Capital Markets

Shareholders Hit the Barricades

More shareholder initiatives are getting passed this year, and many proposals are aimed at management.
Stephen TaubSeptember 11, 2002

Apparently, shareholders are staging something of a palace coup at annual meetings this year.

According to research conducted by the Investor Responsibility Research Center (IRRC), over 40 percent of the governance-related proposals submitted by shareholders at annual meetings this year were passed. All told, 83 out of 200 governance-related — and owner-submitted — proposals have been ratified, according to the study, which was published by Dow Jones Newswires.

During the annual meeting season last year, just 66 of 272 proposals received a majority vote.

This year, 22 of the resolutions that received majority support drew at least 70 percent of the total vote. That’s double last year’s results — and a higher percentage than in any voting season in recent memory, according to the wire service, citing an IRRC official.

Of course, shareholder resolutions are not binding. In fact, management teams typically ignore the results. Still, the resolutions go on record and tend to galvanize shareholders dissent.

Interestingly, resolutions calling for director independence failed to attract the support a majority of shareholders.

Bear in mind, most of the shareholder resolutions were submitted last fall before the stunning collapse of Enron Corp., let alone the subsequent rash of accounting scandals and bankruptcy filings. The voting, however, took place after the Enron scandal — and a few others — came to light. Rosemary Lally, the bulletin’s editor, told Dow Jones: “While the topics were not affected, the support was.”

Which resolutions generated substantial support? Those that challenged senior managers’ ability to easily fend off takeover offers.

That’s not overly surprising. Some shareholder rights activists argue that stringent anti-takeover provisions and poison pills are primarily designed to help top managers keep their positions of power — and their jobs.

During this year’s annual meetings, scores of investor groups submitted resolutions calling for corporate boards to redeem or hold a shareholder vote on anti-takeover devices. Many also introduced resolutions recommending the elimination of supermajority voting on takeover-related decisions. In addition, a number of shareholder proposals called on companies with staggered board terms to hold annual director elections.

Dozens of companies received at least one of the three proposals, according to Dow Jones. And they drew an average of between 59 percent and 61 percent of the total votes cast.

The supermajority and staggered board proposals hit record highs, according to the IRRC’s research, which dates back to the mid-1980s.

On the other hand, proposals calling for independent directors or committees failed to drum up widespread support, generating an average vote of 30 percent. Still, that’s more backing than similar proposals have generated in recent years. Last year, for example, proposals calling for greater board independence received the support of about 22 percent of voting shareholders.

Both the New York Stock Exchange and Nasdaq have called for boards of publicly traded companies to be filled with a majority of independent directors and for critical committees to be independent. And the recently signed Sarbanes-Oxley bill requires board audit committee independence.