Early Returns From The Annual Meeting Front: No Surprise; It’s All About The Money In 2009 Look Out Below… For Falling Directors

For openers, how about 100+ proposals for shareholders to have a “say on pay”?

Although last year the movement seemed to have lost a bit of steam, we predicted that Say-On-Pay is inevitable. And this year, thanks to the market-meltdown, it really doesn’t take a crystal ball to predict higher votes, and more passing proposals than ever before.

In a very bad omen for companies (where we’ve been predicting that most says-onpay will fly by handily) the season opened with a big bang, when Royal Bank of Scotland’s CEO had his pension-package voted down by a 9-1 margin. Ouch!

Another big movement this year, almost 100 proposals to link pay more tightly to long-term performance and to reduce temptations for execs to take outsize risks…through options that are “indexed” to peer companies, “hold ‘til retirement… and beyond” proposals, “bonus banking” and other pay claw-back proposals… mostly sponsored by unions and very much in line with the steps that AFSCME’s governance guru outlined in our 2008 magazine. Many of these proposals will pass handily, we think, in a year that Risk Metrics’ Pat McGurn called a “once in a generation” opportunity for activists.

As we also predicted last year, the stench that was increasingly emanating from those mostly-buried “golden coffin provisions” caused activists to swarm like flies – and with good reason. At a Jan. 28th meeting, a proposal to curb death benefits for execs at Shaw Group drew 67% support. Although at least 14 similar proposals have been filed, a fair number of companies, including Comcast and serial-overpayer

Occidental Petroleum have sniffed the ill wind and backed away from paying salaries to decedents.

But the biggest threat, by far, to corporate citizens – and to corporate directors – are the “Vote-No” efforts that also seem to be swarming like flies this year…despite the huge number of directors that stood-down this year, rather than risk an embarrassing defeat in the polls.

Risk Metrics is recommending votes-no against comp-committee directors at companies that pay “gross-ups” to cover taxes on super-high executive pay and perks.

Two formal vote-no campaigns have been launched – against the chairman of AIG’s comp committee…and against BofA CEO Ken Lewis, where a former friend and long-term big shareholder, Jerry Finger, has been using the web very effectively to drum up support for votes-no.

We are betting that many companies that draw press stories just before their meeting dates about large losses, about directors who used discretion to award bonuses when targets were missed, about outsized perks, or even petty ones – or about anything having to do with compensation may find themselves with directors who fail to achieve a majority vote.

Another big thing to watch out for if you are responsible for your company’s annual meeting; early returns that we have looked at indicate that a lot of investors are voting reflexively against comp-committee directors in general…which, we say, make those usually friendly individual investor votes more important than ever…

Currently on our radar screen: Badly failed N&A strategies. (We’re watching a company that has garnered only 1% of their individual investor vote - and where directors are way shy of a majority of the shares that have voted to date - thanks to bad advice from advisors who mailed NOTHING to individual investors but a Notice. With less than a week to go ‘til their meeting, it’s now too late to mail them anything at all. Keep a very sharp eye on director returns this year, we warn…and be prepared to do some early damage prevention – and maybe some post-meeting damage control.