Shareholder Activism on the Rise
Posted by Jason Apollo Voss on Jul 6, 2011 in Blog | 0 comments
Because most companies are on a calendar year for financial reporting, their annual shareholder meetings and proxy statements are considered by their owners in the late spring to early summer. This annual meeting season has seen a rise in shareholder activism. Executive pay, in particular, has been a flash point for shareholders.
Is it that shareholders have all of a sudden gotten interested in such issues? No. Shareholders have been interested in having a greater say in the affairs of the businesses they own for many years. But the problem was that boards of directors and sympathetic judges at chancery(i.e. business) courts have long denied shareholders the ability to effectively manage the companies that they actually, technically, own.
What has changed is that last year’s sweeping financial overhaul bill, Dodd Frank, has made it easier for shareholders to challenge management and boards of directors at annual shareholder meetings. Amen!
Specifically, many shareholders have taken advantage of the so-called “say on pay” executive compensation advisory votes required by Dodd Frank. Here the owners of the businesses have the right to voice their opinion about executive pay packages and can vote on them. Unfortunately, the votes are non-binding (a true travesty).
According to the Financial Times, of the first 100 of the Fortune 500 to hold shareholder meetings, 12 had significant protest votes. Here, significant is defined as more than 30% of shareholders objecting to executive pay packages.
Meanwhile, two companies have had their pay packages completely refuted by shareholders. These two companies are Hewlett Packard and Jacobs Engineering.
If you examine a larger swathe of businesses, say the Russell 3,000 (another stock index) you’d discover that of the more than 2,300 annual meeting held so far, 39 companies have lost pay votes, while 188 have garnered less than 70% of votes. The 70% level is considered a crucial level of support from shareholders.
The amount of shareholder activism is a welcome shift from the rubber stamping that typically takes place during proxy season. I am hopeful that shareholder activism will only continue to increase in the subsequent years. In particular, executive pay packages are one of the very worst offenses under the capitalist sun and are one of the reasons that I am simultaneously a critic of capitalism and supporter of capitalism.
Jason
