Last issue’s lead article, “Look out below for falling directors” sure proved to be on the money: The season opened with a big loud bang, when Bank of America’s chairman Ken Lewis was stripped of his chairmanship by a binding vote to separate the Chairman and CEO roles. Two B of A directors, including the former lead director, quickly joined the ranks of long-term directors who’d already stepped down, reportedly after failing to receive a majority vote without the “uninstructed broker votes”. Lewis appears to have gotten fairly strong support for reelection as a director. But the bank has yet to publish the final results, about which, see more under Regulatory Notes in terms of “things to come” and “things to do” for next year.
Directors were ousted at Amylin Pharmaceuticals (two of them) in favor of candidates advanced by Eastbourne Capital Management and perennial activist Carl Icahn. Icahn also seated two of the four directors he sought to elect at Biogen Idec, following a totally bizarre meeting, where the Biogen chairman adjourned the meeting for three hours, “over shouted objections from Mr. Icahn’s representatives” as the WSJ reported, “then retreated to a small patio… and phoned major shareholders to solicit support”. (See more about this too, in our section about adjournments). Three directors failed to achieve a majority vote at Pulte Homes, but Michigan law allows them to retain their seats, since there is a plurality standard and they ran unopposed, and likely they will.
At least 32 other directors, and maybe as many as 40 by year end, will fail to receive majority votes this year: (About the same number as last year). But virtually all of them will likely retain their seats too – either because there is a plurality voting standard, or because their boards decide not to accept their resignations, or because the vote-no crowd fails to make a big enough stink about it. And we bet that most of them will be handily reelected next year, exactly as has happened in the past two years. But as we also warned last year, don’t let these seemingly low numbers lull you into complacency: Since most people don’t try to track the number of directors that achieved a majority only after the “uninstructed votes” cast by brokers - which won’t be available to companies next year, let’s remember - these numbers are almost certainly understated. Much more important to note, if this happens to one or more of YOUR directors, it’s a different matter entirely, so be sure to do your homework, and handicap ALL your directors before finalizing your 2010 slate.
A much bigger development, we think, was the extent to which the Federal government stepped into the director “election” process…by hand-picking and/or vetting nominees at AIG, Citicorp and General Motors. As you’ll also read below, we are in serious danger of totally federalizing the traditionally State-governed corporate governance regulatory scheme, exactly as we’ve beenpredicting would happen if corporations keep stiff-arming activist change agents. If you’re not frightened by this, look at poor Richard Parsons, the newly elected Chairman at Citicorp, who had to scramble like mad to protect the CEO, who’d lost his temper on a conference call with the FDIC head, and who was now demanding HIS – along with those of several other executives who’d dissed the agency by calling it a “tertiary regulator”.
“Say On Pay” proposals again failed to resonate strongly with actual voters: Of the 85 proposals that had come to a vote as we drafted this, only 18 of them received a majority vote, except that is, for another 15 where the company itself endorsed the proposal. But who cares? Certainly not the federal government, which will, almost certainly, legislate it into existence as
“S-O-P” this year, to take effect in 2010. Very important to note, however, every single U.S. company that allowed a say on pay (plus the TARP recipients who were forced by the feds to have a say on pay provision) got a thumbs up on their pay plans…And, please note, as we’ve written before, allowing a say on pay is one thousand times better than having activists gang up on – and likely oust – the comp-committee directors if they don’t like the pay schemata.
Nearly half of the proposals that would allow a mere 10% of the voting power to force a special shareholders meeting achieved a majority vote so far this year: We think this is way too low a threshold for forcing a vote on virtually any matter at all, but maybe there’s a silver lining here: Since this seems to be a number that resonates with the more rabid activists (Risk Metrics thinks this is the right threshold, while Glass Lewis is OK with 20-25%) how about suggesting that THIS be the threshold for access to the director nomination machinery? And here’s a good tip gleaned from Georgeson’s Rhonda Brauer: Consider putting a 20% or maybe even a 25% threshold to a shareholder vote yourselves next year, thereby beating those activists to the punch and basically enshrining a more reasonable threshold.
Cumulative voting proposals – which, like those special meeting proposals, are basically put forward out of pique that there is no “proxy access” yet – achieved majority votes in virtually every case – even when the company had adopted the much more democratic majority voting standard. Ouch!
Share
Share the Optimizer with your colleagues!