Trouble at the Top-Proxy Fights 2008
Friday, March 21, 2008PAUL KANGAS: Over the past few months, stockholders of many companies have been hit with a steady stream of bad news, including record losses, write downs in the billions of dollars and plunging stock prices. Some shareholders blame the trouble on mismanagement, which they trace right to the top of their firms. And rather than just complain, shareholder activists are getting set to take action against those whom they hold responsible at the corporate ballot box. As Erika Miller reports, that could lead to a record number of proxy fights in coming weeks.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The board members and management of financial companies will be squarely in the spotlight at upcoming annual meetings, when they face angry stockholders. Rich Ferlauto is the shareholder advocate at the American Federation of State, County and Municipal Employees. His group, whose pension funds hold shares in many financial firms, is vowing to hold company directors responsible for not sufficiently managing sub-prime risk.
RICHARD FERLAUTO, DIR., PENSION AND BENEFIT POLICY, AFSCME: The ire of shareholders is going to be focused where there were the biggest market failures. And certainly if the bank liquidity and credit crisis leads to a recession, you're going to see a lot of activity at these annual meeting.
MILLER: He and others are outraged that while many financial firms were losing money, top brass still received lavish pay-outs. Michael Garland, who manages pension investments for a group of unions, is furious at directors for not tying the pay of their top executives to performance.
MICHAEL GARLAND, DIR., VALUE STRATEGIES, CTW INVEST. GROUP: When you see the CEO of Merrill Lynch removed for a failure that cost shareholders $35 billion and he walked off with $160 million in severance, I mean, the link between pay and performance has been not only severed, but I think fatally severed in a situation like that.
MILLER: Merrill Lynch declined to respond. But executive pay packages are shaping up as an election issue on the proxies of many companies. Advocates have filed over 100 say-on-pay resolutions at a wide range of firms, demanding that companies give shareholders an advisory vote on executive pay.
FERLAUTO: We want to establish, particularly at these companies, a say on pay that would allow shareholders to weigh in on the compensation packages that's given to the CEO, so that we could see whether those pay packages are really deserved or not.
MILLER: This year, activist hedge funds are also electioneering at companies that they see as underperforming, trying to replace board directors with their own slates. That's what happening at the "New York Times," for example, although the stronghold on the company by the founding Sulzberger family makes the challenge an uphill battle. Experts say there would have been more challenges for director seats this year, except that the Securities and Exchange Commission recently made it harder for shareholders to nominate their own candidates.
Another trend is an increase in motions on environmental issues. Investment groups are targeting dozens of companies, asking for them to release environmental impact statements and show how the firms are responding to global warming. Carolyn Brancato of the business research firm the Conference Board says what's new is the type of investors pushing these initiatives.
CAROLYN BRANCATO, DIR., CONFERENCE BOARD GOVERNANCE CTR.: The green issues have moved from a nice to do to a financially required to do. And that has brought in all the big financial institutions to the side of the social funds.
MILLER: Some shareholders are pressing for another kind of green: cold, hard cash. They want firms, especially tech companies with large coffers, to award shareholders with special dividends or spin-offs. Companies rarely talk about proxy challenges. Many feel the motions are a distraction and a drain on resources. Some experts predict the next big area of shareholder scrutiny will concern the influence of sovereign wealth funds, which have bought large stakes in many troubled companies.
BRANCATO: We're not really clear exactly what is going to happen with the presence of these sovereign wealth funds from the Middle East and from China and from Norway, because they want to clearly have the companies increase long-term value, but some of them may be aligned to certain government organizations. MILLER: Most proxy resolutions are sponsored by big institutional investors because they tend to be the largest shareholders. Win or lose, they are hoping to send a strong message to management: you report to us, not the other way around. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
