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BULLS & BEARS: Proxies often overlooked, but investors should care

April 10, 2006

This is the time of year for investors when a trip to the mailbox yields an armload of financial reports. Corporate annual reports come in all shapes, sizes and colors. Their purpose is to provide the investor with a view of the businesses' performance over the past year, though some still tend to resemble marketing brochures as opposed to a candid compilation of the year's results.

An important-but often overlooked-document is included with the annual report: the proxy statement.

The front page of the proxy statement announces the date, place and time of the company's annual meeting. An agenda of items to be considered at the meeting is listed and a proxy card is provided for shareholders to vote on these matters. If you have an adviser or mutual fund managing your affairs, they may retain the authority to vote on your behalf, a fiduciary responsibility they should take very seriously.

Some of the typical items soliciting a shareholder's vote include the election of directors, the appointment of the company's accountants, and "new and improved" executive compensation plans. Also, there may be specific proposals on the ballot designed by a shareholder or institution in an attempt to impose a change in the company's corporate governance policies. The company's board usually recommends a vote "Against" these proposals.

Unfortunately-and not unlike many American voters in a national election-some shareholders (large institutions included) harbor a feeling that their vote is too insignificant to make a difference. However, there are some indications that a shift in power is beginning to take hold to where shareholder votes, the voice of owners, are beginning to receive greater importance.

Shareholder activism is gaining a higher pedestal in corporate boardrooms these days. Well-respected organizations such as the Corporate Library and Institutional Shareholder Services are making critical recommendations on broad corporate governance issues and will even publicly state their position on proxy proposals at individual companies. Aggressive hedge funds also are rankling the executive suite and pushing for change.

Hot topics such as executive compensation have caught the attention of the Securities and Exchange Commission, which is currently in a comment period on proposed rules that will address how compensation plans are presented in proxy statements.

"It's an open secret that today's compensation committee report is boilerplate. It's simply a waste of trees and ink," SEC Chairman Christopher Cox said in a recent speech. "In the future, we hope to see less legalese and Dilbert-ese, and more plain speaking. That's because the proxy statement is meant to help investors decide how to vote."

We regularly scrutinize these proposed compensation plans. In addition to voting against plans that are too lavish (and most are), we will withhold our vote for those directors who sit on the company's compensation committee.

It is ironic that shareholders, who are the owners of the company, find themselves in the position of fighting to get a stronger voice in the affairs of their companies. Investors should feel emboldened that there now appears to be a heightened attention to corporate governance issues.

So make sure you vote your stockholder proxy this year. It can be done easily over the Internet or by mail.



Skarbeck is managing partner of Indianapolis-based Aldebaran Capital LLC, a money-management firm. Views expressed are his own. He can be reached at 818-7827 or ken@aldebarancapital.com.
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