A related issue arose at Kroger, where the LongView Funds last year proposed that the board require annual elections of all directors. The proposal received a majority of the votes cast, but not a "super-majority" of 80% of the outstanding shares. Thus, it was not adopted. Such super-majority provisions are not uncommon in corporate charters or bylaws, and they can prevent investors from implementing governance reforms, no matter how much such changes may be needed. To underscore investor concern about Kroger's governance, the LongView Funds this year proposed a bylaw to eliminate that company's super-majority requirement. The resolution was overwhelmingly supported at the meeting.

Finally, the LongView Funds have launched an initiative focusing on the lack of voting rights enjoyed by shareholders at companies having two classes of stock. Typically at such companies, one class of stock controls a significant block of voting power and is often closely held (such as by members of a family); the other class is publicly traded, yet holders of these shares have fewer voting rights per share.

Astonishingly, six companies in the S&P 500 index have two classes of stock and grant holders of the publicly traded shares no voting rights whatsoever. Viacom is an egregious example. Investors holding $50 billion worth of Viacom's "Class B" stock have no right to elect directors, offer shareholder resolutions or vote on important issues affecting their shares. The problem is exacerbated by the fact that many holders cannot sell these Class B shares because their Viacom holdings are in indexed funds. At a time when Viacom's performance has sagged and the company is planning to split itself in two, the LongView Funds and other institutional investors are urging Viacom's senior management that the spinoff companies grant shareholders a basic right to vote.

LongView is pressing other two-tier companies, including Affiliated Computer Services (ACS) and Meredith, to explore ways to offer shareholders a single class of shares.  At ACS, the Company decided to support the Bank’s resolution that called for a recapitalization plan that would result in one vote per share for all Company stock, and the proposal received 98% support. The Meredith proposal received an 18% “yes” vote, reflecting the Meredith family's control of over two-thirds of the voting shares. The Fund expects to continue advocating reform in this area.

EXECUTIVE COMPENSATION

Excessive compensation for top executives continues to be a major investor concern, and the LongView Funds remain at the forefront of promoting a genuine "pay for performance" philosophy that rewards top managers if they can achieve long-term shareholder value. To that end, the Funds offered proposals to prevent excessive awards of options and other incentive-based compensation to senior executives at Eli Lilly, Capital One and First Energy, with support in the 20%-35% range. A proposal at Apple Computer was withdrawn following a dialogue with the company on its practices.

As in previous years, the LongView Funds enjoyed successes in reining in excessive "golden parachutes" for top executives, including winning votes at Halliburton and Republic Services on proposals to require shareholder approval if golden parachutes exceed certain threshold amounts. The Funds also learned in 2005 that CSX had decided to adopt such a policy following a 70% showing of support for LongView's proposal in 2004.

The LongView Funds continued its pioneering work on the problem of senior executives who receive whopping bonuses or options grants for having achieved certain performance benchmarks -- yet hold on to those funds even when earnings were misstated resulting in financial restatements that cripple shareholder value. A firm believer that "if you didn't earn it, you should return it," the LongView Funds are urging companies to adopt a policy that they will recoup or "claw back" bonuses or options awards that are paid to senior executives who, as it turns out, did not hit their numbers, but were richly rewarded anyway. A clawback proposal at Dynegy, which was enmeshed in an energy trading scandal in past years, received one-third of the shareholder vote this year, following up on a strong showing last year at Computer Associates, another financially troubled company.

BUSINESS STANDARDS

The LongView Funds believe that companies have an obligation to shareholders to anticipate and respond to potential developments that could affect corporate reputation, business risk and long-term shareholder value. The submission of such shareholder resolutions means that companies are obliged to address underlying concerns and explain to shareholders what management is doing to address the situation.

The LongView Funds joined forces with other institutional investors who are pressing for improved reporting about environmental issues at Vintage Petroleum and XTO Energy, as well as Smithfield Foods. For the second year in a row, Abbott Laboratories was asked for a report on the economic effects of the HIV/AIDS, tuberculosis and malaria pandemics on the company's business strategies, and Dillard's was urged to adopt labor standards for overseas suppliers prohibiting child labor and forced labor and protecting worker rights.