The Shareholder ForumTM

reconsidering

"Say on Pay" Proposals

Forum Home Page

"Say on Pay" Home Page

Program Reference

 

New York Times DealBook, February 25, 2009 posting

 

The New York Times

 

 

 

DealBook. Edited by Andrew Ross Sorkin
 

A Surprise at the Ballot This Proxy Season?

FEBRUARY 25, 2009, 1:48 PM

As the 2009 shareholder meeting season kicks off in sterile hotel ballrooms across the country, company directors may find themselves fighting harder than usual to keep their comfy seats on the board.

That’s because, according to the proxy solicitation firm Okapi Partners, brokerages are increasingly changing the way they allocate shares held for customers who don’t give them voting instructions.

Historically, in the absence of instructions from the shareholders themselves, brokers almost always voted their shares in lockstep with the board’s recommendations. More and more, however, brokers are divvying up the undirected votes proportionally, to reflect how their voting clients chose to cast their ballots.

Directors have long counted on broker votes to give them an advantage on matters that were designated as “routine” by the Securities and Exchange Commission.

But times are changing, according to a recent guidance note from Okapi, which was formed in early 2008 by two former senior managing directors from proxy solicitor Georgeson.

In recent years, amid sometimes heated discussions about changing the current rules on broker voting, brokers such as Schwab, Ameritrade, Morgan Stanley, Merrill Lynch and Goldman Sachs have changed to a proportional voting system, Okapi said.

The shift could alter the landscape in director re-elections: “The net result of this change is that retail investors who provide voting instructions to their brokers have an opportunity to disproportionately influence the outcome of a proxy vote — with their votes sometimes effectively counting twice as much,” Okapi said in the note.

To make sure their slate gets re-elected, companies may need to work harder to drum up support from their investor base, the note said.

The uncertainty adds another layer of drama to what will be a highly charged proxy season for many companies. With equity values down sharply from where they were last year, many shareholders are angry and could demand sweeping changes.

For activist funds and disgruntled investors, this environment may provide a much better chance than in the past to affect major change.

For board members, though, it could mean they will have to actively campaign just to keep their seats.

Cyrus Sanati

 

 

Copyright 2009 The New York Times Company

 

 

 

This Forum program is open, free of charge, to anyone concerned with investor interests relating to shareholder advisory voting on executive compensation, referred to by activists as "Say on Pay." As stated in the posted Conditions of Participation, the Forum's purpose is to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant is expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

The organization of this Forum program was supported by Sibson Consulting to address issues relevant to broad public interests in marketplace practices, rather than investor decisions relating to only a single company. The Forum may therefore invite program support of several companies that can provide both expertise and examples of performance leadership relating to the issues being addressed.

Inquiries about this Forum program and requests to be included in its distribution list may be addressed to sop@shareholderforum.com.

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.