Analyst: Shareholder activism to surge

Shareholder activism is likely to surge this spring through efforts to withhold votes for individual directors, seek more investor input on executive and other efforts.
FEB 12, 2009
Shareholder activism is likely to surge this spring through efforts to withhold votes for individual directors, seek more investor input on executive compensation and separate the chief executive and chairman functions, according to an independent corporate-governance research firm. “Shareholder outrage has never been so high,” wrote chief analyst Ric Marshall of The Corporate Library of Portland, Maine. “Boards that ignore this outrage will do so at their own peril.” Investors also are likely to be more alert to how the boards of financial institutions manage risk and whether they rely on “easy money” such as “payday loans, overdraft fees and usurious interest rates aimed at customers who can’t afford them, Mr. Marshall wrote. This activism would surface most visibly at companies’ annual meetings in April or May, though investors may file their motions months before. A spokeswoman with the Council of Institutional Investors in Washington buttressed Mr. Marshall’s forecasts, predicting an unusually high number of proxy proposals to rein in CEO pay. “Shareholders are incensed,” Amy Borrus, whose group represents investors such as pension funds, mutual funds and insurance companies, said in an interview. Spokesmen for organizations such as the Business Roundtable, Financial Services Roundtable and the Chamber of Commerce didn’t immediately respond to requests for comment. Investor outrage has been fueled by “the extravagance and disingenuousness of CEO pay” and failed board oversight of corporate risk and strategy, Mr. Marshall said. At most companies, shareholders can’t vote against an individual director nominated by the company but can symbolically withhold their ballot. If a substantial number of investors do withhold votes, boards may pull the nomination of that director. Mr. Marshall predicted a record number of “withhold votes” for directors who sit on compensation, risk and audit committees that may be seen to have provided lax oversight. The Corporate Library is funded by institutional investors, director and officer insurance companies, and professional firms seeking to assess governance risk. Shareholders already have drawn support from President Obama and new Securities and Exchange Commission Chairman Mary Schapiro, both of whom have expressed support for “say on pay” plans, in which investors cast an advisory vote on executive compensation. There will be more efforts by shareholders to get say on pay, Ms. Borrus said. Also, labor groups and the state of Connecticut already are seeking to get executive-pay incentives aligned with long-term corporate interests by deferring their ability to cash in stock awards until two years after they leave the company, she said. There also are likely to be moves to restrict so-called golden coffins in which companies agree to make payments to executives’ estates after they die, according to Ms. Borrus.

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