Back in 2002, after Enron, the New York Times editorialized against auditors performing consulting work for companies they audit. Said one editorial:
... reports that four of the five major accounting firms, including Arthur Andersen, may be moving away from offering certain consulting and internal audit services to the companies they audit is a welcome development. For too long the profession has failed to acknowledge the conflict of interest inherent in auditing a company's books while trying to sell it other services.
Another editorial said, "Firms have placed themselves in an untenable conflict of interest by providing the same companies they audit on behalf of the public with an array of consulting services. Congress ought to pass legislation to bar such conflicts."
Sure enough, page 70 of the New York Times Company's 2011 proxy statement includes a table of the fees that the New York Times paid to its auditor, Ernst & Young, in fiscal 2010. $3,072,000 was for "audit fees" and $95,000 were "all other fees," which the proxy statement says "were related to consulting services." Inherent and untenable conflict of interest? Only when someone else does it.
The other good one in the Times proxy statement is that the "say on pay" executive pay vote is going to be limited to Class B shareholders — in other words, the Ochs-Sulzberger-Golden-Dolnick family members, rather than all the shareholders who hold economic interests in the Times company. Here's the way the Times proxy statement explains it, on page 68:
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") was signed into law by President Obama. The Act provides for a number of corporate governance and executive compensation reforms, including the requirement that U.S. public companies provide stockholders a non-binding advisory vote on the compensation of the company's named executive officers (a "say-on-pay" vote). The say-on-pay vote must occur at least once every three years, and stockholders must also be given, at least once every six years, an advisory vote regarding whether future say-on-pay votes will occur every one, two or three years (a "frequency vote"). The initial say-on-pay and frequency votes must occur at a company's first annual stockholder meeting taking place on or after January 21, 2011. Accordingly, these matters will be vote on at our 2011 Annual Meeting.
Under our Certificate of Incorporation, an advisory vote on compensation or on the frequency of such votes is not among the expressly enumerated items as to which the Class A stock has a vote. As a result, for the Company, the say-on-pay vote and the frequency vote are items reserved for a vote of the Class B stockholders.
So Carlos Slim, who owns 16% of the Class A Shares, or around $250 million worth, gets no vote on the executive compensation.
The "say-on-pay" was in Section 951 of Dodd-Frank: "Not less frequently than once every 3 years, a proxy or consent or authorization for an annual or other meeting of the shareholders for which the proxy solicitation rules of the Commission require compensation disclosure shall include a separate resolution subject to shareholder vote to approve the compensation of executives."
I was against say on pay for reasons explained here, but it will be interesting to see whether other companies that have multiple classes of shares also allow only the class that is family-controlled to vote in the "say" on pay. If so, it looks like it may be not so much of a "say" at all, at least for those shareholders who purchased shares rather than inheriting them.
I'm not shedding any tears for those non-family shareholders; they should have known what they were getting into, and it's just a non-binding advisory vote anyway. Still, it looks like shareholder democracy has its limits, at least at the New York Times Company.