Corporate governance

Long-overdue changes in corporate governance are taking place.

Hitherto, shareholders and boards of directors merely were “rubber stamps” for anything and everything proposed by corporate officials.

No matter how outrageous some of that appeared to be, shareholders just supinely accepted what was put forth. That no longer is the case.

Many years ago an angry shareholder placed an advertisement in The Wall Street Journal hoping to recruit enough fellow shareholders so that he could be elected to a company board, but that attempt failed. Nowadays, shareholder activists only have to create a website and then at least have a matter brought to the attention of shareholders for consideration at an annual meeting. There, usually a summary of the business proposed at that meeting is circulated to all company shareholders, and where different resolutions are listed.

Typically, there is an opportunity to vote on the company’s approach to executive compensation through consideration of an advisory resolution. Most of the time shareholders are urged to vote against any dissident motion on this subject.

Reflecting a new mood, at one annual meeting a restriction on executive pay was adopted, despite verbal opposition by officials at that time.

Recently, several large investors in companies such as hedge funds or pension foundations have been urging other shareholders to vote against some board’s plans. This year activists, flexing their muscles, voted for an alternative slate of directors for the Canadian Pacific Railway.

Not long ago Rupert Murdoch, chairman and chief executive of News Corporation, faced a suggestion that he resign his chairmanship and be replaced by someone independent. Other issues are continuing to attract scrutiny from shareholders, such as support for pay packages explicitly tied to performance for management in general.

Others want more influence on political contributions, that managers’ speeches be limited and in line with the public’s views. One company in distress had to contend with a plan to oust the entire management, to be replaced by a new group.

It has become apparent that more plans by individuals not connected with management will be placed in the notices of annual meetings.

All of this is a major departure from current practices, and like the “Occupy Wall Street” movement, which it resembles, will shake up the corporate world.



Bruce Whitestone