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Most Witnesses at SEC Favor ‘One Share, One Vote’ Rule

December 17, 1986

WASHINGTON (AP) _ A New York Stock Exchange proposal to weaken shareholder voting rights drew little support in two days of hearings ending Wednesday, with most witnesses arguing the rule would only serve to entrench management.

The rare Securities Exchange Commission public hearing came on an exchange petition to end its 60-year-old ″one share, one vote″ requirement for NYSE- listed companies. That rule requires listed companies to give all common stock the same voting strength in management affairs.

The exchange says it fears companies will defect to rival securities markets unless they have the option to permit takeover barriers involving reduced shareholder rights.

If approved, the companies could ask their shareholders to surrender their voting rights permanently in return for such enticements as a one-time dividend premium.

But testimony on the petition over two days was ″overwhelming opposed,″ noted SEC Chairman John Shad. Most witnesses said the proposal could cripple management accountability, making managers less responsive to shareholder needs.

Commissioner Joseph A. Grundfest said afterward that the SEC could write its own rule on shareholder voting rights without regard to the NYSE petition.

″We can propose our own amendments to the rule,″ he said. ″We are not constrained to say yea or nay.″

And, while both Shad and Grundfest cautioned against drawing conclusions, Shad repeatedly questioned witnesses on what exceptions they would consider acceptable in an industry-wide rule requiring that shareholders have an equal vote in management affairs. Shad said his questions were hypothetical.

Only a few isolated witnesses testified in support of the NYSE proposal.

A.A. Sommer Jr., a former SEC commissioner testifying for the Alliance for Corporate Growth, argued that the commission should not interfere with how companies choose to manage themselves.

″If the management and the shareholders of a corporation determine that the interests of the corporation will be best served by a voting structure that will discourage a hostile and forcible grab of control, ... no one should thwart that right,″ Sommer said.

He also contended that the protection provided by reduced shareholder authority allows managers to concern themselves with research and development and long-range plans, not the short-term rush for dividends needed to placate impatient investors.

But that argument draw a sharp rebuke from Texas oilman and noted corporate raider T. Boone Pickens.

″Talking about long-range plans is bunk,″ Pickens said. ″When you get down to the blood and guts and feathers of it, what you’re talking about is tenuring managers.″

Pickens, who has made millions in takeover attempts but styles himself the champion of shareholder rights, told the commission the petition was an attempt by entrenched managers to protect their salaries and privileges.

″There is no demand by shareholders for stock with inferior voting rights,″ Pickens said. ″There is no logical reason for shareholders to request the creation of stock with inferior voting rights. All unequal voting rights plans adopted today have been proposed by incumbent managers.

″They have served to entrench managers against shareholder efforts, either real or perceived, to hold them accountable for their performance.″

Pickens urged the SEC instead to extend the NYSE ″one share, one vote″ rule to other securities exchanges.

He was joined in his opposition to the NYSE change by representatives of public employee pension plans with more than $200 billion in assets.

″As shareholders, we reject the notion that we need protection from ourselves. But we do need protection of our fundamental rights,″ said Harrison Goldin, New York City comptroller, who manages $25 billion in city pension fund assets.

″Those rights are threatened today by the tyranny of a minority so afraid of accountability and the danger it poses to their comfort that they threaten to disrupt the very system that has allowed them to prosper,″ he said.

Also criticizing the NYSE proposal was Greta Marshall of the California Public Employees Retirement System, with its $40 billion in assets, and Kenneth Codlin, executive director of the State of Wisconsin Investment Board, with $16 billion.

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