NEW YORK Morgan Stanley (MS.N) shareholders are not expected to vote out Chairman and Chief Executive John Mack at the annual meeting on Tuesday, although investors frustrated by the bank's costly missteps will send a protest message by demanding a vote on executive pay.
CtW Investment Group, an adviser to several union pensions, has for several weeks urged investors to withhold votes from Mack and several other directors. Last week, the campaign won a few converts -- large pension funds in California, Illinois and Connecticut.
Yet on the eve of the meeting, CtW executive director Bill Patterson conceded he does not expect a majority of shareholders to withhold votes from Mack. Rather, investors will approve a proposal from another union group -- the American Federation of State, County and Municipal Employees -- seeking an advisory vote on executive compensation.
"Shareholders are moving to 'Say on Pay' as the instrument for expressing their disapproval of the board and their demand for a stronger, more independent board," Patterson said in an interview on Monday.
Mack took the helm amid great fanfare when he returned to the investment bank in 2005, but he lost some goodwill last year as Morgan Stanley reported $9.4 billion in fourth quarter mortgage trading losses. CtW said Mack and several directors should be held responsible for pushing the investment bank to make bolder bets and then failing to manage that risk.
In the weeks leading up to the meeting, shareholders received conflicting advice from other proxy firms. Glass Lewis called for supporting Mack, but voting against six directors, while ISS, considered the most influential proxy adviser, said investors should reelect all directors, even as it questioned the board's performance.
Ultimately, most fund managers concluded that a vote against Mack and directors would send an unduly harsh message.
"The director withholds will not be large," said Patterson, whose group lobbied union and other pension managers to cast withhold votes. "Shareholders don't want to vote him off the board."
Morgan Stanley has taken a number of steps to bolster risk management and will remove the last vestiges of super-majority voting in place before Mack returned. Mack meanwhile also may take the steam out of the 'say on pay' movement since he turned down an annual bonus last year.
Patterson still contends that AFSCME submitted their 'say on pay' proposal last fall, before the big losses were revealed.
"By January, it was clear stronger measures were warranted," Patterson said. Going forward, "investors are demanding stronger boards who will stand up to the CEO, but right now they are not quite ready to turn directors out."
(Editing by Andre Grenon)