Watching the "Ownership Society": follow-ups on Shareholder Surveillance...

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Shareholder Surveillance
Shareholder Intelligence is an actual company which performs surveillance activities, to identify activists who might try to influence corporate activities.

NY seeks Wal-Mart records on alleged surveillanceNEW YORK (Reuters) — New York City Comptroller William Thompson asked to inspect some Wal-Mart Stores (WMT) records dating from 2002 to determine whether the retailer performed illegal surveillance on shareholders who submitted proxy petitions, according to a statement Tuesday.

In a letter to Wal-Mart Corporate Secretary Thomas Hyde dated June 21, Thompson said he has "a credible basis to believe that certain employees, directors or agents of Wal-Mart have improperly expended corporate assets in connection with conducting surveillance, investigations or 'threat assessments' of proponents of shareholder proposals.

Wal-Mart spokesman John Simley said that since the company received the comptroller's letter late on Friday, it still needed time to read it.

"We will respond to the comptroller as appropriate," Simley said.

The comptroller, who is the investment adviser for New York City's pension funds, said he wants to inspect and copy all books and records referring to the proponent of any shareholder proposal submitted to Wal-Mart between 2002 and the present.

Undermining the Ownership Society.

by David SirotaPublished on Wednesday, March 29, 2006 by the San Francisco Chronicle Away from the cameras covering the Enron trial and largely hidden from view on the evening news, a war is being waged over the most basic rights of ownership that undergird our economy.

Most economic conflicts arise between those who own property and those who do not. Management versus labor. Landlords versus tenants. Rich versus poor. But now, the persecution is being directed at owners from those who manage what is owned. It is corporate executives versus stockholders.

Today, trillions of shares of stock are owned by pension funds and 401(k) plans -- that is, owned by millions of workers. Politicians say we need to move toward an "ownership society" -- but, we, the citizens, already own a pretty big share of Corporate America. For years, much of that ownership was passive -- many investors made gains, and didn't ask questions. But since Enron and other corporate scandals damaged the economy, many citizen investors, primarily through their pension and union funds, have tried to exercise their rights to demand reforms at the companies they own -- reforms that would increase companies' bottom line by cracking down on executive abuses.

For instance, the Coca-Cola Company recently agreed to obtain stockholder permission before approving large executive severance packages. Since 2000, three departing Coke executives were given $180 million in severance pay. Though opposed to the new policy, management was forced to accept it, thanks to a shareholder resolution by the International Brotherhood of Teamsters. The union owns shares of the company, and thus has a fiduciary responsibility to help make the company as efficient and profitable as possible. Reining in exorbitant executive pay packages that are draining resources is one way to do that.

Similarly, New York City's public pension funds are demanding that six major firms -- Wal-Mart, Chevron, Southern Company, Union Pacific, AmSouth Bancorporation and Cinergy -- start disclosing political contributions made with company cash. The pension funds own $1 billion of these companies' stock, and the demands follow agreements by other corporations to disclose political expenditures.

This is democratic capitalism at its finest. Company owners are watching their investments, using ownership stakes to vote for policies forcing companies to be more efficient. But these policies threaten the seven-figure salaries executives are used to, as well as the other trappings of life atop the corporate pyramid. These executives aren't taking shareholder democracy -- or their owners' demands -- lying down.

In December, the Financial Times reported that major companies are now "hiring shareholder surveillance companies to find out who their shareholders are and which might be likely to cause trouble." As if out of a cloak-and-dagger film, the Financial Times quoted Tim Vaeth, an analyst, as saying, "Companies want to know who owns their stock, what their investors' intentions are and what their voting history is." His firm, Shareholder Intelligence, issued a report fretting that shareholders have "taken critical steps toward increasing their influence in the boardroom."

Following up last month, the Financial Times reported that "Merrill Lynch is poised to become the first investment bank to dedicate a team to advise companies on the growing threat of activist investors." Meanwhile, in an interview with Business Week this month, the U.S. Chamber of Commerce angrily denounced shareholders "who want to have some degree of leverage over companies."

The language is telling. Shareholders -- the actual owners of companies -- are now seen by executives as "threats" who dare to desire "leverage over companies" they own. That is seen as "causing trouble," and thus requiring "surveillance" by company management -- or worse, from America's corrupt government.

Yes, federal and state officials have forcefully backed executives' war on owners. For example, in Congress, Republican and Democratic lawmakers joined hands in 1996 to override President Bill Clinton's veto of the Private Securities and Litigation Reform Act -- a bill limiting shareholders' ability to file lawsuits against executives who are abusing power. As one market analyst noted, the bill "paved the way for corporate chieftains basically to lie without fear of being sued." Last year, a U.S. Senate highway funding bill included language forcing corporate executives to personally certify the accuracy of their companies' tax statements. The provisions were aimed at deterring financial shell games that might put companies in legal jeopardy. But when the final legislation was negotiated behind closed doors, the measures were deleted.

The executive branch is no different. The Securities and Exchange Commission -- the agency whose purpose is to protect shareholders -- got an injection of anti-owner ideology in 2005 when its reformist chairman William Donaldson was forced out. In his place, President Bush appointed Chris Cox, a corporate-lawyer-turned-California-congressman, who authored the Private Securities and Litigation Reform Act. Now, the U.S. Supreme Court is joining in. Last year, justices issued a unanimous ruling making it more difficult for shareholders to win damages when executives deceive them about company finances. Last week, justices interpreted a 1998 law as barring shareholders from bringing class-action suits against company management when management commits stock fraud.

Politicians, of course, claim they want an "ownership society" -- while aggressively helping corporate executives undermine the rights and privileges that make ownership so attractive. They are, in short, helping disenfranchise owners from their property, meaning an even greater chance that citizen investors will be bilked in the future.

http://thiscanadian.typepad.com/this_canadian/2007/08/fascism-is-fun.html

Wal-Mart's apparent research and surveillance activities geared toward shareholders raises troubling, but perhaps fleeting questions about trust.

Surveillance, Schmurveillance?

by Erik Wilkins-McKee, April 20, 2007 SocialFunds.com -- The recent scandal involving Wal-Mart's surveillance activities raises complex questions about the level of trust that must exist between publicly traded companies and their stakeholders.

Although the current situation is the latest in a list of revelations that include the head of Hewlett-Packard ordering surveillance of some of HP's Board members and Cintas's lawsuit against shareholder Tim Smith, the Wal-Mart (ticker: WMT) case is fundamentally different. In this case, the scandal may have little consequence for company-stakeholder relations.

The story initially broke when the Wall Street Journal reported on April 4 that Wal-Mart runs a "Threat Research and Analysis Group" at its Bentonville, Arkansas headquarters. Bruce Gabbard, an employee of 19 years, was fired after it was revealed that he had recorded phone calls with a reporter for the New York Times and intercepted internal pager messages as well.

Gabbard has since had a gag order put on him by a federal judge limiting further discussion of his allegations.

One of the WSJ's reporters, Gary McWilliams, told Amy Goodman of Democracy Now! that their investigation uncovered a security system run by Wal-Mart that included surveillance of employees, critics, and shareholders proposing proxy resolutions for the upcoming shareholders meeting in June.

Apparently, heightened security efforts began at Wal-Mart in the wake of 9/11. However, Wal-Mart's actions went beyond that of most companies. Its surveillance of employees, for instance, is done with software that allows the company to monitor workers' external email accounts, as well as company accounts, when sent from a company computer.

In the eyes of its critics, however, the larger issue has to do with the perceived effort by Wal-Mart to monitor all its stakeholders. Simon Billenness, former Director of the Big Box Collaborative and a consultant on corporate campaigns and socially responsible investment, says that "the company is revealing a deeply disturbing and increasingly dysfunctional corporate culture."

Billenness added that "Wal-Mart's actions are far worse than those of HP," which he described as "a curious case of boardroom politics." Wal-Mart, on the other hand "is systematically spying on all of its stakeholders (employees, NGOs, the press) that seek to hold the company accountable." Billenness did not know, however, what evidence might exist that the company went beyond a search of publicly available information.

The WSJ reported originally that a January 2007 memo requested investigation of some shareholders proposing resolutions for this year's proxy meeting. It seemed that special attention was focused on those groups or individuals making resolutions the company hoped to block.

The company, in response to the initial reports in the WSJ, sent a letter to the resolution proponents who had been named as under investigation. In it, Tom Hyde, Executive Vice President and Corporate Secretary, denied the allegations.

He wrote that "in spite of a January 2007 memo referenced in the article, there were no inquiries made with respect to the proponents of shareholder proposals… the request contained in the memo was not acted upon."

The shareholders purportedly examined include the Benedictine Sisters of Boerne, Texas, the Free Enterprise Action Fund, and the New York City Comptroller's Office. The responses of shareholders on the list varied.

In a letter to the company, the Sisters of Boerne wrote that they "are deeply disappointed, appalled and shocked that Wal-Mart would engage in this type of activity with any shareholders who are owners of the company." As part of the Interfaith Center on Corporate Responsibility (ICCR), the Sisters requested that all information on any surveillance that took place be made available to them, and that "this type of activity must cease."

Sr. Susan Mika, Director of Corporate Responsibility for the Sisters of Boerne, while declining to comment on Wal-Mart's possible motives, said on April 19 that a public apology would now be enough.

The Sisters and ICCR, she said, would prefer to move quickly past this, and to re-engage the company on what she called the "real issues" of health benefits, wages, and diversity among employees, sustainability, and wages paid to employees producing goods sold at Wal-Mart.

Sr. Mika also said that the resolution the Sisters of Boerne had proposed this year was identical to one they filed in 2006; it addresses the issue of pay inequity between the company's CEO and its average worker.

In 2006, Wal-Mart had acted to block consideration of the Sisters' proposal, but lost on appeal to the SEC. In this year's proxy, released April 20, the company recommends voting against the resolution.

The New York City Comptroller's Office represents New York City's Pension Funds, which hold 8 million shares of Wal-Mart stock. Comptroller William Thompson, Jr. wants more than an apology.

In letters to U.S. Deputy Attorney General Paul McNulty and Chairman Christopher Cox of the SEC, Thompson called for an investigation of the company's "ill-considered and possibly illegal surveillance operations directed…particularly[at] those shareholders…introducing resolutions that Wal-Mart was seeking to thwart."

Thompson also wrote Lee Scott, President and CEO of Wal-Mart, saying that in a discussion between his office and Wal-Mart, the company stated it "considers this conduct to be justifiable and proper and that Wal-Mart will continue this activity in the future." Thompson characterized that view as "mystifying and outrageous."

But John Simley, a spokesperson for Wal-Mart, said that the company's position is properly described in its letter to shareholders. There, Wal-Mart states "that information would be collected and reviewed simply for the purpose of helping us to know more about people with whom we would be communicating on matters of significant interest to our company and to our shareholders."

He added that a second letter was forthcoming on April 20, but as of press time it was not available.

This year's shareholder proposals are largely intended to change corporate practices, with goals related to good governance and transparency as well as conservative and liberal
economic agendas. Thus it seems unlikely that most shareholders would separate their ties with the company.

Indeed, while Billenness is right in saying that the Wal-Mart case is more serious than that of Hewlett-Packard, it is hard to define its long term effects. Billenness says that "Wal-Mart will have to re-build trust [with stakeholders]through demonstrated achievements."

He adds that shareholders will most likely "engage Wal-Mart more intensively on all issues."

Comptroller Thompson wrote in his letter to CEO Lee Scott that "our equity markets remain only as strong as the companies that comprise them. It is therefore critically important that every company maintain the highest levels of integrity in its dealings with its employees, its shareholders, and the public."

Whether or not shareholder groups have lost faith in the company's veracity, no one is talking about divesting themselves of Wal-Mart stock yet.