Subject: ISS report on Whole Foods Market
Date: Wed, 22 Mar 2000
From: Mark Latham
Organization: The Corporate Monitoring Project - http://www.corpmon.com
To: Shirley Westcott [ISS]
CC: Patrick McGurn [ISS]
Dear Ms. Westcott:
I wrote the shareowner proposal "Hire Proxy Advisory Firm Chosen by Shareowner Vote" in the Whole Foods Market (WFMI) proxy this year (proponents McRitchie & Young). Patrick McGurn sent us a copy of your recent proxy analysis on it.
Of course we're disappointed that you recommended voting against the proposal, but we hope to learn from your professional analysis. We plan to revise the proposal and submit it at other companies soon, so maybe we can improve it on some of the points you raised. I would appreciate any feedback you can give on the suggestions below.
For reference, here's what I believe is your key paragraph:
"ISS concurs with management’s argument that the resolution could be expensive and bureaucratic to administer. The proposal offers no details on how the bidding process and publication/dissemination of analyses would be handled or what hidden costs might be associated with them. Such additional corporate expenditures would be hard to justify considering that proxy analyses are already available to the public from a variety of vendors, and barriers to entry are low. The proposal also creates a potential legal liability to the corporation; because the company would be paying for the proxy analyses, it could also be responsible for any errors or omissions contained in them."
In the part about "proxy analyses are already available to the public", I wonder if there are some vendors or subscription plans I don't know about. For U.S. investors in U.S. stocks, I know of ISS, Proxy Monitor and IRRC. My impression has been that such services are primarily cost-effective for large institutional investors. Is this a mistaken impression? How expensive would such advice be for a retail investor holding, say, 20 stocks? Are there more moderately priced (or free) sources than ISS?
I didn't give details on publication/dissemination of analyses because of the 500-word limit for proposals. I'll add something on it next time. I'd suggest including in the proxy statement at least the FOR/AGAINST recommendations from the advisor, plus maybe a brief rationale up to the length of those typically given by management, but most importantly a website and toll-free phone number. The advisory firm would put its detailed analysis on the website, and possibly have a tape-recorded version via phone menus. They could also have a fax-back service or snail-mail hard copies on request. Competition to please shareowners would gradually determine the cost-benefit tradeoff.
I described the bidding process briefly in the proposal: "...any proxy advisory firm could put itself on the ballot by paying an entry fee (for example, $1000) and declaring the price for its advisory service for the coming year." So each candidate just submits one sealed bid. There is no rebidding. Shareowners then vote for whichever they prefer, taking into account price, reputation of the advisor, and a brief statement from the advisor (which would no doubt mention a website for more information). The most important factor would be reputation, which shareowners could learn by reading the financial press. Would it be helpful to include some of this explanation in the proposal next time, again subject to the total 500-word limit?
There's another important change we'll have to make in future versions of the proposal. So as not to be excluded from the proxy under SEC Rule 14a-8(i)(8), we will preclude the hired advisory firm from giving advice on director elections. This is unfortunate -- tying one hand behind our backs -- but I'm sure that advice on directors can be added to the system later, once it gets started.
Regarding legal liability for errors and omissions, couldn't the company disclaim responsibility since it does not control the content, as with shareowner proposals?
I view your analysis as an important part of the ongoing debate on the pros and cons of this idea. This debate has helped greatly to shape a more effective design for the proposal, and I see that process continuing. I would certainly appreciate it if you would take a few minutes to respond to the questions I have raised above, so that we can come to a closer understanding.
Thank you!
Sincerely,
Mark Latham, Coordinator
The Corporate Monitoring Project
[No reply to this has yet been received from ISS. More recent thinking on these ideas is in the article Proxy Voting Brand Competition.]