Shareholders and corporate officials are talking more
and shouting less.
The spring annual-meeting season passed relatively
quietly, with less acrimony than in recent years. Meanwhile, investors
and companies are discussing hot-button corporate-governance issues like
executive compensation in several forums and working groups.
One group looking at executive pay is planning to meet
Thursday. Another group recently agreed to a broad set of governance
guidelines. Pfizer Inc. plans a fall meeting of big investors and
"We've never had a season that had so much activity
going on in the wings and much less taking place center stage," says
Patrick McGurn, special counsel at Institutional Shareholder Services, a
unit of RiskMetrics Group Inc.
One key indicator: 24% of shareholder proposals for
annual meetings were withdrawn this year, as of July 6. That is the
highest rate in at least five years, says ISS. Typically, advocates
withdraw proposals because a company agrees to make changes, or at least
to talk. Through July 6 last year, 20% of proposals had been withdrawn.
The most commonly withdrawn proposals would have
required that directors be elected by a majority of shares, as opposed
to a plurality. Of about 140 majority-vote proposals submitted, about 90
were withdrawn as of July 6. This year, at least 70 companies agreed to
adopt majority voting without putting it to a shareholder vote, says Ed
Durkin, director of corporate affairs at the United Brotherhood of
Mr. McGurn says the shift in how directors are elected
is propelling more director involvement in shareholder discussions. Even
when directors win re-election, large numbers of withheld votes have
proved embarrassing at companies such as Pfizer and Home Depot
Indeed, governance watchers said the backlash against
Home Depot last year also is pushing shareholders and officials
together. Outside directors didn't attend the retailer's 2006 annual
meeting, and then-Chief Executive Bob Nardelli restricted shareholder
comments. Mr. Nardelli left under fire in January.
"Nobody wants to be on the receiving end of the kind of
outrage that Nardelli's behavior triggered," says Amy Borrus, deputy
director at the Council of Institutional Investors.
New Securities and Exchange Commission disclosure rules
for executive pay also spurred more dialogue. Richard Ferlauto, director
of corporate governance and pension investment for the American
Federation of State, County and Municipal Employees, says the additional
disclosures prompted more questions from shareholders, leading to
Two of the working groups are focusing on executive
pay. One, which includes Pfizer, Intel Corp., Schering-Plough
Corp., AFSCME and the California Public Employees' Retirement System, is
discussing whether shareholders should get an advisory vote on
executive-compensation packages. About 150 people are expected to attend
a roundtable at Pfizer on Thursday.
"Say on pay" proposals were withdrawn at
Schering-Plough and Prudential Financial Inc. after those
companies agreed to join the working group. Insurer Aflac Inc.
has pledged to begin such votes in 2009.
The carpenters' union is co-leading a separate group
with the U.S. Chamber of Commerce looking at executive-compensation
issues more broadly, says Mr. Durkin. Members include DuPont Co.
and Citigroup Inc. That group has met three times since the
spring and will meet again July 25, Mr. Durkin says.
In another attempt at building bridges, a group of
companies and investors last month agreed to a broad set of
corporate-governance guidelines dubbed the Aspen Principles. Subscribers
included PepsiCo Inc., Xerox Corp., Office Depot Inc. and
Pfizer, as well as the AFL-CIO and TIAA-CREF.
The principles urge more communication between
companies and investors. They also call for a greater focus on a
company's long-term health and for companies to stop providing quarterly
Pfizer last month said it would take the unusual step
of inviting its biggest institutional shareholders to meet with
directors about governance policies, including executive pay. The first
meeting is planned for this fall.
Not everyone applauds the idea. In a memo widely
circulated among corporate-governance watchers, lawyer Martin Lipton
called the planned meeting "another example of corporate governance run
amuck." He argued against "revolutionizing corporate law and corporate
practices so that shareholders replace directors as the fundamental
arbiters of corporate policy."
Pfizer says the forum is a way for directors to hear
from investors. Peggy Foran, the drug maker's senior vice president for
corporate governance, says, "It's the board's duty to make these
decisions, and they're trying to get the best information possible."
Theory & Practice is a weekly look at people and
ideas influencing managers. Send comments to
firstname.lastname@example.org. For an archive of past columns,
Write to Erin White at