Boardrooms open up to investors' input
— -- As the 2007 proxy season winds down, activist shareholders are gaining more clout and a greater say in boardrooms on corporate-governance issues than ever before.
Recent shareholder victories on key issues — plus a new willingness by companies to discuss boardroom topics — mark a turning point from the chilly ties and combative debates between the most vocal shareholders and companies.
"This is the era of engagement," says Amy Borrus, deputy executive director of the Council of Institutional Investors, which represents public pension funds and other large shareholders. "Directors aren't just digging in and saying no. They realize it makes sense to listen to shareholders."
A record 1,169 shareholder resolutions were proposed this year, says Carol Bowie, corporate-governance director at Institutional Shareholder Services (ISS), a proxy-research firm. And a record 23% of those were withdrawn by shareholders after companies agreed to adopt new policies, or to sit down and discuss the issues.
Since the 1980s, public pension funds and other activist shareholders have crusaded against poorly run companies and weak directors and executives. Their main weapon has been shareholder resolutions aimed at companies and urging investors to vote on various issues before annual corporate meetings.
Shareholders have fought outrageous CEO pay packages. They've urged spineless directors to provide stronger oversight of management. They've pressured executives to police their companies for accounting fraud.
For many years, business leaders dismissed dissenting shareholders as rabble-rousers who dragged social, labor and environmental issues into the boardroom. They argued that executives and directors, not investors, should run companies.
Today, though, companies can no longer ignore shareholders, whose proposals on CEO pay and other hot-button issues are receiving record high "support" votes of 30% to 60% from investors. In earlier years, votes of 2% or 3% were common.
Shareholders' votes are only advisory. But publicly traded corporations can ill-afford to anger investors who hold billions of dollars in stock.
Better relations
This year's proxy season also shows that relations between shareholders and companies clearly are improving, with more corporations and investors seeking common ground on issues.
"It's staggering — there's definitely a sea change going on," says Carolyn Kay Brancato, governance director at The Conference Board, a business-research organization. "Companies are taking shareholders' issues much more seriously than they used to."
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