Courts favor shareholder activity in health care reform

If recent court decisions set a national trend, employers may soon feel increased pressure to take a public stand on national health care reform.

The $20.5 billion New York City Employees Retirement System, a pension fund that owns approximately 164,841 share of common stock in Dole Food Company Inc., sponsored a health-care related shareholder proposal. NYCERS asked Dole to include the proposal in its proxy statement prior to its 1992 annual meeting. In New York City Employees' Retirement System vs. Dole Food Co. Inc. 92 CIV. 2551, Dole took the position that the proposal could be excluded from the statement because it concerned employee benefits, "an assertedly ordinary business operation." Dole maintains that both Security Exchange Commission regulations and the state laws under which Dole is incorporated "relegate such ordinary business operations to management, not shareholder, control."

However, Judge Kenneth Conboy of the U.S. District Court for the Southern District of New York directed Dole to include the proposal on its management proxy. An appeal by Dole for dismissal prior to the proxy vote was dismissed by the U.S. Court of Appeals in Manhattan as moot.

The NYCERS resolution calls for Dole to establish a committee to study and report on the impact to the company of three health care proposals now in Congress. The proposals are grouped in three generic categories--single payer (as in the Canadian plan), limited payer (as in the Pepper Commission Report), and employer mandated (as in the Kennedy-Waxman legislation.) Dole management opposed the proposal. In its recommendation to shareholders, the Board of Directors notes, "The company believes that the time and expense required to research, prepare, and distribute a report on this topic would be a wasteful and inappropriate use of corporate resources."

Shareholders went along with management at the Westlake Village, Calif. food producer. A positive vote from the majority of Dole's more than 52 million shareholders is required for proposal implementation. With only about 6% of the shareholders voting "yes," the NYCERS proposal was soundly defeated at the firm's annual meeting. However, "We consider the fact that it got on the ballot at all a success," says Wendy Grover, spokesperson for New York City comptroller Elizabeth Holtzman, noting that the positive vote exceeded the 3% required to reintroduce the proposal in 1993. As investment advisor to and trustee of NYCERS, Holtzman applauded the court decision. "Unless corporations become knowledgeable about national health care reform, their expenditures will continue to soar," she maintains.

An ongoing battle

The NYCERS proposal and its opposition by Dole's management typify a health care reform battle that has been going on for nearly three years. In 1989, the AFL-CIO Executive Council in Washington, which sets policy for the labor union federation, initiated a campaign to work for passage of a national health care program. As part of this effort, the organization developed draft shareholder resolutions which have been distributed to union affiliates. Through their pension funds, these affiliates are often major shareholders and, so, can validly submit health care reform proposals for employer consideration.

The shareholder proposals are designed to accomplish two purposes, says Richard Grant, senior policy associate at the AFL-CIO Department of Employment. First, "most people agree that there will be some form of reform in the U.S. health care industry ... As shareholders, what we're mainly concerned with in this area is how this is going to affect the operations of a company."

"The secondary thrust," says Grant, "is that we really do believe that the more people who examine the issue of national health care reform and the better informed they are as a result of that examination, the better the public debate will be."

Based on this reasoning, versions of the AFL-CIO drafts have been submitted to multiple large companies nationwide since 1990. Management at these firms, which include Albertson's Inc., Minnesota Mining & Manufacturing (3M), Pepsico Inc., Nynex Corp., Knight-Ridder Inc. and Brunswick Corp. as well as Dole, resisted submitting these proposals for a shareholder vote. The SEC rule allowing proposals related to a company's "ordinary business" to be excluded from a management proxy has been often cited as a reason for this opposition. When queried, the SEC has issued "no action" letters ruling that shareholder proposals related to health care fail in the realm of ordinary business and need not be put to a shareholder vote.

A new pattern emerges

Dole asked for, and received from, the SEC a "no action" letter on the NYCERS health care resolution. But the SEC ruling was, in effect, overturned by the U.S. District court decision. Dole declines to provide figures on the cost of providing health care benefits to more than 50,000 employees worldwide. However, Judge Conboy said in his ruling that "the activity addressed by the NYCERS proposal relates to activities that likely occupy in outlays more than 5% of Dole's income" and that the proposal did not fall within the SEC exception involving "ordinary business."

COPYRIGHT 1992 A Thomson Healthcare Company
COPYRIGHT 2004 Gale Group