Shareowner proposal submitted to KB Home on October 23, 2000:


WHEREAS many shareowners lack the time and expertise to make the best voting decisions, yet prefer not to always follow management’s recommendations, because of management’s possible conflicts of interest;

WHEREAS shareowners have a common interest in obtaining sound independent advice, but often insufficient private interest to justify paying for it individually (the "free-rider" problem);

THEREFORE BE IT RESOLVED that KB Home shareowners request the Board of Directors to hire a proxy advisory firm for one year, to be chosen by shareowner vote. Shareowners request the Board to take all necessary steps to enact this resolution in time to hold the vote at the year-2002 shareowner meeting, with the following features:

  • To insulate advisor selection from influence by Company management, any proxy advisory firm could put itself on the ballot by paying an entry fee, declaring the price (no more than $5000) for advisory services for the coming year, and providing the address of a website describing their proposed services and qualifications.
  • The winning candidate would be paid its declared price by the Company, and make advice freely available to all Company shareowners for the subsequent year, on all matters put to shareowner vote except director elections. This advice could relate to such matters as mergers, stock option plans, and shareowner proposals. (Advice on director elections is excluded to satisfy SEC rule 14a-8(i)(8).)
  • Performance of the advisory firm would not be policed by Company management, but rather by gain or loss of the advisor’s reputation and future business.
  • Brief summary advice could be included in the Company proxy, with references to a website and/or a toll-free phone number for more detail.
  • The decision of whether to hire proxy advisory firms in later years would be left open, and could be decided by future shareowner votes.

Supporting Statement:

This proposal can be expected to improve the Company’s stock return by:

  • improving management accountability to shareowners by making independent professionally researched advice available to all;
  • increasing support for value-enhancing mergers and proposals;
  • encouraging greater competition on price and quality among proxy advisors to serve shareowner interests, making it easier for new advisors to enter the business, and reducing the market share of the largest proxy advisory firm.

Like the Company’s external auditor, the proxy advisor would be paid with Company funds to give shareowners an independent professional opinion. Independence would be further enhanced by having shareowners choose the proxy advisor.

The conflicts of interest betwen managers and shareowners are described in Monks and Minow’s 1996 book Watching the Watchers, along with shareowners’ information problems.

Articles discussing the company-pay system for proxy advice are on the Corporate Monitoring website (, in particular "The Internet Will Drive Corporate Monitoring" (Corporate Governance International, June 2000). Further developments in corporate governance that may follow from this proposal are presented in "The Corporate Monitoring Firm" (Corporate Governance: An International Review, January 1999) and "Corporate Monitoring: New Shareholder Power Tool" (Financial Analysts Journal, September/October 1998).