💾 Archived View for gmi.noulin.net › mobileNews › 4641.gmi captured on 2023-01-29 at 18:24:39. Gemini links have been rewritten to link to archived content
⬅️ Previous capture (2023-01-29)
-=-=-=-=-=-=-
2013-03-12 10:33:12
America s proxy season will pit management against owners as never before
Mar 9th 2013 | NEW YORK |From the print edition
SO MUCH for gratitude. In the past financial year, Walt Disney delivered
everything you might expect from the owner of a Magic Kingdom. Bumper profits,
a well received acquisition of Lucasfilm, prospects that everyone agrees are
better than ever. No wonder that shares in the entertainment conglomerate are
at an all-time high. In almost any other year, Bob Iger, Disney s boss, could
have looked forward to unstinting gratitude from shareholders at the firm s
annual meeting on March 6th. Instead, shareholder activists, grumbling that
Disney is in danger of becoming a tragic kingdom , made a determined though
unsuccessful attempt to strip him of one of his titles by voting to split the
roles of chairman and chief executive.
Shareholders used to mount such campaigns only at firms that were performing
horribly, as happened towards the end of the reign of Michael Eisner, Mr Iger s
predecessor. (This led Disney to split the roles of chairman and chief
executive, only to reverse this later, to the fury of some shareholders.) Even
then, shareholder activism was rare; most investors simply did the Wall Street
walk , selling their shares if they were unhappy. But since the financial
crisis of 2008, which revealed widespread flaws in corporate governance,
shareholders have flexed their muscles more often. Public outrage over high
executive pay, regulatory reforms to give shareholders greater power and more
scrutiny of how they use that power have created a climate in which even the
most profitable companies can be targets of activism if their corporate
governance is not up to scratch.
Apple is another striking example. In the past two years, as the
consumer-electronics firm s shares soared, shareholders still backed
resolutions asking it to introduce majority voting in its election of
directors. This year, as its shares fell, Apple capitulated, offering to
introduce new voting rules at its annual meeting. In the end, a court blocked
this at the behest of another activist investor, Greenlight Capital, which has
been campaigning for Apple to return some of its cash hoard to shareholders.
The hedge fund feared that Apple s other reforms planned as part of the package
would get in the way of this.
Poison pills and poisoned Apples
This year s proxy season named for the proxy forms by which shareholders cast
their votes could make cage fighting look tame. Activists are attacking boards,
and are themselves being pummelled by critics. Martin Lipton, a Wall Street
lawyer, issued a memo entitled Bite the Apple, Poison the Apple, Paralyse the
Company, Wreck the Economy, which accused a gaggle of hedge funds of trying
to extract short-term profits from companies without regard to the long-term
consequences. Mr Lipton has been campaigning to require quicker disclosure of
institutional shareholdings and newly acquired block shareholdings. Many
companies have adopted poison pill defences (which were invented by Mr
Lipton). Typical pills protect managers from raiders and are triggered when a
single shareholder acquires an ownership stake of 10%.
Activist hedge funds deny that they are only interested in short-term profits.
They sound more plausible than their predecessors did in less-transparent times
a decade or two ago. Greenlight was an investor in Apple years before its boss,
David Einhorn, started agitating for better management of its cash. Similarly,
last year s intervention at Yahoo by Third Point, another hedge fund, seems to
have been a genuine attempt to improve a failing firm s long-term prospects and
may even be succeeding. While Pershing Square s efforts to revive J. C. Penney,
a retailer, are faltering, nobody thinks that is due to an excessive focus on
short-term profitability.
To the critics, those activist shareholders not motivated by short-term
financial gain have other dubious intentions. A recent report by the Proxy
Monitor at the Manhattan Institute, a conservative think-tank, found that 36%
of the shareholder resolutions in 2011-12 were proposed by trade union pension
funds. A further 31% were proposed by three wealthy individual corporate
gadflies, their relatives and family trusts; 22% were self-styled socially
responsible funds or had an explicit religious or public policy objective.
Whether the motives of the proposer matter is debatable; after all, to succeed
a proposal needs to win over a majority of shareholders, most of whom are
likely to be institutional investors with no agenda besides improving returns.
That may explain why the proposals that attract strong support tend to be those
focused on mainstream corporate-governance issues, such as majority voting in
board elections, splitting the roles of chairman and chief executive and
executive pay.
In America, many shareholder proposals are merely advisory. Companies that have
been on the wrong end of shareholder votes have reacted quite differently.
Chesapeake Energy, one of last year s top targets, introduced sweeping reforms
to its corporate governance and persuaded its controversial boss, Aubrey
McClendon, to retire. Citigroup also saw the departure of its boss, Vikram
Pandit, although this was not directly caused by shareholders voting against
his pay package last year. Still, the bank s new top managers have been on a
charm offensive to win shareholders support at this year s meeting for a raft
of complex governance and pay reforms.
CalPERS, the giant pension fund for California s public employees, focuses its
shareholder activism on the 300 firms in which it has the largest holdings. It
has voted against executive pay packages at around 200 of them; significant
reforms have followed at around half of those. At 50-odd firms it has voted
against the pay package two years in a row. According to Anne Simpson, who
oversees CalPERS activism, this year it and other shareholders will try to go
after compensation-committee chairmen at firms that have now lost the
say-on-pay vote twice. How these chairmen will react to being held personally
accountable in such a public fashion will be interesting to watch.
So too will battles at several other prominent companies. Following allegations
of corruption by Walmart in Mexico, some shareholders of the giant retailer
hope to unseat any members of the board s audit committee who were in office
when the alleged bribes were paid. The reported acquisition of a 6% stake in
Dell by Carl Icahn, the grand old man of activism, shows the growing resistance
among shareholders to Michael Dell s plan to take the computer-maker private,
at least without raising the price. And following the write-off of billions of
dollars that Hewlett-Packard paid to buy Autonomy, a British software company,
shareholders may even try to vote out the computer firm s auditor, Ernst &
Young. That would be a milestone for activists.
The next few months will be a crucial test of their ability to turn discontent
into real change. One thing seems certain: the days of guaranteed boredom at
annual meetings are gone.