Aflac Looks Smart on
Tuesday, May 29, 2007; Page D01
When the public face of your
company is a duck, you can't afford to foul up your reputation. (Yes, you
can groan now.) Take Aflac Insurance, best known for its ubiquitous quacking
Something funny happened at
the company's recent shareholder meeting: nothing. That's because, unlike
any other U.S. company with publicly traded stock, Aflac has been smart
enough to voluntarily offer its shareholders a "say on pay." Giving in to
social-activist shareholders, as Aflac did, doesn't make you popular among
the CEO set. But boy, was it the smart thing to do.
activists said Home Depot executives were chicken to suppress
discussion of their compensation at the shareholder meeting a year
(By Pat Crowe Ii -- Associated Press)
Compare Aflac's enhanced
shareholder-friendly image with the embarrassment suffered by Verizon,
Blockbuster and Merck, all of which -- like Aflac -- advertise heavily to
the public. A majority of Verizon's and Blockbuster's holders approved
nonbinding say-on-pay proposals despite management and board opposition, as
did 49.2 percent of Merck's. The whole question has been a distraction to
dozens of firms -- but not Aflac.
In any event, resistance
seems futile, to paraphrase what the Borg say on "Star Trek" reruns.
Proposals mandating a nonbinding advisory shareholder say on executive pay
are moving through Congress as quickly as boards approve suggestions to
raise directors' compensation packages. So even if shareholders don't force
companies to adopt say on pay, they'll probably have to adopt it anyway.
Normally, this is the point
at which I'd crunch a few numbers and analyze some of the more obscene pay
packages, which are disclosed in full detail this year for the first time
because of new Securities and Exchange Commission rules. Instead, I'd like
to depart from form and offer you a numbers-lite account of how Aflac and
activist shareholders did the right thing by ducking confrontation.
But first, a brief flashback.
The say-on-pay campaign kicked off a year ago when Richard Ferlauto,
director of pension-investment policy at the American Federation of State,
County and Municipal Employees, wore a chicken suit to demonstrate outside
Home Depot's 2006 annual meeting. He clucked that Home Depot's board was
afraid to let shareholders vote on the since-departed chief executive Bob
Nardelli's legendarily obscene pay package. "We started with a chicken and
ended with a duck," Ferlauto says.
Last fall, Ferlauto assembled
unions, "socially responsible" investors and other allies to ask about 60
companies to adopt a nonbinding say-on-pay vote for top executives'
compensation packages. It sure sounds like Mom and apple pie: Who could
oppose something that seems so reasonable? But, of course, companies did.
Aflac ended up on the list
because Chairman Dan Amos takes home a healthy pay package -- and because
the Aflac duck, which has been quacking on behalf of the company since 2000,
has given it huge name recognition.
Dawn Wolfe, a social-research
analyst at Boston Common Asset Management, which holds Aflac in its
portfolio, sent a say-on-pay proposal for inclusion on Aflac's proxy
statement. She expected months of opposition, she said, but the company
quickly saw the light and compromised.
What happened? "We were
shocked" when the proposal was filed, Aflac's Dan Amos told me. "Our initial
reaction was, 'What have we done wrong?' " Amos said he called some of
Aflac's biggest shareholders, who told him that say on pay seemed
reasonable. "I realized it was something people wanted," Amos said, "so I
went to the board and said we ought to do it. And so we did."
Aflac was oddly vulnerable to
Boston Common -- or any would-be dissident shareholder, for that matter --
because despite being a big company ($1.6 billion of annual profits, $25
billion in stock market value), it prides itself on holding upbeat,
family-type annual meetings. Amos told me that the company, founded in 1955
by his father and two uncles who went door to door seeking investors, has
never had a dissident proposal on its proxy statement and didn't want one
this year. That gave Boston Common leverage that it didn't realize it had.
"They were very open -- it
was very refreshing," Wolfe said. When the company agreed to a say-on-pay
vote, starting in 2009, Wolfe withdrew Boston Common's proposal, letting
Aflac send shareholders an opposition-free proxy statement. Sure, 2009 is a
long time from now. But with Amos himself holding a 10 percent voting stake
in Aflac and other family members having holdings, there's no way Boston
Common would have prevailed. So 2009 is a smart compromise. Boston Common
gets a victory; Aflac buys time.
Finally, to a crucial
question: Will Aflac's spokesfowl pick a side in the 2009 pay vote? "The
duck's the cheapest guy we've got working for us -- and the most valuable,"
Amos said. "He'll just say, 'Vote yes.' "
And with that wise-quack, I
bid you adieu.
Sloan is Newsweek's Wall
Street editor. His e-mail firstname.lastname@example.org.
His column will resume in July.
© 2007 The Washington