Economic Downturn Emboldens Shareholder Activists

Credit agencies, which rated billions of dollars' worth of mortgage-backed securities as safe investments, have also come under shareholder scrutiny. Moody's and the parent company of Standard & Poor's received proposals demanding, among other things, that boards of directors be directly involved in managing potential conflicts of interest with clients.

The companies, which last week won approvals from the SEC to keep the matter off the ballots, declined to comment on the proposals.

But earlier this month, Standard & Poor's announced new measures to "enhance independence," including rotating lead analysts and hiring an outside firm to conduct regular reviews. Moody's also proposed changes this month to its rating process and is asking for feedback from customers.

Merrill Lynch and Citigroup, which together have written down $46 billion in mortgage-related securities by restating their value on company books, are also targets of shareholder proposals.

The AFL-CIO has filed proposals at both, asking that any employment agreements with executives be limited to three years. The proposals also seek the exclusion of "evergreen" clauses that provide for automatic renewal of employment agreements without shareholder approval, bans on accelerated vesting of stock options and on "excise tax gross-ups" under which companies essentially pay for executives' taxes on certain pay. The AFL-CIO said its proposals came partly in response to the multimillion-dollar pay packages awarded to the chief executives of the two companies, who both left late last year.

Merrill declined to comment on the proposal. A Citigroup spokeswoman said concerns raised in the proposal are addressed in its senior executive compensation guidelines and current practices. Merrill also faced a proposal that sought expanded disclosure of succession plans but got SEC approval to keep the measure from coming to a vote.

Merrill and Citigroup, along with four other firms, have also been the focus of CtW Investment, which is calling for directors on committees responsible for risk oversight to describe what they did to protect shareholders from mortgage-related losses.

"These are institutions that are at the epicenter of the meltdown. Their shareholders have taken huge losses, and they helped destabilize the market," said Michael Garland, director of value strategies at CtW Investment, which works with pension funds on corporate governance. "We want to be comfortable that the board is comprised of directors who are protecting the interest of shareholders an acting independently of management."

Citigroup said its directors on the audit committee acted responsibly and that there is "no basis for an election challenge." Merrill also said its board acted appropriately.