By Cydney Posner
Following is a link to an article in the NYT's DealBook highlighting recent shifts in shareholder activism. In particular, the article contends that this proxy season witnessed activism by "a more formidable foe than the typical corporate gadfly: the mainstream investor." Although shareholder activism has been, and continues to be, primarily the province of "labor unions and activist investors with large personalities and forceful demands, increasingly it is mutual funds and other more tempered institutional shareholders who are criticizing lavish pay packages and questioning corporate governance." The article attributes the new initiative by institutional investors to the impact of new regulations together with frustration over "laggard stock performance and recent scandals…." The result has been rejection of company policies and support of proposals to reform corporate boards –as well as board shake-ups --at a number of large companies.
Broadridge estimates that the number of shareholder proposals increased by 3% this year to 595; however, in light of the fact that say on pay is now mandatory and no longer the subject of shareholder proposals, that increase is significant. ISS estimates that there will be more proxy fights during the first half of 2012 than occurred during all of 2011. Corporate governance issues are particularly prominent. For example, ISS estimates that proposals to de-classify boards increased 41% this year to 79 proposals, an increase the article attributes in part to an initiative by Harvard Law School's Shareholder Rights Project. In addition, the article points to management scandals, which have "given investors plenty of ammunition," such as the "firestorm" at Yahoo over misstatements in the CEO's resume that led to his eventual resignation, a move initiated by a hedge fund that had not otherwise engaged in a "real activist fight in five years." Other major companies have faced significant opposition to board members, especially compensation committee members, prompted by "unlikely partnerships" between strident well-known activists and institutional investors that typically "sh[y] away from the spotlight." A number of these embattled companies have been compelled to make significant concessions. As one commentator noted, " ‘[w]hen traditionally quieter investors join the chorus, it resonates so much more,' [adding] "that mainstream investors are increasingly hiring in-house experts to vet companies and pinpoint problems with board members." A principal at a money management company maintained that " ‘We're not trying to be activists….Shareholders are paying attention to what C.E.O.'s are getting paid. Investors can't ignore it anymore.' "