Proxy season fallout

Marketplace Staff Jun 20, 2006

TEXT OF COMMENTARY

MARK AUSTIN THOMAS: Something strange has been happening this year at company annual meetings. Shareholders have been voting against company management. Take Home Depot. Its annual meeting was in May. Bob Nardelli, the company’s head, was the only director who showed up. The annual proxy meeting season may have just ended, but the battle isn’t over. Writer and commentator Matthew Bishop says it’s only just beginning.


MATTHEW BISHOP: Managers have been defeated at some 32 companies, including household names like Boeing, ExxonMobil and General Motors.

It’s high time. I mean, it’s managers who are supposed to be doing the shareholders’ bidding, not the other way around.

This year’s shareholders’ revolt has focused on just one issue: how members of the board of directors are elected.

The successful resolutions called for directors to be elected by majority voting. The traditional method doesn’t count votes against a candidate at all. So, even a single vote for a candidate is enough to get him elected.

Does this matter, you may be thinking? After all, shareholder power is so weak in America that these shareholder resolutions are only advisory. Managers are free to ignore them, and carry on regardless.

Well, here’s the strongest sign that a big change is underway.

Lots of companies — led by the drug giant, Pfizer — have decided to adopt majority voting voluntarily.

What’s more, the leading law firms that advise managers on corporate governance are now suggesting that every company switch to majority voting, if only to avoid becoming a target of even greater scrutiny from activists.

Now shareholders have tasted blood, what next? Perhaps they’ll be content with a warning shot to over-mighty bosses. But don’t bet on it.

Some of the activist shareholders behind this year’s resolutions have big plans.

Where new voting rules are in place, they plan campaigns to vote out the chairman of the compensation committee at any firm that they think overpays the boss.

Believe me, there’s no shortage of those! The typical big company boss now makes 300 times the salary of the average worker. If the 2006 annual meeting was unpleasant for managers, I guarantee you next year will be far worse.

Matthew Bishop is American Business Editor at The Economist.

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