A record year for shareholder activism
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It often works like this: An individual investor brings personal concerns about board-member independence or a firm's political contributions, for instance, to an investor networking organization, such as the Advocacy and Public Policy Program (www.shareholderaction.org). There, he or she learns how others - such as mutual funds or Calpers, the giant California pension program with $165 billion invested - plan to vote at a particular company's annual meeting. They can also learn who, if anyone, is leading the charge. If a campaign has already begun, the investor might become a signatory to a petition, a proxy voter, or possibly even a participant in meetings with management. Out of such steps or other creative means to reach the right corporate decisionmakers, an activist is made.Skip to next paragraph
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Many shareholders who never bothered to vote their proxies and instead by default affirmed management's plans have seized a new role since the collapse of Enron. In Maine, for instance, State Treasurer Dale McCormick promptly instituted proxy voting guidelines for companies owned through the state's $7 billion pension fund. And for the ordinary Maine investor outraged by corporate fraud, Ms. McCormick has answered a call for lessons in activism by writing how-to articles for the general public.
"The annual shareholder meeting is the one time of the year when shareholders get access to the board of directors and management," she says. "We have a big role to play in cleaning up the corporate scandals, and you're either part of the solution or part of the problem. You're part of the problem if you're letting someone else vote your proxy."
Still, the $64,000 question persists: Does it work? Do shareholder voices actually lead to new corporate policies? On that question, the jury is still out, since management sometimes takes years to respond to shareholder concerns. But signs do suggest more movement than five or 10 years ago.
On one hand, management has yet to respond to certain new pressures. In notable examples from the current proxy season, 37 percent of shareholders of the oil exploration firm Apache Corp. demanded a report on the company's efforts to reduce greenhouse-gas emissions. At the Fifth Third Bancorp annual meeting in May, 63 percent of shareholders called for a nondiscrimination policy toward gay and lesbian employees, despite management's silence on the issue. Whether executives will act on these shareholder directives remains to be seen.
But in some cases, shareholders are already claiming victories. American Electric Power Co., for instance, apparently heard the voice of investors, led by Connecticut Treasurer Denise Nappier, who demanded in 2003 more disclosure about the company's impact on global warming. This year, under pressure from another pending shareholder resolution, the company agreed to let an independent committee oversee a report. Satisfied shareholders withdrew their proposal.
"Typically the annual meeting has been a 'rah-rah' event for the company and for management," says Tracey Rembert, advocacy director for the Social Investment Forum. "Some [firms] don't take shareholders very seriously, but more and more are finding they need to."
With shareholder activism still in its infancy as a movement, investors are discovering by trial and error what works most effectively. Shareholders with a light touch, Ms. Rembert says, find that handwritten letters have at times prompted six or eight-page responses from executives. And for those who prefer the stick to the carrot, Rauscher says shareholders are beginning to discover the potential for lawsuits against management when those in charge convey "misleading information" on social issues or other matters.
Whether the gentle approach ultimately gets further than the tough one is not yet clear. But in the meantime, Rauscher expects investors to keep seeing encouraging signs. "Social activists are realizing the big institutional investor might vote for a CEO pay limit and take the rest of the little guy's proposal [with social concerns attached] along with it," he says. "You just might find it gets approved."