most of the 1990's, shareholders had little reason to carp about the
stewardship of their assets by company executives. Stock prices were
rising; shareholders were content.
But much has happened since last year's annual meeting season, not
the least of which is $5 trillion in lost stockholder wealth.
Contentment has turned to distress as investors awaken from their
bull-market torpor and ponder the actions of the commanders at the
All the numbers are not in from the current proxy season, but
shareholders are clearly restless. Carol Bowie, director of corporate
governance at the Investor Responsibility Research Center in Washington,
reported that the number of shareholder proposals related to executive
pay is up 24 percent this year. The proposals include capping executive
pay, limiting golden parachutes and barring the repricing of options.
Shareholder opposition to companies' stock option plans that dilute
existing owners' stakes is also rising. Ms. Bowie said that back in
1988, only 8.5 percent of the votes opposed stock option plans. Last
year, opposition had risen to 21.8 percent.
These pockets of agitation may fire up the shareholder revolt against
company executives and directors who were cavalier with stockholders'
assets in recent years. It is high time these people are held
It was early in the 20th century that power began shifting away from
the shareholders who own a company to the manager who runs it, said
Richard Sylla, a professor of business history at New York University's
Stern School of Business. Owners and managers were closely linked when
companies were small. As they grew, so did the gulf between owners and
stewards; although shareholders began agitating during the 1980's
takeover era, owners today still have little say in the way their
businesses are run.
This situation must change, said Gary Lutin, an investment banker at
Lutin & Company in New York. Mr. Lutin, who is co-sponsor of a New York
Society of Security Analysts forum on corporate governance that uses
Amazon.com as a case study, said
many corporate boards had lost sight of their responsibility to keep
shareholders informed of how they are monitoring the company's
management. "You'd expect a director to be accountable for betting the
farm on an untested business model without any contingency plans," Mr.
Lutin said, "or for relying on fantasy metrics like eyeballs and mind
share to guide a business or to guide investors."
Boards at Internet companies were especially arrogant, at least until
their stocks plunged. "There was a lot of hubris in the dot-com world
about a new governance paradigm," said James E. Heard, chairman of Proxy
Monitor, an institutional shareholder advisory firm in Bethesda, Md.
"They pooh-poohed the need for outside oversight and accountability. If
anything, there was more need for that in the dot-com world."
One way that shareholders can take back some power is to push
companies to assess the effectiveness of their directors who are charged
with monitoring management's performance on behalf of shareholders.
Peter Clapman, head of corporate governance at TIAA-CREF, the big
institutional investor, said such evaluations by consulting firms could
indicate whether boards were functioning effectively. "The number of
companies that do this is a minority, in part because directors resent
being judged," he said. "But there is a growing number that do it at the
total board level."
A goal of Mr. Lutin's forum
is to help investors find tools to make directors more accountable. For
example, investors should know that Delaware corporate law gives them
the right to inspect a company's books and records for a "purpose
reasonably related to such person's interest as a stockholder." In
today's world of corporate spin, this right has never been more
A version of this article appeared in print on Sunday, April 29, 2001,
on section 3 page 1 of the New York edition.