IT LOOKS like the coming proxy season in the United States is going to be the most controversial one that anyone can remember.
According to the experts quoted in an excellent article on Forbes.com by Directorship‘s managing editor Joan Warner, the “central issues in the coming proxy season all point to large-scale and lasting ‘democratization’ of corporate leadership.”
The battle lines have already been drawn and the two main issues are:
- Sky high executive pay. This is the big wild card as the SEC’s new required disclosures are likely to reveal startling facts that shareholders have not previously known about. Those inside companies who know what’s coming — like one IRO at a recent IR Magazine think tank — have predicted a “bloodbath” once the new disclosures go out. Then there’s the question of backdating, with revelations just today that almost 1,400 corporate board members appear to have profited from the manipulation of stock option grant dates over a 10-year period. Meanwhile, US shareholders want a say on pay, like their brethren in other countries already have. Institutional Shareholder Services (ISS) last week reported that it is tracking 30 resolutions asking for a non-binding advisory vote on pay issues. In total, ISS said it was already tracking 135 pay related proposals.
- Majority voting standard for directors. ISS is predicting that 450 majority voting resolutions will be filed with U.S. companies this season, up from 140 in 2006, 89 in 2005 and just 12 in 2004. In her article, Warner quotes Gavin Anderson, CEO GovernanceMetrics International, saying the majority voting movement is an “unstoppable train.” So far, says the article, only 150 of 9,000 companies have a majority vote standard for director elections, but Anderson predicts it will be the norm “within three or four years.”
But these issues are really just a sideshow. Shareholders want to take back their companies from managements and boards that they perceive as unresponsive, arrogant and untouchable. The resolutions are all about sending messages to boards, and in some cases about humiliating directors publicly.
In her article, Warner quotes several people, including National Investor Relations Institute CEO Nancy Humphries, as saying the solution is for directors to communicate clearly and more often with their shareholders. I agree they need to do that, as you can see here, here and here.
But I think it is now a case of far too little, much too late.
Communication, or trying to spin their way out of the mess, just won’t work. It’s a matter of farting against thunder, I’m sorry to say.
The only way to stop the acrimony is to give shareholders access to nominate their own director candidates. When that happens, shareholders will be much less reckless and boards will be much more responsive. Civility will return to the boardroom because the stakes will be infinitely higher for all.
Until then, however, I’m afraid that directors are damned no matter what they do. Yes, get out and talk to shareholders. Yes, use every tool you have to spread the board’s message.
But don’t expect any of it to make much difference. Roadkill is what shareholders want and roadkill is what they’re going to get.
And directors only have themselves to blame. Because anyone with even half a foot firmly planted in the real world could have seen this steamroller coming a long time ago.