Page 135 - Introduction to Business

CHAPTER 3 Business Governance, Ethics, and Social Responsibility 109

Shareholders gather in Fayetteville,
Arkansas for the Wal-Mart Corpo-
ration’s 2004 annual meeting. In
addition to conducting company
business, attendants were enter-
tained by singers Patti LaBelle and
Paula Abdul, among others.

More significantly, shareholder proposals not supported by the management
of the company are rarely very successful, with many getting less than 20 percent of
the shareholder vote. In addition, even if they are very successful and garner a
majority of shareholder support, in almost all cases (because of the way corporate
bylaws are written) they are not binding. Instead, votes on shareholder proposals
are virtually always advisory or precatory to the company’s board of directors.
Company boards are generally free to ignore such votes, although there are at the
least some public relations and other problems involved when a board ignores
majority shareholder votes.
Although individual shareholders sometimes bring shareholder proposals,
they are most frequently brought by institutional investors. The term institu- institutional investors Large,
tional investor is generally used to describe a large, professionally managed professionally managed sources of
capital
investor source of capital such as a pension fund, mutual fund, or insurance com-
pany. While it is generally not worth the time and effort of an individual investor
owning, say, $3000 worth of a company’s stock to closely monitor corporate activ-
ities and make shareholder proposals, institutional investors often have literally
billions of dollars at stake and thus close monitoring of a given company’s activi-
ties may be very much worth their time and effort. The nation’s largest pension
fund, the California Public Employees Retirement System (CalPERS), has over
$140 billion in assets and has taken a very aggressive stance with respect to mon-
itoring the actions of the companies in which it invests, bringing shareholder
proposals, and so on. Close monitoring and positive actions by large institutional
shareholders like CalPERS obviously benefit all shareholders and help keep the
interests of shareholders and management in better alignment.
CONTRACTUAL INFORMATION PROTECTION. Corporations frequently have key execu-
tives and directors enter into confidentiality agreements. Confidentiality agree- confidentiality agreements Agreements
ments are contractual agreements whereby the signatory party agrees to keep by employees to keep confidential trade
secrets or other sensitive information
confidential trade secrets and other sensitive information learned through his or
learned by working at a company
her employment that is potentially damaging to the company if released. Confi-
dentiality agreements are generally strictly enforced by the courts.
covenants not to compete Agreements
Companies also sometimes have their top executives sign covenants not to by employees not to compete with their
compete. These agreements, which can come in various shapes and forms, prohibit former employer

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