Legislature(1993 - 1994)
04/18/1994 01:00 PM House CRA
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* first hearing in first committee of referral
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+ teleconferenced
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HB 501 - CORPORATION CODE & ANCSA CORPORATIONS Number 388 CHAIRMAN OLBERG brought forth HB 501. REPRESENTATIVE BILL WILLIAMS, PRIME SPONSOR, HB 501, read the following sponsor statement for the record: "Alaska has hundreds of Native corporations, each with shareholders numbering from less than 100 to nearly 16,000. As the law now stands, when shareholders wish to remove directors neither they nor the corporations have a clear map of the process. Each attempt can be brought by a single shareholder and can go on indefinitely, sapping the resources of these for-profit corporations, many of which are primary employers in their regions. The situation is most comparable to that in municipal government, where elected officials can face recall elections. The Legislature (should) recognize that limitless recall efforts could cripple the legitimate work of government and make it difficult to attract and keep qualified restrictions on these drives. This bill generally applies the municipal recall election procedures to Native corporations. The Corporations Code now gives each shareholder the power to force all other shareholders to vote on removal, no matter how slim the odds of success or how frivolous the reason. Any one of what are sometimes thousands of shareholders could hold up a corporation's annual meeting in this way. By contrast, when voters want to remove municipal officials from office, they apply to the municipal clerk for a recall petition is prepared, it must be signed by a number of voters equal to at least 25 percent of the number who voted at the last regular election before the municipal clerk may call an election. In addition to adapting the municipal recall procedure for corporations, the bill defines a removal petition as the start of proxy solicitation, triggering all filing and truthfulness requirements under state law. This change, which codifies the relevant case law, is the definition already employed by the State Division of Banking, Securities and Corporations. The Corporations Code does not answer most of the questions it raises about the process for removing corporate directors, and lacks an adequate definition of when proxy solicitation begins. HB 501 proposes simple and clear steps for removal and defines solicitation in the event of a removal election. The objective of HB 501 is to provide a road map for a fair elections process." Number 450 REPRESENTATIVE TOOHEY asked, "You say that this bill will bring into conformity the corporation into all corporation proceedings?" REPRESENTATIVE WILLIAMS said, "I believe so. I know that the corporation that I belong to did not do this..." REPRESENTATIVE JOHN DAVIES said, "Did I take that to mean that there are many different procedures that different corporations use?" REPRESENTATIVE WILLIAMS said, "I'm not sure. I know that the corporation that I belong to had gone through several recall petitions and each time it had changed, the procedures had changed. So I would have to say that there is no clear road map... This bill would deal with only Native corporations because of the fact that we can't sell our shares..." Number 490 REPRESENTATIVE SANDERS said, "Is this brought up because of some specific situation that has happened or is this general with all the Native corporations across Alaska?" REPRESENTATIVE WILLIAMS said, "As you can see, I introduced it by request. I was approached by the Alaska Federation of Natives to do this." Number 503 MAXINE RICHERT, CORPORATE SECRETARY, SEALASKA CORPORATION, testified saying, "Sealaska is a member of the Alaska Federation of Natives (AFN) who have been instrumental in developing the language for HB 501." She then read aloud AFN's position: "The legislation results in part from Native corporations' experiences with shareholder matters not adequately addressed by the present Corporations Code. Before 1988 and 1989, when Alaska's new Corporations Code was enacted, Native interests worked with the legislature to revamp the Code. Since that time, we have discovered shortcomings in the new Code and have worked to revise it. HB 501 is the result of that effort. The bill was not drafted to favor or obstruct the interest of either management or shareholders. Rather, it tries to provide both shareholders and management with a clear procedural road map where virtually none has existed before. When shareholders currently wish to remove an elected director from office, they and their corporation must feel their way through the law, relying on the common law from other states and on the Division of Banking, Securities and Corporations, or even the courts, for guidance when they encounter large gaps in the Corporations Code. As a consequence, removal efforts drag on almost endlessly, and all parties incur enormous legal costs in simply making their way through the process... The legislation first gives shareholders a forum to go to, the Department of Commerce and Economic Development, Division of Banking, Securities and Corporations, if the corporate secretary rejects their petition for removal. The division already has jurisdiction over proxy disputes in Native corporations. By making the direct removal process clearer, this legislation ought to decrease, rather than increase, the division's workload... Finally, the bill changes the size of Native corporations that must file reports with the Division of Banking, Securities and Corporations. As the law now stands, a Native corporation with fewer than 300 shareholders in Alaska is exempt from filing its annual report and proxy materials with the division, no matter now big the corporation's assets and income. This bill proposes to require such filings of any Native corporation with at least 150 Alaska resident shareholders, if that corporation has at least $5 million in assets. Small, but economically powerful corporations would no longer be exempt from the filing standards with which all regional corporations must comply. The Alaska Federation of Natives believes that the best interest of Native shareholders throughout Alaska requires statutory clarification of these procedures. We encourage thorough public examination of them through hearings that will allow regional and village corporations an opportunity to respond." Number 566 REPRESENTATIVE TOOHEY asked, "I noticed this was introduced on February 14. Is there any reason we're hearing it now? Why didn't we hear it in February? Another question, the AFN, did they vote on this?" MS. RICHERT replied, "Their board of directors voted on it." REPRESENTATIVE WILLIAMS assisted, "My being the sponsor of this bill, I've been asking AFN when they would help us get the information and apparently they've been busy on other issues." REPRESENTATIVE DAVIES asked if the Division of "Security and Finance" is a state agency or federal agency. MS. RICHERT replied it was `state'. REPRESENTATIVE DAVIES pursued saying, "I'm wondering what this state legislature's authority is to set requirements for Native corporations, given that they were created by federal law." REPRESENTATIVE WILLIAMS said, "We are instructed to follow the state laws for corporate law." MS. RICHERT added, "Unless the federal law conflicts with state. Then the federal takes precedence." Number 595 REPRESENTATIVE WILLIAMS reiterated that Native corporation shareholders cannot sell their shares like an IBM shareholder can do. JOE WILSON, SHAREHOLDER, GOLDBELT AND SEALASKA, said, "I'm here representing my own concerns and views today... Basically, I'm opposed to it (HB 501). I don't think even though the AFN has stated they feel it's fair to both sides, they don't want to take a position, they just want to create something that's more fair, I don't agree with that. I think this legislation is being proposed by the regional corporations. Regional corporations paid money to fund the AFN organization and that's where they get their money to operate so they have to represent their interests, the powers that in place in these regional corporation institutions. So I don't feel that it is fair. There has been no recall effort that has ever succeeded. Presently, the rules in (the Division of) Banking and Securities are pretty much written in favor of the institutions in place... Whenever there is a challenge from the shareholders, the regional corporation, in addition to having the code (Alaska Administrative Code) in their favor, they also have unlimited resources to defend their position that is under question at any time and if the shareholder, the only way they could bring their concerns forward...is to have a petition to be circulated and to gain ten percent of the total outstanding shares. Like, in our experience, in Goldbelt. Goldbelt has 2,700 shareholders, and we are one of the four urban corporations organized under Alaska Native Claims Settlement Act... So for us to have more restrictive procedures to follow in getting a petition signed and getting first of all the regional corporation approval... I'm sure at that point in time, a lot of efforts to resolve it that have failed because the powers that be do not want to listen. So, the only recourse the shareholders have is to get a petition signed by 10 percent of the shareholders and once that is accomplished, it is delivered to the corporation and, under the Administrative Code, they have to verify the signatures on the petition are. And that is a process that is not difficult and they make it more difficult for this procedure here. And they make it more difficult for shareholders to sign a petition... Under HB 501, before we even get a petition, we have to go to the entity that we are being critical of to approve our signature. We have to go to the corporate secretary of the corporation. I don't see where there's a need for us to do that. But further, we have to comply with another provision where...all signatures were made in the presence of a sponsor... We have shareholders in Saudi Arabia and Germany... The inspector of an election can look at a filled signature. Furthermore, shareholders are identified by a social security number and also an enrollment number..." TAPE 94-18, SIDE B Number 000 MR. WILSON continued, "I don't believe that making it more restrictive on the process of obtaining a petition is fair. I think that this legislation gives more power to the entity that you're wanting to question..." REPRESENTATIVE TOOHEY said, " You said that the signature had to be verified by someone within the corporation. It says here as long as you have two witnesses, so it can be any two witnesses. If you're in Europe and sitting in a French cafe, it can be two people watching you sign that." MR. WILSON said, "There's a provision for a person that signs a petition with an `X', that's no problem there. But where it spells out on page 2, (line 30)... For instance if I were a sponsor on a petition, I would have to be present at every signature and I don't think that's fair." Number 078 REPRESENTATIVE JERRY SANDERS offered, "Joe, if there was something put in there about having a notarized signature, would that help you any?" MR. WILSON said, "No, I don't think that is really necessary because the signatures are on file at every corporation. Signatures are on file at every corporation. Corporations issue the dividend checks to shareholders and those individuals that sign for cashing those checks are a good source for verifying any signature that anyone signs." Number 105 REPRESENTATIVE TOOHEY said, "I think what the gentleman's referring to is on page 2, line 31. It says `sworn signature and date of signing that the sponsor personally circulated the petition'. That's impossible if you have people living in New York City... I think that's the glitch there." REPRESENTATIVE WILLIAMS said, "I know from experience...that trying to get ten percent of the petition signed, generally you'll get most of those petition signers right here in Juneau... I don't think, Joe, that it would hang up Goldbelt to get the petitions signed." MR. WILSON said, "The other thing, I think, is that you're requiring a higher standard than ten percent also is being proposed in this bill and I don't agree with that..." REPRESENTATIVE TOOHEY asked if this bill affects all corporations or just Native corporations and how many Native corporations are members of AFN. She asked, "Does this include any corporations that have not been consulted by this?" REPRESENTATIVE WILLIAMS responded saying, "It's signed by Julie Kitka who is the president of AFN... Granted, it probably has not been brought up at the AFN convention, but the board of directors of AFN, which is made up of 12 regional corporations...and 12 regional nonprofit organizations..." REPRESENTATIVE DAVIES asked, "You have the Alaska Administrative Code (AAC) there. Is the figure 10 percent in that Administrative Code right now?" MR. WILSON said, "The figure ten percent is in the bylaws of most of the village or regional or urban corporations." REPRESENTATIVE DAVIES asked, "So is it the case that right now the percentage that's required to approve a recall election is up to each individual corporation?" MR. WILSON replied, "First of all, they must meet the sufficient requirement which in most cases is ten percent of the shareholders who bring a petition." REPRESENTATIVE DAVIES asked, "That's what I'm trying to get at. Who sets that ten percent requirement?" MR. WILSON said, "It's in corporate law that each corporation should specify and most of them have adopted the ten percent requirement which is allowed in the Alaska statute for corporations... The higher standard for recall is also spelled out in Alaska statute which is 50 percent plus one which is a very high standard for removal of directors. So I see what you're doing here is just making it more difficult for the shareholder that doesn't have the finances of these corporations behind them..." Number 234 REPRESENTATIVE WILLIAMS said, "When this bill came before me, it was asked of me to introduce it, I was very much against it for some of the reasons that Joe has mentioned. Then, being away from that portion of my life for a couple of years gave me a little bit of time to rethink on some of the issues... I think that AFN has come up with this language because of the fact that there have been a lot of recalls and granted, sometimes it doesn't cost a company... but when I was working for Cape Fox, I can say that we treated every petition very seriously and we stopped everything within the company to deal with just a petition and nothing moved... We had to stop everything... It does cost us money every time we do have a petition." REPRESENTATIVE TOOHEY pointed out that on the letter submitted to the committee from AFN (Alaska Federation of Natives) it says, "We encourage a thorough public examination of them through hearing that would allow regional and village corporations an opportunity to respond" and asked, "Has that been done?" CHAIRMAN OLBERG said, "That's us." REPRESENTATIVE TOOHEY asked if this committee meeting is being teleconferenced. CHAIRMAN OLBERG indicated no. REPRESENTATIVE TOOHEY asked if was the intention of the chair to move this bill out of committee today. CHAIRMAN OLBERG said, "I didn't have any strong feelings one way or the other." Number 323 REPRESENTATIVE TOOHEY asked, "What is a frivolous petition?" REPRESENTATIVE WILLIAMS said, "In my experience, we have never denied a petition... The only reason that some of our petitions never went through is that some of the sponsors were meeting and discussed it and they backed off. Living in a small community...you knew when you had to have a meeting." CARL NELSON, SHAREHOLDER, GOLDBELT INCORPORATED AND SEALASKA CORPORATION, testified in opposition to HB 501. He said, "In regards to what I feel that is very important in something like this, is checks and balances... We're looking at what we have as far as the Native corporation is concerned and coming in with some kind of guidelines and laws that are going to more or less guide them in a direction that they're going to follow... It seems to me the checks and balances are kind of being swayed to the corporation's side rather than being swayed to the individual shareholder's side. If we're going to be dealing with anything such as HB 501, then I think what we ought to do is really dwell into it. I mean dwell into it to the extent... I would recommend that it be up for debate in the AFN on the issue of this matter, so that all of the other issues that are pertinent to it will come out of the woodwork and be part of the bill... I certainly don't want to see a corporation being manipulated all the time..." Number 420 REPRESENTATIVE DAVIES said, "You said that there's no standard processes?" MR. NELSON said, "I don't believe that every corporation is the same in their election process..." and described a recent recall effort at Goldbelt that failed. He said, "If we could change the 20 days to 60 days, the 40 days to 80 days. Then I think there's fairness there in regards to recall or anything else dealing with any corporation. You're not shutting the door. You're giving fairness to a shareholder who does not have the funds..." REPRESENTATIVE SANDERS said, "Since I've been down here, this is the bill that I feel the most unqualified to vote on or comment on because I don't understand the situation and I don't think there's been enough input into it... I'm married to a Native lady and over thirty years I've always been told that Native people want to handle their own affairs and I don't understand why we're being asked to tell you what to do... I feel uniquely unqualified to make any kind of a judgment." Number 460 REPRESENTATIVE WILLIAMS said, "As far as doing it for ourselves, I think a lot of the corporations have done it for themselves. The way that they'd like to see a special meeting called... This portion of law doesn't let us take care of it (for ourselves)... I don't think we have staff members on the Community and Regional Affairs to take care of this. It probably should be heard in Judiciary where we do have attorneys to look at this bill more closely, so that everything within this bill is done according to the laws that we do have... I can say now that ten percent is too little..." REPRESENTATIVE TOOHEY said, "This is a corporation problem... But I'm going to feel very uncomfortable making a decision legally in the legislature without having had (this) at least brought up in front of the (AFN) meeting in Anchorage or Juneau or Fairbanks, wherever it's going to be this year... I'm very uncomfortable with it." Number 556 REPRESENTATIVE DAVIES expressed similar discomfort also and asked if a majority of all shareholders, not just those who voted, are needed for a recall petition. He commented that this would make a pretty tough standard. REPRESENTATIVE BUNDE indicated he felt capable to make decisions regarding Native corporations. He said, "On this Goldbelt, it costs $150,000 of corporation money to deal with the recall effort and the ink wasn't dry on the vote before they starting another one..." Number 587 REPRESENTATIVE ED WILLIS said, "I, too, am having problems coming to grips with this and (not) knowing how many of the corporations out there really feel that this is the way to go..." CHAIRMAN OLBERG indicated that he may have "inherited the headquarters of Ahtna Corporation" due to redistricting and indicated some discomfort with this bill. He said, "That doesn't mean it can't go to Judiciary, either. They do have attorneys that we don't have access to. The idea of it coming up again at AFN has merit." Number 615 LESLIE LONGENBAUGH, ATTORNEY, BIRCH, HORTON, AND SHEROUGH, said, "Sealaska Corporation, with which I'm most familiar, has probably more shareholders in Seattle than it does in Juneau. That's just a guess... It frequently calls on the hundreds of shareholders in Seattle area. I'm sure they would get involved through local sponsors (there)." REPRESENTATIVE TOOHEY asked, "On page 2, line 30, number 8, `a statement, with spaces for the sponsor's sworn signature and date of signing, that the sponsor personally circulated the petition, that all signatures were made in the presence of the sponsor': I get hundreds of petitions to sign and I circulate them, give them out, it doesn't matter who signs them as long as they're...verifiable. I think this is a very restrictive section in here." CHAIRMAN OLBERG said, "On page 2, line 6: that every person voting in the election can theoretically be a sponsor and have their very own petition mailed to them if they so desire, is the way I read that, `to each sponsor who appears in person in the secretary's office or whose mailing address is provided to the secretary..." Number 649 MS. LONGENBAUGH said, "You could be in Kake or Seattle... Where it's written in the law that you have to have ten percent now to get a recall. Actually, the statute says and it's 10.06.460, one shareholder can put removal on the ballot. Any one shareholder. You need ten percent of shares to call for any special meeting which is normally what the vehicle is for these removals; although sometimes it will happen at the annual meeting. So, as it stands now, of Sealaska's 16,000 shareholders, one could call for removal of any given director." REPRESENTATIVE DAVIES asked, "One person could cause an election to happen?" MS. LONGENBAUGH replied, "No, it takes ten percent to get a special meeting. One person can put it on the ballot at an election that's already happening... If you wanted to have a special meeting which is more often the vehicle and that's, I think, where the ten percent comes from in most people's minds, you have to have a ten percent petition of shareholder... 10.06.460, 10.06.405." Number 664 REPRESENTATIVE TOOHEY asked, "What is the criteria for denying a petition?" MS. LONGENBAUGH said, "Well it looks as though in section 1 which is just talking about shareholder votes on any petition or demand, not just recall, you have to just meet the requirements of `b' which is at the base of page 1, which requires the name and address of the sponsors, the source of funding that exceeds $500 in the aggregate and the name and address of a contact person and an alternate contact person. And then it says `if the secretary determines that an application for a petition form meets the requirements of "b" of this section, the secretary shall issue a petition form.' So in that regard the secretary has very little discretion. This is copied from the recall statute for municipalities... It's in the section by section analysis and sponsor statement..." CHAIRMAN OLBERG asked, "Are there any major differences between this and municipal provisions, that you are aware of?" MS. LONGENBAUGH said, "None that I'm aware of or can think of at the moment, except at the bottom of page 5 and this is just because it's peculiar to corporations, section `p' defines a petition as a proxy solicitation under the law, which is a corporations thing. The Division of Banking, Securities and Corporations already defines a petition as a proxy solicitation which triggers some reporting requirements. In section 2, that has to do with the recall specifically...does say that it has to be for a lawful purpose for holding a meeting and certainly recalling directors is set out in the statutes as a very lawful purpose. In fact, lawful purpose in the corporate context is defined broadly by the case law. A corporation would be really remiss to turn down anything that was other than direct personal gain..." TAPE 94-19, SIDE A Number 000 MS. LONGENBAUGH indicated that all regional, urban and village Native corporations are members of AFN, except possibly one. REPRESENTATIVE TOOHEY asked how many of these are on the board of directors. MS. LONGENBAUGH indicated twenty something board members. REPRESENTATIVE DAVIES asked, "Did you hear my comment about the 50 percent requirement? That's clearly not the same as municipalities." MS. LONGENBAUGH said, "What is actually the requirement has to do with accumulative voting... It ends up being extremely difficult. It's true, it's a very high standard for, if they had to have 50 plus one at the Goldbelt election given the numbers cited to you, they would have recalled the entire board. But if you're trying to recall an entire board, if they were cumulatively voted in, you have to have more than as many votes as it took to elect them in the first place. Extremely difficult standard that's in the statutes now and the Alaska Corporate Code." REPRESENTATIVE DAVIES asked, "The corporate code doesn't say a majority of the stockholders, it has some other standard?" MS. LONGENBAUGH said, "It has a different standard, it's more complicated." REPRESENTATIVE SANDERS asked, "Has anybody ever been recalled?" MS. LONGENBAUGH replied, "Larry Carroll at the Division of Banking, Securities and Corporations has told me that no one has ever been recalled. But what happens...is that everything grinds to a halt for the supposedly for-profit corporations, and the cost is extremely high." Number 085 REPRESENTATIVE DAVIES asked, "Is there any restriction in the number of times a recall can be brought?" MS. LONGENBAUGH said, "In this bill, if you bring this (a petition) before the body and it's not successful then you have to wait like a year before you can bring it back again which is similar or might be identical to the municipal recall." REPRESENTATIVE WILLIAMS said, "I didn't realize that...you had to wait a year... Getting back to ten percent which I think is important, is that increasing it then?... You do have ten percent of the people upset with what we all do here... But I do support this, I think that this bill needs probably more work..." Number 130 REPRESENTATIVE SANDERS said, "In the interest of cutting down on frivolous suits and also in the interest of getting more accomplished by the suits, I don't know that I don't agree with the 25 percent because, like you say, all of them are ten percent. It sounds to me like they just get their ten percent and quit talking to people and if they got 25, they'd stand a lot better chance of getting something through and you'd have a lot less petitions to go through. That might help." MS. LONGENBAUGH added, "The 25 percent standard is the municipal recall standard for I guess that reason." REPRESENTATIVE DAVIES pointed out, "That's 25 percent of the people that voted in the last election. This would be 25 percent of the corporation?" MS. LONGENBAUGH said, "It says `representing at least 25 percent of the number of votes cast at the last regular election.'" REPRESENTATIVE SANDERS asked, "What's the (current) ten percent of?" MS. LONGENBAUGH said, "Ten percent is of all shareholders so the 25 might be more like a 15, I don't know." REPRESENTATIVE WILLIAMS said, "I didn't realize that. I'd like to see it at 25 percent of the outstanding shares..." and then moved that the bill be passed out of committee with individual recommendations. CHAIRMAN OLBERG asked to hold that motion until all testimony was taken and called an at ease from 2:46 p.m. to 2:47 p.m. Number 200 KATHERINE MIYASATO, SHAREHOLDER, GOLDBELT AND SEALASKA, testified against HB 501. She said, "I understand there are a few legislators here that have not really delved into it and how much input is there from shareholders who are the ones that are having the difficulty with some of the corporate board members. It wouldn't cost us the money it's costing us if things were the way they should be, because it's a business corporation. It's not a fraternal organization. The only difference is that these business corporations, for-profit corporations, have Indian people who do not generally think like a white person and... it's important that you have this input from the shareholders. From my understanding... the AFN, apparently it was the board members, did they have input from all the people of the AFN? Were these things circulated? I'm also chairing the Douglas Indian Association... How much publicity has there been? Since it deals with shareholders of these corporations, how many of these shareholders have heard about this?" CHAIRMAN OLBERG asked if the Douglas Indian Association is a member of AFN? MS. MIYASATO said, "No, we have just recently been recognized by the Department of the Interior." CHAIRMAN OLBERG said, "All of the legal requirements as to notification have been met as regards this bill, but obviously it has not been disseminated statewide in any systematic fashion to shareholders... That is exactly why this meeting is taking place and why future meetings will take place, is to allow people a chance and us to educate ourselves..." MS. MIYASATO asked if this meeting was publicized in the legal notices. CHAIRMAN OLBERG said no. Number 285 REPRESENTATIVE WILLIS asked, "Could we not make a recommendation to the next committee of referral that when they do consider this bill that they hold a statewide teleconferencing on it? CHAIRMAN OLBERG said, "Absolutely..." REPRESENTATIVE DAVIES said, "I would share Representative Willis's concern if we were to add that as a recommendation in a letter of transmittal, then I would be comfortable." CHAIRMAN OLBERG said, "...I think that's appropriate," and asked Representative Williams to restate his motion. REPRESENTATIVE WILLIAMS moved to pass HB 501 out of committee with individual recommendations with the described letter of intent attached for the Judiciary Committee. There were no objections. CHAIRMAN OLBERG adjourned the meeting at 2:55 p.m.
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