Financial crisis fuels corporate reformers
NEW YORK (Reuters) - For U.S. investor advocates, the financial crisis could be the opportunity to rally more shareholders around a slew of long-sought corporate reforms -- with a big bull's-eye on executive payouts and board independence.
The sharp declines in investors' portfolios, widespread dismay with Wall Street's leadership and the possibility of a Democrat in the White House in January could set the stage for a dramatic annual meeting season next spring.
The political pressure from angry politicians may also pressure companies to negotiate with activist shareholders and acquiesce to their demands to avoid public showdowns.
In recent days, New York's attorney general has taken American International Group Inc (AIG.N) to task for lucrative executive severance packages and corporate retreats at the same time it receives a taxpayer bailout. And a U.S. Congressional panel grilled the head of bankrupt Lehman Brothers Holdings Inc (LEHMQ.PK), Richard Fuld, over the fairness of his past pay packages valued in the hundreds of millions of dollars.
Shareholders introduce many ballot initiatives every year, though many are defeated because of lack of support by big investors, which often prefer to sell a stock than try to press for changes at problem companies.
Given how much wealth investors have seen wiped away in the market collapse, this year could be different. Union pension funds, labor groups and other investor organizations are busy strategizing now in preparation for filing proposals they hope to get on ballots during spring proxy season, the time when most corporate annual meetings are held.
Among the hottest issues, says long-time executive pay critic Richard Ferlauto, will be proposals seeking to eliminate what he sees as perverse incentives for corporate leaders that help foster excessive risk-taking by their companies.
Once the financial crisis struck, "we ripped up the game card that we had created for the shareholder season," said Ferlauto, director of pension policy at the American Federation of State, County and Municipal Employees (AFSCME).
"We want to take a new look particularly at the characteristics of pay that focused on short-sighted risk taking," he said.
AFSCME plans to introduce resolutions at an array of companies that would require top managers to hold all of their stock options and restricted stock awards for two years past their tenure with the company.
"It puts the CEO in the same position as the shareholder, and that is focused on long-term value creation," he said. "You can't leave in the middle of a crisis or on the front end and still make off with tens of millions of dollars from your option package."
SAY-ON-PAY
The group also plans to press some of its perennial issues, such as "say on pay" votes to give shareholders a greater voice on executive pay as well as advocating bans on tax "gross-ups" that use shareholder money to help pay the tax obligations of top executives.
The say-on-pay measures, which aim to give shareholders advisory votes on pay packages, have gotten a mixed reception when they have appeared on proxy ballots, with many of the proposals failing to pass.
Still, next year could be a big year for these proposals as more shareholders are fired up about pay matters. Governance experts say they also think legislation making such votes mandatory will pass the U.S. Congress next year. Democratic presidential candidate Barack Obama is the Senate sponsor of a "say on pay" bill, while Republican rival Sen. John McCain has said he supports the measure. Continued...
