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IBM shareholders reject options expensing

Big Blue shareholders narrowly reject a proposal to account for stock options as an expense, showing a greater level of shareholder dissent.

IBM shareholders on Tuesday narrowly rejected a proposal to account for stock options as an expense, showing a greater level of shareholder dissent than has been seen at the world's largest computer company in a decade.

IBM had five shareholder proposals up for a vote at its annual meeting in Kansas City, Mo., a sign that shareholder activism has become more mainstream.

As in the rest of corporate America, broad-based support for shareholder proposals came from pension fund investors and labor groups, who added their voices to those of former employees and other dissidents.

"It's a record year for governance proposals," said Carol Bowie, director of governance research at Investor Responsibility Research Center.

At technology companies, shareholders have been especially concerned about stock options--which are used as a means to compensate workers but not treated as actual expenses, confounding investors trying to determine how to value the stock.

In other sectors, shareholders have passed resolutions regarding everything from executive compensation to how boards are elected at companies such as Delta Air Lines and Bristol-Myers Squibb.

A record number of shareholder proposals--1,034--made it onto proxies this year, Bowie said. Of them, a record 73 percent pertain to corporate governance.

Investors have used annual meetings to push managements to adopt policies that they believe create a better system of checks and balances on corporate governance, protecting investors against the next Enron or WorldCom scandal.

Armonk, N.Y.-based IBM, which sells computer services, hardware and software, said 47 percent of votes cast were in favor of the options-expensing proposal, narrowly defeating the plan.

Similar proposals regarding stock option expensing gained shareholder approval this month at NCR and Apple Computer. Such shareholder proposals are non-binding, but management will often consider them when they receive broad support.

The activism at the IBM shareholder meeting reached a level not seen for a decade. In a 1992-1993 period, shareholder groups campaigned to break up the insider-controlled board at IBM as part of a bid to remove top executive John Akers. The unrest spurred Akers' early retirement and the eventual hiring of Louis Gerstner, who became chairman and CEO.

On Tuesday, dissenting IBM shareholders were voted down on the options proposal, which was put forth by the National Automatic Sprinkler Industry Pension Plan, which owns nearly 169,000 IBM shares out of the roughly 1.7 billion outstanding shares. It is part of a larger association of plumbing and pipefitting unions that has made the same proposal to more than 100 companies this year.

IBM, which on Tuesday also raised its quarterly dividend by about 7 percent to 16 cents a share, had opposed the proposal.

Chairman and Chief Executive Samuel Palmisano told shareholders during a question-and-answer session that the expensing of options is very complicated, particularly the issue of how to fairly expense options.

IBM will comply with whatever accounting regulators decide, Palmisano said, but the company has made a decision to stay out of the current debate about the expensing of options.

"It's about some individuals who abused the program for a lot of personal gain. That needs to be resolved and it needs to work itself out...Let it run its course. Let the debate continue and we are going to adhere and comply with whatever decision is made," Palmisano said.

The governing accounting body, the Financial Accounting Standards Board, is looking at the issue.

One corporation that has opposed it vehemently is Intel, which, like many technology companies, used options freely to compensate its employees during the 1990s, when options in tech stocks were more desirable than a salary.

The stock options issue has come as technology companies, including IBM, have been hurt by a more than two-year downturn in spending. Palmisano said Tuesday that he expects the industry to continue to grow faster than gross domestic product (GDP). GDP grew at 1.6 percent in the first quarter.

IBM shareholders also rejected a proposal that would ask shareholders for permission to adopt any poison-pill defensive measures used in preventing unwanted takeovers. IBM said 37 percent of the votes cast were in favor of the proposal.

Story Copyright  © 2003 Reuters Limited.  All rights reserved.