Outraged by the moral and ethical implications of goose liver pate', an animal rights activist has filed a landmark lawsuit that could affect the conduct of every annual stockholders meeting.
The rights of animals and the rights of stockholders are entwined in the knotty case that is likely to determine what subjects can be debated and voted on at corporate annual meetings.
Cruelty to animals -- in this case, the geese that give us liver pate' -- is the issue at stake in the lawsuit now pending in U.S. District Court here.
But the broader implications of the lawsuit unite the militant vegetarians of the animal rights movement with Evelyn Y. Davis, the carniverous corporate gadfly.
In an effort to get the animal rights issue into the official notice of a corporate annual meeting, an activist animal rights lawyer recently sued Iroquois Brands, a Connecticut company that sells a little beer, a lot of health food and a few thousand cans of French foie gras.
Foie gras, for those yuppies-come-lately who have not yet discovered it, is a pate' made from the livers of geese that were force fed a rich diet that caused their livers to become succulently enlarged.
Geese do not willingly destroy their livers so they can be turned into gourmet meatloaf. The foie gras feed is forced down their long throats four or five times a day, with a funnel or stick or by a special machine. To keep the geese from regurgitating, rubber bands are placed around their necks.
There is no question that foie-gras feeding is a cruel practice, an animal atrocity forbidden by law and good sense in this country, despite its prevalence in France.
But there is considerable debate over whether cruelty to French geese is a legitimate topic of concern to the shareholders of Iroquois Brands. It will be up to the court to decide whether the issue should by presented to shareholders in the proxy statements sent out for the company's annual meeting.
At Iroquois' annual meeting two years ago, Washington lawyer Peter Lovenheim brought up a resolution calling on the company to study the animal welfare implications of its pate'-importing business. More than 5 percent of the stockholders supported the resolution -- a lot by the stan- dards of such votes, and enough to earn Lovenheim the right to reintroduce the issue auto- matically the following year.
Shortly after the meeting, however, the rules for shareholder resolutions were changed by the Securities and Exchange Commission. Relying on the new SEC regulations, Iroquois refused to put the issue in last year's annual-meeting notice. The SEC accepted the decision; it told Iroquois it would take no action against the company if thefoie gras issue were kept out of the proxy statement.
When Iroquois turned down Lovenheim's resolution again this year, he sued. Washington attorney Jonathan Eisenberg said he took the case on a public-interest basis because of its broader implications for shareholder rights.
Lovenheim's suit asks for a court injunction ordering Iroquois to include in its annual-meeting notice his resolution calling for a committee to investigate foie-gras farming and decide "whether further distribution of this product should be discontinued until a more humane production method is developed."
Getting a shareholder proposal into the proxy statement for the annual meeting is the first threshold activist-investors must clear when they want to influence a company's management. Any issue can be debated and even voted on at the meeting, but only a few shareholders show up for most sessions. The stay-at-home shareholders read the official meeting notice and cast their ballots in advance. If a resolution isn't in the proxy, shareholders can't know about it, let alone vote on it.
The revised SEC rules allow a corporation to reject resolutions that do not affect more than 5 percent of its business and are "not otherwise significantly related to the issuer's business."
Clearly, foie gras fails the 5 percent test. Iroquois sold more than $157 million worth of goods in 1983, but barely $50,000 of its Edouard Artzner canned pate'.
But half the company's business is health foods, Lovenheim notes, and a lot of health food eaters are vegetarians who might take their business elsewhere if they found out that the company was an accomplice to the atrocious treatment of geese.
More compellingly, he argues that animal rights are a moral issue, and that moral issues are "significantly related" to any company's business, regardless of the dollar volume involved.
If the courts buy the argument that moral issues must be presented to shareholders, activist-investors will solidify their rights to confront managements with issues ranging from cruelty to animals and corporate sleaze to production of nuclear weapons and investment in South Africa.
If that precedent is rejected, however, corporations will be able to use the revised SEC rules to keep controversial issues off the ballot and gag activist shareholders who dominate the debate at meetings.
It is not necessary to endorse either the animal rights groups or Evelyn Davis in order to applaud their contribution to corporate democracy. Like the religous zealots and radical printers behind many landmark First Amendment decisions, they keep alive rights that would wither if left to the rest of us.
Unfortunately, many shareholders would be more than happy to see such issues banished from annual meetings, if only to enhance decorum.
But it isn't necessary to curtail free expression in order to keep fringe issues from dominating annual meetings. Shareholders could do the job themselves by aggressively pursuing their duty as owners of the business to participate in its management.
There's isn't a company in the country that couldn't benefit from 10 tough questions from stockholders at its annual meeting this year. But there probably isn't one company in 10 that will face them.