National Office. Your suggestions are welcome and can be directed to Society President David Smith, his staff in New York or to me (my e-mail address is sueland@p07.mn.honeywell.com). Let us hear from you!

Members of the Southeastern Chapter take a few minutes off from business sessions during the Chapter's spring conference in Hilton Head. Olena Berg from the Department of Labor and David Sirignano from the SEC were among featured speakers at the event.

Commission seeks volunteers to speak "plain English"

I want prospectuses to start speaking a new language, the English language. I urge you - in long documents and in short - in prospectuses and shareholder reports - to speak to investors in simple English. Tell them plainly what they need to know to make an intelligent investment decision. -- from May 22, 1996 remarks by SEC Chairman Arthur Levitt

Chairman Levitt has put the spotlight on plain English for a simple reason. Most investors are not lawyers or investment bankers. They cannot and will not read documents that speak to them in a language they cannot understand. The fundamental protection offered to investors by our federal securities laws, the right to make informed investment decisions by reading disclosure documents, is hopelessly out of reach of many investors. We are trying to change that by working in partnership with issuers and their lawyers.

The good news is that plain English is contagious. As we have talked with lawyers, issuers and investment bankers around the country, we've been pleasantly surprised by the willingness to change. One lawyer confessed that he hated to write documents that he knew were barely comprehensible to even his colleagues, let alone an investor. Others have left their business cards with notes that they want to be part of the solution. "It's about time that we started writing so that people can understand us. Let me know what I can do to help," said one lawyer enthusiastically.

What is the best way to turn around a habit that's been 60 years in the making? First, we're producing a handbook on how to draft disclosure documents in plain English, and plan to use the handbook in workshops around the country. Second, we're drafting a proposed rule requiring cover pages, summaries and risk factors in prospectuses be written in plain English. And third, we're running a pilot program for issuers who volunteer to file documents in plain English with our Division of Corporation Finance. The volunteers are giving us invaluable insights and helping us to edit our handbook and to shape our rule proposal. In return, we are expediting the review of the volunteers' documents and writing our comment letters in plain English.

When we asked for volunteers, the American Society of Corporate Secretaries quickly stepped up. Peggy Foran from ITT and David Smith brought us together with issuers for a session to explain what plain English is and isn't. From that first meeting, we had our first volunteer - Kathy Gibson, securities counsel from Bell Atlantic. Kathy is making sure that the cover page and summary for the proxy statement and prospectus on the proposed merger with NYNEX are in plain English.

What is plain English? Plain English doesn't mean taking anything important out of your disclosure document. If it's material, you absolutely need to keep it in. Plain English also doesn't mean "dumbing down" or adopting a "Dick and Jane" writing style.

A plain English document is written with investors in mind and in everyday language they can understand. It means knowing your subject matter and the audience well, so that you write what is important for your investors to understand. The document should be visually appealing and easy to read. For example, we comprehend information more easily in shorter rather than longer sentences. We can't comfortably scan more than 65 characters in a line. Our eyes glaze over when we see whole sentences all in capital letters. Legal jargon also hinders understanding.

There are well known tools that help us to produce plain English documents: prefer the active over the passive voice, use strong verbs and personal pronouns, and test your document on people who share the same educational levels as your investors.

Knowing your audience - your investors - is the key. You need to know their level of education and familiarity with financial terms. Writing in plain English for sophisticated institutional investors will differ dramatically from writing for institutional investors who are less financially sophisticated.

After our presentation, we heard the typical questions and fears that pop into lawyers' minds everywhere: "Won't we increase our liability? We have to write this way because of your regulations and case law."
"Aren't some things just too complex for plain English?"
"Won't other lawyers laugh us out of the room if we write this way? They'll think we don't know what we're doing."

And here are the answers:
Your liability will probably decrease because your disclosure is clear and you aren't deleting any important information. We don't know of any case where liability was incurred because the disclosure was clear. We admit that too many of our regulations rate high on the incomprehensibility scale, but few require you to quote them verbatim. We realize we need to write our rules and comments in plain English, too.

There is no subject that is too complex for plain English. You can apply the principles of plain English to any writing task. Plain English means presenting complex information clearly. It doesn't guarantee that every product or subject becomes simple to understand. It just assures that the language you use doesn't make it harder for an investor to understand what they need to know.

There's no need to be embarrassed by writing in plain English. Just tell your colleagues, you've got to be real smart to make something real hard look easy.

Chairman Levitt is planning to make a direct appeal to Society members to become volunteers for the plain English pilot program. You'll be hearing more about that very soon. In the meantime, if you have questions or want to know more about volunteering contact Ann Wallace at (202) 942-2980 or Nancy Smith at (202) 942-7040.

Membership campaign features exciting "surprizes"

Information describing the different prizes and rules for winning them - as well as tips for recruiting potential new members - will go out in early October. There will be two levels of prizes. Three special prizes will be presented to the top three recruiters overall. However, any member who brings even one new colleague into the Society will be entered in a drawing to win an outstanding vacation trip. So every member should have a good chance of winning.

Hager noted that earning prizes is not the only reason that members should be active recruiters for the Society. "A strong, growing Society benefits all members by energizing chapters and committees with new colleagues and new companies and by strengthening the impact of Society commentary to regulators such as the SEC and securities markets. In other words, by introducing the Society to potential new members, the Society becomes more valuable to each of us."

To kick off the campaign, an attractive new membership brochure detailing the many benefits of belonging to the Society has been printed. Copies of the brochure will be sent out to members along with the contest announcement. Additional copies will be available from chapter membership chairpersons or Bridget Wurzburg in the National Office (212-681-2014). The brochure contains a tear-off membership application with a box in which recruiters can write their names as "Campaign Sponsor." This will ensure that they get proper credit for their recruiting efforts and earn chances to win one of the prizes.

National committees unveil new Society publications

A subcommittee of the Securities Industry Committee has also been working to revise the introduction and update state reports in the Society's Escheat and Abandoned Property Laws: Survey and Analysis. That book will be available in October. Also set for publication in October is the tabular Report on Shareholder Proposals for the 1996 proxy season. A form is enclosed with this newsletter for ordering complimentary copies of both of these publications.

In addition, the National Office has produced an addendum to the Current Board Practices report, published in the spring of 1996. The addendum adds several new tables and corrects certain calculations in Part II of the original publication. Members who either took part in the survey or ordered the book subsequent to its publication and who have not yet received a copy of the addendum, please contact Berta Czeczyk in the National Office via fax at (212) 681-2005 or e-mail at publications@governanceprofessionals.org to request a free copy.

Update seminar focuses on proxy, governance issues

These are a few of the questions that expert panelists from both inside and outside the Society will be discussing at the Society's 19th annual Issues Update seminar at New York's Plaza Hotel, November 21-22. The focus will be on providing practical advice to help attendees prepare for the 1997 proxy season and the rest of the upcoming year.

Guest panelists will include Brian Lane, Director of the SEC's Division of Corporation Finance; former CalPERS counsel Richard Koppes; and several noted attorneys and institutional investor leaders. Society experts will include Philip Lochner of Time Warner Inc., a former SEC Commissioner; and Martin Coyle of TRW Inc., who also serves on the executive board of the Council of Institutional Investors. Other Society members serving on the faculty include Bruce Davidson, Carl Davidson, Margaret Foran, Kathy Gibson, Joyce Haag, Carol Hayes, John Meagher and Susan Wolf. Chairing the seminar is Penn Holsenbeck of Philip Morris Companies, Inc., the Society's immediate past Chairman.

This year's seminar will also feature a luncheon address on November 21 by John Brademas, a respected educator and corporate director; and remarks on November 22 by William Allen, Chancellor of the Delaware Chancery Court.

A brochure describing the entire program and faculty for the seminar and providing full registration details is being mailed out shortly and will also be posted on the Society's Internet website (http://www.ascs.org) at that time. For more information on the program or registration, contact Suzanne Walker (212-681-2008) or Harriet Chabrowe (212-681-2009) at the National Office.

Some tips for preparing for the new Section 16 rules

• keeping track of "fund-switching" transactions or volitional cash withdrawals from issuer equity funds. Companies may want to adopt procedures to block insiders from engaging in matching fund switching transactions within a six-month period.
• keeping track of certain cash-only instruments, such as phantom stock and SARs, which must now be reported on Form 4.
• ensuring that stock option exercises and other conversions of derivative securities are promptly reported on a Form 4 whether or not they are exempt from Section 16(b).
• ensuring that disposition of stock to pay the tax withholding or the surrender of securities in payment of the exercise price of an option are approved, if necessary.

• amending stock plans to permit the transfer of non-qualified options.
• amending stock plans (if not already done) to provide for tax withholding or surrender of securities to pay for the exercise price.
• adding flexibility to the administration provisions of plans and amending sections of the plans to eliminate the need for disinterested directors and to eliminate shareholder approval either to adopt or amend a plan. (However, Section 162(m) and stock exchange rules may still mandate stockholder approval.)

The 50th National Conference in pictures and words

The opening panel of the Conference featured corporate directors Richard Stegemeier and Kenneth West (center and right) and member Dennis Codon discussing "new Challenges Facing Boards and Committees." New York Times financial reporter Judith Dobrzynski moderated the panel and kept things lively with several provocative questions.

Society members Earl Franklin, Alan Rudnick and Gloria Santona focused on the changing role of the Corporate Secretary in relation to the board. See page 1 for more on Santona's remarks.

Outgoing directors and committee chairmen were honored at the Annual Gala Dinner on the closing night of the Conference. From left are Kathy Kucharski, Frederick Emerson, Albert Mauro, JoBeth Brown, Suzanne Suter, Gerald Burger and Archie Bankston.

Penn Holsenbeck, the Society's 50th Chairman, opened the historic conference, which marked the Society's first half-century, and presided over an outstanding four-day program.

New Chairman Sigurd Ueland, Jr. Presents a silver quill to Penn Holsenbeck at the Gala Dinner and thanks him for his service at the Society's helm.

Heard at the National Conference...

Boardroom issues

"There are three basic truths about the economy: (1) There are always problems; (2) the problems are not as bad as they appear; and (3) the solutions generally are offered by the private sector of the economy."
Irving R. Levine, broadcast journalist

"The lead director concept drives a wedge in the board by creating someone who is the greater among equals."
Richard J. Stegemeier, Chairman Emeritus, UNOCAL Corporation

"Evaluating the performance of individual directors is really the function of the board, not the shareholders. We should focus more on the board overall."
Kurt Schacht, State of Wisconsin Investment Board

"We think boards should stand as a team and articulate one strategic plan. We would be open to elections every three to five years. Annual elections of directors don't necessarily make sense, but everyone should be standing together when they do stand."
Edward Durkin, United Brotherhood of Carpenters

Disclosure issues

"If the safe harbor (under securities litigation reform) is going to work for your company, you have to protect oral statements as well as written ones. Thirty people will review a press release or written statement. Then someone will get on a conference call and say anything he wants."
Ronald Berenstain, attorney, Perkins-Coie

"Now for the bad news. [Under the new Section 16 revisions], cash-only derivative securities need to be treated no differently from other securities and will be reported. In the vast majority of instances, they will be exempt under Section 16(b) however. The net effect is that your insiders may be reporting their phantom stock grants, but they won't need to be matched."
Brian Lane, Director of Corporation Finance, SEC

"If the Society would like to put together a letter with ten, twenty, or a thousand questions about the new Section 16 rules, we'll be happy to answer them."
Brian Lane, SEC

What does the future hold?

"I think investor retirement plans will go away."
B. Kenneth West, TIAA-CREF

"By the 1998 proxy season, we will see that a majority of publicly traded companies will have a separate chairman or a lead director."
Constance Bagley, Stanford Graduate School of Business

"Even by the year 2050, no corporate pension fund will have submitted a shareholder resolution."
Edward Durkin

"A lot of brand name directors are going to prove to be an embarrassment and liability and will be pushed out of the door quietly. The booming stock market is hiding a lot of problems underneath."
Judith Dobrzynski, The New York Times

"The New York Stock Exchange will soon have a global clock to its trading, giving us a 16-18 hour trading day."
Richard Grasso, Chairman and CEO, NYSE

"Change willingness and change orientation among people is going to intensify as we near the millennium. The last time we approached a millennium, people were painting their faces blue and hoping Odin wouldn't be after them. So there may not be many parallels this time."
Kevin Phillips, political analyst

And a troublesome allegory:

"Every morning in Africa a gazelle wakes up, knowing that it must run faster than the fastest lion or die. Every morning in Africa a lion wakes up, knowing that it must run faster than the slowest gazelle, or it will starve to death. The point is that is doesn't matter whether you're the lion or the gazelle, the essence of survival is - WHEN YOU WAKE UP, YOU BETTER START RUNNING."
Gloria Santona, McDonald's Corporation

Society Notes

Visitors are more than welcome

Members should also note that the National Office conference room is available should they need a quiet, comfortable place to schedule a business meeting while visiting in New York. One member who has taken advantage of the conference room is Gerard Sieck of Baxter International Inc. who met several months ago with a shareholder proponent at the National Office. "Until last week, I wasn't aware that meeting facilities were included in the benefits of Society membership," he wrote. "Your office served as a very convenient and comfortable location for our meeting."

Volunteers sought for board evaluation practices study

Conference programs earn members CLE credit

Members have also received credits in a number of states for participating in Society seminars and fall conferences. The National Office staff is currently working to gain pre-approval in a number of states for this year's education programs. For more information, contact Suzanne Walker in the National Office at (212) 681-2008. A listing of credits granted by state is also posted on the Society's Internet website.

Nonprofit Committee honors and projects

Nonprofit Committee Chairman Victor Futter noted that his group is not planning to rest on its laurels. Now that its book Nonprofit Governance: The Executive's Guidebook (published jointly with the Section of Business Law of the American Bar Association) is nearing its printing date, the committee is off and running with another joint project with the ABA. The plan is to collect the classic and best articles in the nonprofit field published over the past several years and to reprint them in a new book tentatively entitled "Oldies but Goodies." Vic asks members to comb their memories and libraries for such articles and to send copies or citations to him at Sills, Cummis, Zuckerman, Radin, Tischman, Epstein & Gross, One Riverfront Plaza, Newark, NJ 07102-5400.

Chapters try out unique programming approaches

Do you need programming ideas or resources? If so, contact Sara Berman in the National Office at (212) 681-2000.

Middle Atlantic Chapter hosts fall "Essentials" seminar

"Essentials" is a two-day intensive course designed for newly-appointed corporate secretaries, corporate secretaries whose duties are changing or expanding, assistant secretaries and other members of the secretary's staff.

The program for the course will cover a wide range of topics under the following headings: Secretary's Authorities and Responsibilities; Directors and Board Committees; Meetings of the Board and Committee; Routine Disclosure and Other Requirements of the SEC and Securities Markets (or a breakout on Good Governance in Private Companies for private company attendees); Proxy Solicitation; Shareholder Meetings; and Corporate Administration and Policy.

Brochures and registration materials for the seminar were sent out to members in mid-August. For more information about the seminar program or registration, contact Suzanne Walker or Harriet Chabrowe at the National Office.

A brief guide to abandoned property compliance

A subject of great importance to today's Corporate Secretary is the need to understand what constitutes abandoned property and the consequences of not reporting or reporting incorrectly to the states. An increasing number of this country's largest and most visible companies are being caught by surprise because one or more states has initiated an examination or audit for past due abandoned property. This property might include uncashed dividend, payroll or vendor checks and other intangible property remaining on a company's books after a prescribed statutory dormancy period. Not only are states becoming more assertive in enforcing their abandoned property laws, they are increasingly levying interest, and may in the future assess penalties and examination costs for past due property.

Adding to the pressure on Corporate Secretaries to become knowledgeable of various states' abandoned property laws is the fact that the Uniform Unclaimed Property Act (1995) now being adopted by many states dramatically increases the interest and penalty burden on companies not in compliance. Quick adoption of the Act can be reasonably be expected because of the increased level of enforcement of the states' abandoned property laws.

[The Society is in the process of revising its publication Escheat and Abandoned Property Laws: Summary and Analysis to include information about the 1995 Uniform Act and to update the state-by-state summaries. The new publication will be available in early October. A form for ordering complimentary copies is enclosed with this newsletter.]

Companies are required to report abandoned property on an annual basis. The obligation extends beyond the states where companies operate, to every state where there is a purported owner of property. Although some companies argue that they do not have sufficient "contacts" within a state to afford that state regulatory jurisdiction, the basis of that argument neglects the fact that the asset being contested is not the property of the company, but is the property of the owner, into whose shoes the state steps as custodian in perpetuity.

In view of the consequences of failure to comply, i.e., the imposition of interest, penalties and examination costs, and their negative impact on a company's income statement, why do companies fail to comply or do so inadequately? Reporting abandoned property is a complex task because of the myriad of reporting requirements which undergo changes with each state's legislative session. Complying with abandoned property statutes requires highly sophisticated legal, accounting and data processing expertise. Unlike filing annual tax returns, many companies have not invested the time and money or developed the systems needed to report abandoned property, and therefore fail to report or do so inadequately.

How companies choose to fulfill their annual reporting requirements is often based on an analysis of the cost/benefit to the company. Consequently, some companies choose to internalize the functions required to meet the abandoned property reporting requirements. Others may decide to maintain all of the functions in-house, but license the required software. The third alternative is to outsource all technical functions. Outsourcing provides companies with the opportunity to eliminate substantial overhead expenses such as the highly specialized legal, administrative, and data processing capabilities required to fulfill this area of statutory compliance.

In recent years, states have been expanding the scope of their abandoned property laws and developing comprehensive recovery programs. To maximize their recoveries, states recover abandoned property through company initiated reporting or state initiated reporting. When a company initiates its own reporting, it performs the reporting function on its own or utilizes an outsource service provider to perform the function. When states initiate reporting they use a combination of three programs to maximize their abandoned property recovery efforts. States use their own personnel to perform audits, cooperate with other states in a collective audit, or use an outsource service provider to conduct audits on their behalf.

NAPPCO, which has contracts with 47 states for abandoned property reporting, has been asked by several of those states, singly or in combination, to perform audits of companies suspected not to be in compliance with their abandoned property reporting obligations. A number of different factors can trigger an audit. In some cases, a large company consistently reports what the state considers to be de minimis amounts of abandoned property. Another company may report its security-related property fully but not be as thorough in reporting other items from the general ledger side of its business. Still another company may come to the state's attention by consistently sending in negative reports.

The state-initiated reporting mode is more comprehensive than that of holder-initiated reporting in that the former will involve all categories of property; however, the general reporting process is similar. Allowing for differences between securities-related and general ledger examinations, the overall process can be described as follows:

Situation analysis - During this phase an assessment is made of a company's past reporting history and the categories of property which must be examined. Third-party administrators (TPAs) - e.g., transfer agent, paying agent - are identified and access to their records is requested.

Assembly documentation and examination of holder records - Records that are maintained by the TPA and those maintained internally are reviewed and subjected to analysis to identify property subject to reporting, to verify account balances and to prepare missing owner reports.

Report preparation - Based on the information obtained from the review and analysis of the records, an Initial Verification Report is prepared and used for any adjustments to the findings that may result - e.g., owner claims. After incorporating any adjustment cited by the holder, a Final Property Report is issued to the holder, accompanied by a letter requesting the transfer of property to the states. We have found a very cooperative attitude in more than 90 percent of the companies we have audited. The companies realize their obligations and are thankful that the state is willing to subsidize cleaning up of the company's records.

Both forms of reporting - holder and state-initiated - are not new. However, Corporate Secretaries can expect to see much more activity in state initiated reporting because of the more assertive enforcement of the states' abandoned property laws. Therefore, companies interested in reducing or possibly eliminating interest and penalties for past due abandoned property, reducing the chance of an audit by a company's home state or by another state, or reducing the costs associated with administering inactive accounts will increasingly try to avoid state audits by voluntarily complying.

NAPPCO and several other firms represented in the Society's membership are available to help companies and their Corporate Secretaries recognize and meet their compliance obligations.

Highlights of the changes to the Uniform Act, as well an explanation of the parameters of abandoned property and how to comply, can be found in The Little Book About Abandoned Property. This free pocket guide was created and published by NAPPCO. It is available by calling (212) 826-8370, extension 102.

How shareholder proponents try to skirt Rule 14a-8

As a dozen or more corporations have learned in the last few years, 14a-8, the "shareholder proposal rule," is not the final word on shareholder resolutions. Trade unions increasingly disavow reliance on 14a-8, in favor of the broad provisions of Rule 14a-4, the general requirement that management disclose to shareholders matters to be acted on at the annual meeting. This new tactic, used at 10 or more companies in 1996, creates new uncertainty about the annual meeting, and can be a headache for Corporate Secretaries.

Under this procedure, the shareholder proponent informs the company of the intention to conduct an independent solicitation on behalf of a particular proposal. The proponents believe that management, so informed, should provide shareholders with explicit voting rights on their proposals by including them in the company's proxy statement and on the proxy card. There are few rules governing this procedure, and proposals may be submitted at late dates-within the confines of the "advance notice" period for companies with such bylaws.

If the company fails to include the proposal on its proxy card, it is faced with the possible loss of its discretionary voting authority on the proposal, and potential embarrassment on the floor of the annual meeting. IRRC tracked 14a-4 proposals at 10 companies during the spring proxy season, including one proposal submitted by an individual connected with church shareholders who were pressuring 3M on acceptance of tobacco advertising by the company's billboard business. (Church and other social issue shareholder proponents have expressed interest in the 14a-4 tactic, particularly given their frustrations over the SEC's current policies on the "ordinary business" exclusion under 14a-8.)

The 3M proposal was withdrawn when the company said it would cease accepting tobacco advertising. All of the other companies either included the 14a-4 resolutions on their proxy cards in the first place, or resolicited shareholders, offering the opportunity to vote explicitly on the proposals.

Unions submitted the proposals as part of corporate campaign tactics aimed at Albertson's and several other companies. An Arizona local of the United Food and Commercial Workers threatened to conduct independent solicitations on behalf of corporate governance resolutions at Albertson's and five companies that have executives who serve on Albertson's board, or that have Albertson's executives serving on their boards. The UFCW has been organizing workers at Albertson's in Arizona, and charges that management tactics to foil the union in the state have "taken improper form."

The International Brotherhood of Teamsters took the 14a-4 approach at Borg-Warner Security, Gannett and Union Pacific, all of which have been subject to union organizing campaigns.

The companies sought advice at the SEC and received more detailed advice than the Commission had provided in the past. In March 1996 letters to Idaho Power and other companies, the SEC staff specified that companies may have free and clear use of discretionary voting authority in this situation except for a matter "that is the subject of an opposing proxy solicitation if the proponent delivers a proxy statement and form of proxy to holders of a majority of shares entitled to vote."

This advice provides some protection for companies: a shareholder cannot simply notify the company of an intention to make a proposal on the floor of the annual meeting and expect thereby to win a place for the proposal on the company's proxy card. But the SEC staff advice also leaves corporations with considerable uncertainty, potentially playing a game of chicken as the shareholder proponent threatens to solicit a majority of shares, and the company is forced to judge whether the threat is real. The Proponents of 14a-4 resolutions in 1996 did file proxy materials with the SEC but did not always carry out solicitations.

While some corporations are unhappy with the SEC's Idaho Power compromise, SEC staff members believe they have found a good balance between protecting the process from abuse, and the need to provide shareholders access to communications. Moreover, the SEC was operating within the constraints of UMWA v. Pittston Co., a 1989 decision by the U.S. District Court for the District of Columbia. In that case, the court denied Pittston's attempts to claim discretionary voting authority on a matter that the United Mine Workers pursued through an independent solicitation.

Corporations probably can expect to see more use of 14a-4 in the future, particularly given how easy it can be to solicit a majority of shares in many corporations because of increasing institutional ownership. Andrew Kahn of Davis, Cowell & Bowe, who worked with the UFCW on its proposals, insists that independent solicitations and reliance on 14a-4 provides proponents with access to fellow shareholders without wrangling over 14a-8 no-action letters at the SEC, and that independent solicitations help keep proposals from being lost in the shuffle.

But for most proponents able and willing to comply with the provisions of 14a-8, the independent solicitation route is likely to appear costly. Moreover, since 14a-4 resolutions create such uncertainty for corporations, they may be used more as two-by-fours to hit companies over the head, rather than as tools for negotiation and discussion. While the majority of 1997 shareholder proposal activity can be expected to continue to take place within the context of 14a-8, companies can expect to see the nettlesome 14a-4/independent solicitation approach in some more hostile conflicts.

Promotions and New Positions

Stephen G. Barnett, now Vice President with Quinlan Bancshares, Inc., Dallas, TX

Robert M. Benjamin, now Senior Vice President, General Counsel and Secretary with Cashman Holdings, Inc., Wayzata, MN

Ann Marie Brady, now Vice President of External Affairs as well as Secretary, Wisconsin Electric Power Company

Thomas R. Brunet, now Assistant Treasurer, UNOCAL Corporation

Vicki L. Casmere, now Vice President, General Counsel and Secretary with Varlen Corporation, Naperville, IL

Virginia L. Cook, now Secretary, Harriet and Henderson Yarns, Inc.

Ann M. Coons, now Associate General Counsel with The Times Mirror Company, Los Angeles, CA

Anita Jean Cutchall, now Vice President-Legal as well as Secretary, Zero Corporation

Patty M. DeGaetano, now Paralegal with Dura Pharmaceuticals, Inc., San Diego, CA

Brigitte M. Dewez, now Secretary as well as Deputy General Counsel, UNOCAL Corporation

Linda R. Driscoll, now Secretary, Continental Can Company, Inc.

Steven J. Ellcessor, now Vice President-Administration as well as Secretary and General Counsel, The J. M. Smucker Company

Geoffrey D. Fallon, now Vice President with Johnson & Higgins of Ohio, Inc., Columbus, OH

John P. Fletcher, now Account Manager with Bowne Northwest, Seattle, WA

Margaret M. Foran, now Associate General Counsel & Assistant Secretary with ITT Corporation, New York, NY

Earl M. Forte, Jr., now Vice President-Sales Banknote Corporation of America, Inc.

John E. Fountain, now Vice President, General Counsel and Secretary with Morrison Health Care, Inc., Smyrna, GA

Kathleen M. Haley, now Secretary, Florida Progress Corporation

Marj N. House, now Assistant Secretary, General Dynamics Corporation

Pfilip G. Hunt, now Senior Vice President, General Counsel and Secretary with Ruby Tuesday, Inc., Mobile, AL

John H. Karnes Jr., now Vice President, General Counsel and Secretary with AMRE, Inc., Dallas, TX

John K. Kelly, now Managing Director with Johnnie D. Johnson & Co., Inc., Los Angeles, CA

Richard F. Kotz, now Vice President-Law, Deputy General Counsel and Assistant Secretary, Sears, Roebuck and Co.

Richard J. Kretz, now Director-Sales and Marketing with Continental Stock Transfer & Trust Company, Rockford, IL

Kathy J. Kucharski, now General Counsel with Kucharski Properties, Inc., Tulsa, OK

N. Ned Mansour, now President, Corporate Operations, Mattel, Inc.

Patricia C. Meringer, now Senior Vice President and Corporate Counsel as well as Secretary, Hibernia Corporation

Ross Miller, now Senior Vice President, General Counsel and Secretary with Moovies, Inc., Greenville, SC

Peter M. Moldave, now Director, Corporate Law as well as Assistant Secretary, Apple Computer, Inc.

Syvert E. Nerheim, now Principal with Worldwide Motorsports Marketing, Ltd., New York, NY

Anne Marie Oldham, now Associate General Counsel, Callaway Golf Company

Elliot S. Orol, now Vice President, General Counsel and Secretary with GRE Insurance Group, New York, NY

Peter J. Palenzona, now Executive Vice President-Finance and Administration with Hugh Wood, Inc., New York, NY

John L. Pogue, now Secretary with Therm-O-Link, Inc., Warren, OH

Maureen Richards, now Vice President, General Counsel and Secretary with Footstar, Inc., Mahwah, NJ

Cathy R. Sams, now Senior Counsel and Assistant Secretary with Imation Corp., St. Paul, MN

Brenda (Stringer) Sanders, now Assistant Secretary with AMRE, Inc., Dallas, TX

Robert C. Swan, now Vice President and Secretary, Phelps Dodge Corporation

Jeanette M. Thomas, now Corporate Vice President and Assistant General Counsel as well as Secretary, Litton Industries, Inc.

Ronald L. Tolliver, now Chief Financial Officer with SportsLine USA, Fort Lauderdale, FL

T.R. Tunnell, now Vice President and General Counsel with Pillowtex Corporation, Dallas, TX

Patricia A. Vance, now Legal Vice President as well as Assistant Secretary, Guarantee Life Insurance Company

Carol A. Vix, now Corporate Counsel and Assistant Secretary with Tupperware Corporation, Orlando, FL

Lawrence S. Westfall, now Senior Counsel with UNOCAL Corporation, El Segundo, CA

H. Kathleen White, now Secretary as well as Assistant General Counsel, Sealed Air Corporation

Douglas A. Wilson, now Senior Vice President-Finance and Planning, CFO and Secretary with Caliber System, Inc., Akron, OH

The Corporate Secretary is published throughout the year as a service to members of the Society of Corporate Secretaries and Governance Professionals. Articles or statements appearing herein do not constitute legal opinion, advice or judgment and should not be relied upon as such. Inquiries regarding information contained in this newsletter should be directed to Geoff Loftus, at (212) 681-2000 or by e-mail: gloftus@governanceprofessionals.org. Inquiries regarding membership or publication orders should be addressed to:

Membership               Publications
Deborah Fox              Olga Holmes
(212) 681-2014           (212) 681-2015

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