Every year around this time we try to reflect on the Spring Annual Meeting Season - to try to make some sense out of all the things we saw, and heard, and read…and to see what, if anything, our readers might be able to anticipate and prepare for next year. This year, we attended, and were otherwise involved in way more meetings than usual; some 50 of them.
And this year, for the first time in over 30 years of inspecting at meetings, your editor got personally sued. This in itself was kind of emblematic of the 2008 Season: More meetings that we can ever recall ended up in the courthouse - either before, or after, or on both ends of the meeting. Our own experience had a happy ending, we’re pleased to report…in part because we had an iron-clad indemnification clause, as Inspectors should always have, but in larger part because the Inspector’s ruling was completely correct - of course - and was very specifically upheld in the settlement. But fair warning we say, to issuers - and to wannabe Inspectors - as you look to next year.
Another noteworthy change we witnessed this season was the amount of publicity Annual Meetings received – not just in the press, but on TV. Mobs of TV reporters and camera crews waited outside the last Bear Stearns meeting, for example, looking to interview any of the 400+ people who’d attended what for all intents and purposes was a wake, and who might be willing to talk to them about the proceedings, from which, quite understandably, they were excluded. Many of the reporters were representing European and Asian TV stations, which was something entirely new in our experience.
We tuned in the stock market report on the morning of the AIG meeting, only to see a live feed, literally “straight from the street” and anchored by a chirpy young lady who was apparently popping in and out regularly to report on the doings: “They’re just about to vote now” she enthused, “I’ll be back in a few minutes.” The EXXON meeting got multi-page press coverage and analysis weeks beforehand, thanks to the Rockefeller family’s agitation for change – an effort that sort of fizzled, at least vote-wise.
The contested CSX meeting was also heavily covered by TV - as if it was a hostage-taking situation we thought, as reporters tried to build excitement: The activists, and many of reporters too, seemed to think it was being held in an intentionally hot and humid warehouse - in an intentionally ill-marked section of New Orleans - and willfully prolonged - just to irritate people (which really would have been dumb) or maybe to punish the dissidents, or to make them take the blame for the heat - instead of being at the super-comfy CSX-owned Greenbrier resort, as usual. But the locals, many of whom were first time annual meeting goers, and N’Orleans boosters like us, loved the locale. Come the end, the activists put on quite a show, declaring victory and dissing the management, and the overall management of the meeting itself over live TV. Meanwhile, CSX seemed totally flummoxed by the media feeding frenzy and maybe by the “heat” in general, and ended up looking like the bad guys, at least on TV and in the press. (See “In the Courthouse” for more on this).
So fair warning to issuers on this too: Be well prepared for crowds, and press-people…and if they don’t show up, simply, be grateful. Remember, too, excluding the press is really NOT the American Way…and can backfire bigtime.
A few weeks before, we’d served as the Inspector at a hotly contested meeting in a very small Southern town – which began with a prayer for God’s will to be done, and for everyone to be friends come the end. Here, as at Bear Stearns, the press was specifically excluded. How come? we asked, since this was the biggest thing to happen there since the Civil War. The answer, which made sense, was “We’re not looking to make additional headlines for the dissidents.”
Another major trend, and one we witnessed at virtually every meeting we were involved in – even the relatively routine ones – is a greatly heightened interest in the voting particulars on the part of directors: This year, virtually every director wanted to peruse the voting results…and wanted an explanation as to why the high vote-getters were high and the low vote-getters were low, even when we thought the results were statistically insignificant.
On a very happy meeting note, your editor, and his numberone fellow Inspector of Election, extended their stay in Nebraska to attend the Berkshire Hathaway meeting,purely as a busmen’s holiday. The press was crawling all over this meeting - and they got a royal welcome. Your editor actually got the last word in the May 18th Time magazine article on the big Buffett bash. (We’ll report on this next issue).
The major surprise this season was the extent to which Say- On-Pay proposals appear to have fizzled. So far this year only eight or nine such proposals achieved a majority vote – of roughly 100 that came to a vote; a few more wins than last year, but a much lower percentage of wins. The vast majority of the say-on-pay proposals that were up for a second vote did significantly less well than they did last year: At Citi, SOP garnered 38% vs. 46% last year; at Merrill Lynch, 36% vs. 46%.
Another big surprise was the falloff in voting for proposals to separate the Chairman and CEO positions: At Exxon Mobil – despite all the publicity arising from the founding Rockefeller-family push, it garnered only 39.5% of the votes, down a half-of-one-percent from last year. At Chevron, the proposal got a mere 15%, vs. 35% last year. On average, support for these proposals garnered only 34% of the vote, according to Carol Bowie, who heads the Governance Institute, the research arm of Risk Metrics.
Some pundits say it’s all due to “meeting fatigue” - to being so fed up with so many proposals, and so much of the same old proxy statement boilerplate - pro and con - that it’s become a total turnoff.
Opponents of Say-On-Pay say it’s because voters realize it’s really the directors’ job to say on pay…or that the “message” a NO vote sends is too vague to be useful…or that voters realize they have a much better weapon by voting-No on comp committee directors if they don’t like the pay plan…But that’s giving voters credit for being much more focused and rational than they are, we say.
We say, Say-On-Pay is here to stay…and will gradually become as common as ratifying the auditors. Why? Because it rhymes nice; it’s catchy…and it sounds good… like motherhood and apple pie. And, as we’ve pointed out here before, how could one logically justify the ratification of auditors, but not the ratification of executive pay? No harm is done…and we think directors get a free pass this way to boot. And frankly, giving shareholders a say-on-pay is a lot better than watching them give a director the boot. Time will tell, but the S-O-P proponents we know have no plans to quit.
As to the ‘separation of powers’ debate, arguments by Chairmen – especially at troubled companies, or companies in-transition – that followers need one leader, not two, to “call the signals on the battlefield” seem to be gaining a great deal of traction with voters.
If we had to pick one issue to watch for next year however – and it’s something that shareholder and board members really should be watching - it would be “Total Wealth Accumulation” on the part of the named executive officers. In other words, “When, exactly, is enough enough when it come to pay.”(Warren Buffett has a lot of good stuff to say on this - and sets a mighty good example here too).
But we also expect a lot of questions to be asked, and new demands to be made via the proxy process on clawback provisions when there are restatements, losses, etc….and on the newest and most potentially-attention-getting subject of all - salary and bonus continuation, “severance” and “non-compete” payments for execs who die in office. Amazingly, a lot of already super-rich execs seem to qualify for these “golden coffins”…where the stench is just now leaking out.
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