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Encouraging shareholder assumption of responsibility to assure management rewards only for real corporate performance


Notes: The Association of BellTel Retirees, the organization reported below to be presenting a proposal relating executive compensation to corporate performance at Verizon Communications, Inc., had supported a Shareholder Forum public program in 2007 using Verizon as a case example for analysts "to examine the relationship of executive compensation incentives to the company’s achievement of long term enterprise objectives."

Cornish F. Hitchcock, quoted in the article as the Association's advisor, has served as a member of the 2008 Steering Committee and 2010 Policy Review Board that guided the definition of Shareholder Forum policies for its public programs.


Source: The New York Times | Fair Game, March 24, 2017 column


Business Day

Want Change? Shareholders Have a Tool for That

Fair Game


The Exxon Mobil refinery in Torrance, Calif. The topic of climate change and its effects will again appear on shareholder proxies this year at companies like Exxon Mobil. Jamie Rector/Bloomberg News

Are you an investor who usually junks the voluminous corporate proxy statements that arrive each spring, declining to take part in director elections and other governance matters because you think your vote won’t count?

If so, you are not alone. With millions of shares outstanding at large companies, it’s hard to believe that an individual investor’s vote can make a difference.

But the stakes are higher this year. If, for example, you’re concerned about the Trump administration’s plans to roll back regulations throughout corporate America, you may want to take a more active approach to proxy voting.


Fair Game

A column from Gretchen Morgenson examining the world of finance and its impact on investors, workers and families

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FEB 18


Your Mutual Fund Has Your Proxy, Like It or Not

SEP 23 2016

EpiPen Price Increases Could Mean More Riches for Executives Sep 1

Bloated Pay Came Before Hain Celestial’s Error AUG 19

A Simple Test to Dispel the Illusion Behind Stock Buybacks Aug 12

Investors Get Stung Twice by Executives’ Lavish Pay Package

Jul 8

How to Gauge a C.E.O.’s Value? Hint: It’s Not the Share Price

Jun 17

Fantasy Math Is Helping Companies Spin Losses Into Profits

Apr 22

BlackRock Wields Its Big Stick Like a Wet Noodle on C.E.O. Pay

APR 15

In Yahoo, Another Example of the Buyback Mirage

Mar 25

Stock Buyback Plans, Seen as Shareholder Boon, Can Backfire

MAR 11

FASB Proposes to Curb What Companies Must Disclose

Jan 2


Valeant Shows the Perils of Fantasy Numbers

OCT 30


Safety Suffers as Stock Options Propel Executive Pay Packages

SEP 13

Why Putting a Number to C.E.O. Pay Might Bring Change

Aug 9

Tech Companies Fly High on Fantasy Accounting

Jun 21

Stock Buybacks That Hurt Shareholders

Jun 5

Shareholders’ Votes Have Done Little to Curb Lavish Executive Pay

May 16


When the Stock Price Hides Trouble

Oct 12


An Unstoppable Climb in C.E.O. Pay

Jun 30 2013

See More »


Say that the new leaders at the Securities and Exchange Commission and the Environmental Protection Agency relax their agencies’ oversight, as anticipated. That would mean shareholder votes in favor of holding executives accountable on executive pay, climate change issues and other governance matters are especially important.

“There’s never been a better time to address these issues, whether as an institutional investor or an individual,” said Nell Minow, vice chairwoman at ValueEdge Advisors, a firm that guides institutional shareholders on how to reduce risk in their portfolios. “If you are worried that your company is lobbying to weaken environmental rules, for example, then it’s really a fabulous opportunity for you to join in with the institutions and other economic forces making it clear to companies that they can’t get away with it.”

As was the case last year, the topic of climate change will again appear on shareholder proxies this year. One proposal that gained a lot of traction among investors in 2016 asked energy companies to publish an analysis of how their holdings would be affected in the long term by measures limiting the global increase in temperature to 2 degrees Celsius — a goal agreed to by nations in the 2015 Paris accord.

That kind of analysis may force a company to alert shareholders that its assets would not be worth as much under those conditions. (BHP Billiton, the Australia-based mining giant, undertook such a study in 2015 and concluded that while its asset value would be affected, it would continue to create value for shareholders.)

Management at the companies whose proxies included these proposals generally urged investors to vote against them. Still, they received substantial support at some companies — 38.1 percent of votes cast at Exxon Mobil favored the proposals, as did 40.8 percent at Chevron, and almost half the votes at Occidental Petroleum.

None of these companies have published a proxy statement yet, but similar proposals are likely again this year at those and other energy companies, governance experts said. Fresh support from investors could put the proposals over the top.

Shareholders should realize that they can no longer rely on the government to urge companies to recognize the risks that climate change poses to their operations. That is the view of Edward Kamonjoh, executive director of the 50/50 Climate Project, a nonprofit organization that helps institutional investors work with corporate boards on climate change issues. “Investors have to become more involved to exercise their collective power as owners of these corporations so that they run their businesses in the best long-term economic interests,” he said in a telephone interview.

Of course, shareholder proposals are typically not binding, so companies are not required to abide by them. Still, managers are usually loath to ignore the wishes of a majority of their shareholders.

Individual investors can effect change this year on another topic: company policies governing when it should act to recover an executive’s compensation because of corporate wrongdoing.

The idea of recouping executive pay took hold in the early 2000s after the Enron and WorldCom accounting fiascos. The Sarbanes-Oxley law of 2002 gave the S.E.C. the ability to go after incentive pay earned improperly by an executive in connection with an accounting irregularity.

Actual clawbacks have been few, however. So the Dodd-Frank legislation of 2010 required the S.E.C. to write new rules expanding the potential for recoveries.

In July 2015, the S.E.C. proposed a rule requiring companies to adopt clawback policies on executive compensation. But it did not go into effect before the Trump administration took over. That rule is probably dead. Nevertheless, shareholders may be able to improve clawback policies at two big companies this year: Verizon and Caterpillar.

The whole concept of executive compensation is pay for performance,” said Cornish F. Hitchcock, a lawyer in Washington who is advising the group of Verizon shareholders proposing the policy change at the company. “If executives’ behavior costs the company money or damages its reputation, shouldn’t there be consequences?”

The Verizon shareholders agitating for change are a group of 205,000 former telecom employees known as the Association of BellTel Retirees. Since 1997, 10 proposals put forward by the retirees have been voted on by Verizon shareholders; in eight of the measures, the company responded by changing its policies, according to the retirees’ website.

This year, the retirees’ organization wants the company to expand its clawback policy; Verizon’s current policy limits pay recoveries to executives who engaged in “willful misconduct” that causes significant financial or reputational harm to the company.

Far too narrow, the retirees say. First of all, the term “willful misconduct” is ill defined, Mr. Hitchcock said, and may limit pay recoveries to egregious cases only. In addition, Verizon’s policy should also cover wrongdoing that arose because of negligence or a supervisory failure.

Verizon is urging its shareholders to vote against the retirees’ proposal at the annual meeting in early May. James Gerace, a Verizon spokesman, explained why in a phone interview.

“Negligence could be really broad and open to interpretation,” he said. “We were trying not to make it so broadly applicable that it was going to paralyze our people in making decisions.”

In their proposal, the retirees detailed why Verizon’s current policy is problematic, citing a 2015 regulatory settlement Verizon struck with the Federal Communications Commission. The agency contended that Verizon placed unauthorized third-party charges on customers’ cellular phone bills; the company paid $90 million to settle the matter.

Under the policy, it’s unclear whether the company scrutinized the actions of any executives relating to this settlement, the retirees’ proposal said. So they urged Verizon to change its policy so that it must disclose details of any clawbacks to shareholders as well as decisions not to pursue recoveries.

Shareholders of Caterpillar, the heavy-equipment maker whose offshore tax practices are under investigation by federal authorities, will vote on clawbacks this year.

Tejal Patel, corporate governance director at Change to Win Investment Group, said her group put forward a shareholder proposal on clawbacks for this year’s annual meeting. “If something goes wrong,” she said, “you want executives to be held accountable and know what the company is doing about it.”

A Caterpillar spokeswoman confirmed that the proposal would be on the proxy this year.

Of course, many individual investors — those who own shares in mutual funds — can’t speak their minds through proxy votes. Their funds vote their shares for them and all too often follow corporate boards’ recommendations to reject shareholder proposals.

If you own shares in a mutual fund and feel strongly about these issues, write to the fund’s executives and tell them how you want them to vote your shares. They may not do as you say, but at least they’ll know where you stand.


A version of this article appears in print on March 26, 2017, on Page BU1 of the New York edition with the headline: Want Change? Shareholders Have a Tool.


© 2017 The New York Times Company

Performance and Shareholder Support

The following graphs of competitive corporate performance and of shareholder voting support for executive compensation are presented for the two companies reported in the article to be presenting shareholders with votes on relating compensation to performance.

Full-size graphs of these and other companies you may select can be generated on the Shareholder Forum's websites for Returns on Corporate Capital™  and for Shareholder Support Rankings™. Definitions of both analyses are presented below.

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Returns on Corporate Capital™ are a performance measurement developed in a Shareholder Forum workshop project, and are calculated from an S&P Compustat database of each company's SEC reports of GAAP-defined net income plus interest expense and income taxes, divided by its prior year’s ending balance of total assets less current liabilities other than interest-bearing debt. Comparative averages for the company's industry are based on aggregate amounts for all reporting Russell 3000 companies in S&P's six-digit Global Industry Classification Standard (GICS), excluding the amounts for the subject company.

Shareholder Support Rankings™ analyses are produced by The Shareholder Forum from research data provided by Proxy Insight, based on company SEC reports of total votes cast in advisory “Say on Pay” shareholder approvals of executive compensation.

© Copyright 2012-2017 The Shareholder Forum, Inc.




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