Pacific Enterprises Puts Stockholders’ Rights to Test

When a leader of the union that represents 6,000 Southern California Gas Co. workers narrowly missed getting elected to the board of the gas company’s parent corporation last year, he was sure that he would succeed the next time around.

“There isn’t going to be a problem for us to come back next year and win,” boasted Sam Weinstein, Western regional director of the Utility Workers of America union, after receiving more than 80% of the stockholder votes necessary to win a board seat.

Now, however, there is a problem. Thanks to a new state law allowing corporations to change the way they elect board members, Weinstein is about to be stripped of another chance.

Directors of Pacific Enterprises, which owns the gas company as well as Thrifty Corp., have called a special stockholders meeting in Los Angeles on Thursday to eliminate “cumulative voting,” a technique favored by long-shot candidates because it allows stockholders to pool many votes in favor of a single candidate.

The corporation says it is simply trying to eliminate the discomforting possibility of a dissident director who might prove to be a “disruptive” force on the 15-member board.

Weinstein and other leaders of a coalition of organizations that are trying to increase the number of employee stockholders or union leaders on corporate boards accuse Pacific Enterprises of taking an arrogant swipe at shareholder rights.

Before the law changed Jan. 1, California was one of only 10 states that allowed cumulative voting. A stockholder voting for a 10-member board could spread his 10 votes among 10 candidates or--if he felt strongly in favor of a single candidate--could cast all 10 votes for that candidate in what was known as a “single-shot” strategy.

At Pacific Enterprise’s annual meeting last May, each stockholder had 15 votes. With support from union members, who own stock through a employee stock ownership plan, Weinstein received backing from about 4.5% of the stockholders. Thanks to substantial pooling, that translated into 41.6% of all votes cast--short of the 50% majority required to win a seat on the board but impressive. The company’s slate of 15 directors won re-election.

Had Weinstein won, he would have been the first union member in the nation to have been voted onto a corporate board without board support, according to groups devoted to increasing employee control of corporations.

In recent years, corporations have on occasion invited employee representatives or union leaders to their boards, sometimes grudgingly, as when financially ailing Chrysler put former United Auto Workers President Douglas A. Fraser on its board in 1980.

Weinstein based his 1989 campaign on the contention that Pacific Enterprises’ diversification strategy of acquiring additional companies caused sharp declines in the company’s stock price. Anticipating a 1990 campaign, he said he was shocked last November when he was told that the state Legislature had passed a bill eliminating mandatory cumulative voting--in effect, giving each corporation the right to ban it.

Ironically, the bill was authored by Assemblyman Bob Epple (D-Norwalk), who is considered pro-labor.

Patt Garrett, an Epple senior staff member, said the assemblyman introduced the bill at the request of the California Bar Assn.’s business law section, which had for years attempted to do away with mandatory cumulative voting.

Garrett said Epple conferred with bar association lobbyists months before last May’s Pacific Enterprises vote. He was told that eliminating cumulative voting would take away a weapon of corporate takeover artists to gain a seat on a board through pooling of a minority of stockholders.

The issue of what the legislation might to do Weinstein’s campaign “was never raised,” Garrett said.

The bill was passed overwhelmingly by the Senate and Assembly and signed into law in September.

The corporation spent more than $200,000 on literature to stockholders during the 1989 proxy campaign, describing Weinstein as a single-interest candidate.

Five days after the new law went into effect, Pacific Enterprises called Thursday’s special meeting to change the voting rules for this May’s board meeting.

The literature mailed to stockholders, alluding to Weinstein’s surprising 1989 campaign, said the corporation’s directors want to change the rules because board members elected through cumulative voting “are likely to be partisans of the particular interest groups who elected them.”

“We think that his presence on the board would be very disruptive,” Pacific Enterprises spokesman Tom Sanger said in an interview.

Weinstein, a former gas company worker who owns a few hundred shares of stock, said he was offended by the suggestion that he would be biased or simply a union representative.

“As employee stockholders, we have a bigger stake in this than anybody else,” he said. “When they tighten the belt, as I like to say, we’re the waists.” Employees own 24% of Pacific Enterprises through the employee stock ownership plan, but only 7% to 10% of the stock is owned by members of the utility workers union, Weinstein estimates.

Weinstein and his supporters have mailed literature to major stockholders arguing against the elimination of cumulative voting, contending that “what the board of directors is doing is to insulate themselves from shareholders,” Weinstein said.

Peg O’Hara, director of corporate governance of the Investor Responsibility Research Center, a nonpartisan organization funded by institutional investors that tracks 1,500 large corporations, said the elimination of cumulative voting by corporations is common. She said 10 major corporations in the United States did it last year.

Cupertino, Calif.-based Apple Computer Inc. made a similar change in January, becoming the first to take advantage of Epple’s legislation.