U.S. businesses are bracing for a noisy
proxy-voting season this year.
European Pressphoto Agency
The BP oil spill is
spurring other kinds of demands. Above, the Deepwater Horizon
Many companies could face
outcry over executive pay and board accountability during their annual
shareholder meetings. Other recent high-profile management dilemmas
that stirred controversy, such as
Apple Inc. Chief Steve Jobs's medical leave, may prompt additional
tough questions for directors.
"The economic malaise
partly explains investor angst," says
Charles Elson, head of the Weinberg Center for Corporate
Governance at University of Delaware's business school. "People who
lost a lot of money in the market are mad."
Say on Pay
Likely the biggest issue confronting
boards this proxy season is "say on pay." Under the new Dodd-Frank
financial overhaul law, any company whose stock-market value exceeds
$75 million must let shareholders voice their approval or disapproval
on pay packages for the top brass. The requirement, which took effect
in late January, gives shareholders a potent weapon to express
disapproval of board oversight. Businesses must reveal whether and how
they consider results of advisory "say-on-pay" votes in setting
"It's going to be a really tough year,"
says the chairman of four board compensation committees.
Two companies already have
gotten investors' thumbs down about executive pay during 2011 annual
meetings. Defeats occurred at
Jacobs Engineering Group Inc. of Pasadena, Calif., and
Beazer Homes USA Inc. of Atlanta. Institutional Shareholder
Services, influential proxy advisers, recommended votes against pay
practices at both businesses, citing a disconnect between the chief
executive's increased compensation and poor corporate performance.
It remains unclear how Jacobs and
Beazer directors will handle the nonbinding setback. "The [Jacobs]
board is disappointed about the outcome," and mulling the next steps,
says John Prosser, finance chief of the engineering and construction
Beazer directors intend to "carefully
consider the perspective of shareholders in compensation matters,"
says a spokesman for the big home builder.
Rich paychecks for Wall Street banks
and securities firms may spark more say-on-pay defeats. Total
compensation and benefits in that industry rose 5.7% to a record $135
billion in 2010, a recent Wall Street Journal analysis concluded.
Overall, "I would not be surprised to see more than 50 companies lose
their say-on-pay votes in 2011," estimates James D.C. Barrall, head of
global executive compensation and benefits for Latham & Watkins LLP in
Patrick McGurn, an ISS executive
director, predicts that "several times that number of corporate boards
will experience a high negative vote that prods them to engage with
their big shareholders."
Last year, investors rebuked pay
practices at only three of 300 concerns that embraced say-on-pay votes
voluntarily or had to offer them because they received government
A Supreme Court ruling in January 2010
that loosened the limits on corporate political spending has prompted
activists to prod companies harder to reveal more about such
Shareholders have filed 76
political contribution resolutions so far this year, according to ISS.
The measures mainly seek semi-annual reports about direct and indirect
corporate spending for candidates and referendums. The first 2011 vote
is set for April 21 at
Citigroup Inc.'s annual meeting. A similar proposal won 30.3% of
votes cast last year. The big bank continues to believe it already
complies with the gist of the measure, a Citigroup spokeswoman says.
The pressure on boards to divulge
succession plans for CEOs took on new urgency this year when the Apple
CEO began an unexpected medical leave last month. Mr. Jobs, who
underwent a liver transplant in 2009, has said nothing about the
latest health issue prompting his time off or when he might return.
Ten resolutions submitted so far this
proxy season request that boards divulge detailed succession-planning
policies for CEOs. Apple investors vote on the year's first such
proposal at its Feb. 23 annual meeting.
The Apple resolution from the Laborers'
International Union wants directors to issue an annual report on the
CEO succession plan, review it yearly, develop criteria for the CEO
and identify internal candidates.
The computer giant says the measure
would offer rivals an advantage, hurt recruitment and constrain the
Investors are also targeting numerous
businesses in their drive to overhaul board elections. Board members
often keep their seats with a single "yes" vote in uncontested
elections. Resolutions submitted at 54 concerns so far this year,
mainly by the United Brotherhood of Carpenters union, favor rules
requiring directors to win a majority of the vote—and thus become more
Activists felt angry over the
last-minute omission of a majority-voting requirement from the 2010
financial-overhaul law, Mr. McGurn says. "This is a payback."
Apple represents the first big business
with a 2011 vote on majority voting. The proposal comes from the
California Public Employees' Retirement System, the biggest U.S.
public pension fund. In its proxy statement, the Apple board argues
the measure "is not in the best interest of the company."
The disastrous 2010 oil spill involving
BP PLC is spurring different executive-compensation demands. The
activist LongView Funds, managed by union-backed Amalgamated Bank,
introduced a shareholder resolution asking three other deep-water
drillers to add bonus incentives "that would decrease the risks of an
environmental disaster," says Scott Zdrazil, Amalgamated's head of
The first-time proposal may attract
significant support, says Mr. McGurn. "When the environment and money
come together, that's green squared."
Joann S. Lublin at