An obscure ruling from an increasingly obscure agency has some public companies in a tizzy. In late spring, to very little fanfare, the Securities and Exchange Commission shifted its position significantly on so-called shareholder proxies in general, and votes on universal healthcare in particular. The reason this decision didn't make many headlines, I think, is that we were in the throes of the credit crisis and observing an economy that seemed poised to really hit the skids over $140-per-barrel oil and $4 a gallon gasoline, not to mention a brutal endgame in the Democratic presidential primary.
Essentially, the agency said that public companies did not have the right to exclude a shareholder proxy vote on whether the company favorably views principles of universal healthcare. What does this have to do with healthcare finance, you might reasonably ask? Read on.
Activist shareholder groups are promoting a concerted effort to get some of the nation's largest companies to vote on essentially the same set of healthcare principles. Many religious and social organizations, as well as organized labor, hold shares in public companies through pension funds and other investment vehicles, and attempt to use this influence to right what they perceive as wrongs in the way the company operates. As shareholders, they have the right to propose board votes at annual meetings on a variety of subjects. At least until now, that doesn't mean the company has to actually hold a vote on the proposals. To be fair, many such proposals are cockamamie and silly, and were the board to waste its time voting on every proposal submitted by someone with an agenda, they would never get to company business.
But they have to take this one, which has been showing up on 2008 proxies, seriously. It asks companies to implement "principles for comprehensive healthcare reform" like those devised by the Institute of Medicine. While the proposal does not require companies to offer full health benefits for all employees, it asks top corporate executives to view universal coverage as a broader question of social policy.
James H. Cheek III, an attorney in the Nashville law firm of Bass, Berry & Sims' corporate and securities practice, says the SEC's decision is a surprising one because historically, companies have been allowed to exclude shareholder proxies rather easily. "One of the bases for rejection is if the shareholder proxy deals with ordinary business operations," he says. "Those are management decisions. The board and management can't allow them to try to manage the business from afar."
Until recently, a vote on principles of universal healthcare fell squarely into the rejection bucket. The new SEC ruling means the agency wants to look at social policy issues like the universal healthcare proposal on a case-by-case basis. "You have to write to the SEC and get permission to exclude these proposals," Cheek says. "There will no longer be automatic dismissal of these."
Activist shareholders have responded by bombarding companies that have not already taken a public position on universal healthcare with proxy vote proposals. Last year, there were only two proposals. This year, says Cheek, there have already been 28-and this was when I talked to him a few weeks ago. They can't force the company to do anything. But they can embarrass the companies-healthcare companies--that depend on the current healthcare system, which, as we all know, is quite a long way from being "universal."
To most companies, the vote itself doesn't really matter much. Whether GM or IBM have a public debate and hearing about universal healthcare is really immaterial to their financial results, discussion of which is a big reason for holding an annual meeting. Indeed, many public companies would love to have the healthcare cost burden magically taken off their plates. Sure would help GM, for example. But where it gets interesting is in proxy votes at public healthcare companies like UnitedHealthcare, Health Management Associates, Medtronic, or any of hundreds of others.
"The concern of many companies that are targets, especially those that are in the healthcare industry," says Cheek, "is that it calls to attention the flaws in reimbursement systems that impact their businesses."
You can see where public healthcare companies that may have a pretty big financial stake in preserving the status quo might be a little nervous. The SEC ruling gives shareholders a platform. "You have to give the shareholder the floor at the meeting, and they can make any comment they want as long as it's related to the proposal," says Cheek.
That, my friends, could be bad for business.