It’s that time of year again – the time when companies and shareholders gather for their annual meetings. But there’s a new twist to this rite of spring. This year, the buzz in corporate America isn’t what goodie bags of your products you offer your shareholders, or what food or entertainment you lay on to keep them smiling, but how much security you can deploy to make sure you get through the event without too much loss of dignity.
Just months after Time magazine dubbed “The Protester” the 2011 person of the year, it isn’t just Middle Eastern dictators or Wall Street bankers facing riled up crowds armed with custard pies and harsh criticism. The 99 Percent Movement – a kind of spinoff of the Occupy Wall Street movement – showed up to protest General Electric’s (GE) annual meeting and draw (more) public attention to the fact that the behemoth multinational has paid little to no taxes in some years. Police arrested about a dozen protesters at Wells Fargo’s (WFC) annual meeting, as well as several environmental activists who chained themselves to railroad tracks to block the deliver of a trainload of coal to a Duke Energy (DUK) power plant. On the same day, several dozen of their counterparts showed up at Duke’s head office in Charlotte, N.C., just before its annual meeting. And yes, Rupert Murdoch’s News Corp. annual meeting drew its fair share of protestors this week, too.
In Charlotte, city officials braced themselves for the biggest turnout of protesters yet, as Bank of America (BAC) held its own annual meeting Wednesday and hundreds of protesters gathered outside the banks' headquarters. Four people were reportedly arrested for trying to force their way into the meeting.
Organizers had served notice that they intended to deliver a petition signed by 75,000 people to the bank’s honchos at the meeting, demanding that the bank stop using its funds for political purposes, arguing that the “Citizens United” ruling by the Supreme Court undermines democracy. The overall plan? “To demand that the bank fundamentally change the way it does business,” said Brigid Flaherty, executive director for a group called the Pushback Network. Inside the shareholder meeting, CEO Brian Moynihan heard a similar message again and again from shareholders upset about everything from the bank's foreclosure practices and mortgage servicing to its role in the payday lending industry and its customer service.
Is it premature or over-reaching to refer to these events as a kind of “shareholder spring”? Not entirely. Setting aside the antics by protesters eager to grab headlines and whip up controversy, there are some more sober and considered sources of opposition to “business as usual” in corporate boardrooms. Protesters alone, for instance, couldn’t have mustered enough votes to vote against Citigroup (C) CEO Vikram Pandit’s $14.8 million pay package. Other companies – Credit Suisse (CS) and Barclays (BCS) among them – also got “no” votes on compensation.
Many shareholder resolutions or votes like this aren’t binding on the company and the board – but institutional investors can also line up to take more dramatic action. For instance, the $5.7 billion Sequoia Fund (SEQUX) announced plans last month to vote against James Johnson, a veteran Goldman director and former CEO of Fannie Mae, who sits on Goldman’s compensation committee.
The target of Sequoia’s ire isn’t the pay packages at Goldman, but rather what the fund’s managers see as a track record of failure at Fannie Mae. “Rather than act conservatively to protect taxpayers, during Johnson’s tenure Fannie ramped up its growth by buying lower-quality mortgages,” they wrote in a letter urging support for their proposal. If they win enough allies, Johnson will have to pack his bags and move out of the boardroom. The bank itself, so far, is simply shrugging off the controversy; a spokesman last month was quoted as saying that Johnson has served Goldman’s shareholders well for 13 years “and will continue to do so.” The latter part of that statement will be determined at the company’s May 24 annual meeting.
Annual meetings are the one time each year when corporate directors and senior executives come face to face not only with their employees but with a wider community, and at which even the smallest investor has the right to ask a question or raise a topic for debate. For years, however, they were able to rush through these events, making them feel like pro-forma events at which the company’s agenda was rubber-stamped by its investors. Every now and then a company that was failing miserably to deliver respectable returns to its investors would face a proxy battle. Mining or energy companies would have to deal with questions from environmental groups or for those doing business in politically sensitive regions of the world might find their business practices coming under scrutiny from human rights and other organizations.
What is happening now – behind all the antics of protestors – is more sweeping and serious, however. Changes to corporate governance rules and greater transparency, combined with a growing willingness to question “business as usual” in the wake of the financial crisis and subsequent recession, means that even groups like Sequoia are more willing to challenge the status quo if they see the companies that they invest in fly in the face of valid concerns.
True, some shareholders have huffed and puffed over the audacity of critics, arguing that they should focus more on the financial gains that companies have delivered for their shareholders. But that misses the point. To a growing number of investors, the definition of acting in the best interests of a company’s shareholders is changing, slowly but steadily, as is that of what constitutes an acceptable return on their investment. It’s no longer enough to generate outsize returns if they come at the expense of the environment, human rights or other “social responsibility” issues. More investors are putting money into funds like those run by Trillium Asset Management, which in turn is urging support for “no political spending” shareholder proposals like that coming up for debate today at Bank of America.
It is no longer business as usual at annual meetings. The coming year will show whether corporate boards have taken the growing surge of bona fide criticism to heart and not just tsk-tsked over protesters’ tactics.
