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While Jill Priluck decries "the dark side of shareholder activism" on Reuters, the NYT's James...

While Jill Priluck decries "the dark side of shareholder activism" on Reuters, the NYT's James Stewart highlights the "sham" shareholder democracy that has seen directors at dozens of publicly traded companies retaining their positions despite losing elections. The firms include Cablevision Systems (CVC), Vornado Realty Trust (VNO) and medical diagnostics Iris International, where shareholders rejected all nine directors in May 2011. They resigned but then voted to reject their own resignations.
Comments (29)
  • wyostocks
    , contributor
    Comments (8868) | Send Message
     
    What a shame what America has become. Ethics is a foreign four letter word in both government and business.
    14 Apr 2013, 10:41 AM Reply Like
  • The Geoffster
    , contributor
    Comments (4097) | Send Message
     
    'Twas always so.
    14 Apr 2013, 11:50 AM Reply Like
  • losbronces
    , contributor
    Comments (784) | Send Message
     
    How could they vote as a BOD member if they resigned? This is crazy.

     

    No civil action being taken against these BODs?
    14 Apr 2013, 11:07 AM Reply Like
  • Ray Lopez
    , contributor
    Comments (1593) | Send Message
     
    One word: Delaware Chancery Court. That's three words but for shareholders it's a four-letter word. It's the reason so many corporations incorporate in Delaware--the laws of incorporation favor the insiders.
    14 Apr 2013, 11:27 AM Reply Like
  • obieephyhm
    , contributor
    Comments (1595) | Send Message
     
    "the rich and powerful . . . take what they want . . ."
    14 Apr 2013, 11:25 AM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    The NYT is seemingly incapable of reporting any issue honestly, without offering misleading, slanted prose:

     

    "That’s the number of publicly traded companies where directors actually lost their elections last year, meaning that more than 50 percent of the shareholders withheld their votes of approval. "

     

    As anyone familiar with Robert's Rules of Order or usual voting procedures knows, a majority is only tabulated from votes cast, not those 'eligible' to vote. The NYT is hoping that readers will read the foregoing and assume that "more than 50%" voted against any director in question. Of course, what occurred, but the NYT doesn't bother to clarify, is that some voters decided to abstain, and as such should not be, and aren't, included in the tabulations.

     

    There's nothing nefarious about such vote tabulations, at all. It's the norm. Again, the NYT wishes to make it appear the opposite. Imagine what would transpire in the Government, much less corporations, if a "majority" voting requirement were the order of the day. No Congressman, Senator, or even the President, could be elected unless, among all those eligible to vote -- not a majority of actual votes cast -- a majority voted in favor. With voter turnout being what it is, nobody would ever successfully attain a 50% majority of possible votes.

     

    And, they point fingers at Delaware, which is ludicrous, as 48 other states and the Federal Government maintain plurality voting rules, which is the norm far and wide, here and around the world. It's North Dakota that is the anomaly, not Delaware.

     

    If shareholders wish to complain about management's performance, they can make the simplest and most effective vote: they can choose not to own any shares. But, unless the NYT article can point to board members who received more actual rejections than approvals, their complaints are misleading and represent their usual corporate bashing.
    14 Apr 2013, 12:12 PM Reply Like
  • Ray Lopez
    , contributor
    Comments (1593) | Send Message
     
    @Tack, sez: "If shareholders wish to complain about management's performance, they can make the simplest and most effective vote: they can choose not to own any shares" Actually that's not true. The econ literature says the opposite--by 'voting with your feet' you encourage bad investment decisions by corporations. A recently deceased economist on Tyler Cowen's Marginal Revolution blog (server is down right now or I'd cite him) said just that. What we need is Federal policy to give a tax break and/or increase taxes more on corporations that have these 'golden parachute' and anti-shareholder laws in place. Then we'll see how quickly the insiders change their tune.
    14 Apr 2013, 12:23 PM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    RL:

     

    I couldn't care less about bad governance of entities in which I have no economic interest. Corporations are there to serve shareholders, not the public.

     

    And, the idea that we need more Federal intrusiveness in all those "evil" corporations is typical rhetoric of the left, with its relentless attack on capitalism that has gained the populist embrace these days.
    14 Apr 2013, 12:29 PM Reply Like
  • wyostocks
    , contributor
    Comments (8868) | Send Message
     
    Ray
    So you want the unethical people in the "government" passing laws to punish those companies that they deem to be unethical? Don't you think this suggestion is a bit ironic?

     

    If it ever came to pass just think how the "elected officials" would use such power as an enemies list to "punish" those deemed not toting the party line.
    14 Apr 2013, 12:51 PM Reply Like
  • davidbdc
    , contributor
    Comments (3183) | Send Message
     
    Hi Tack,
    The issue I have with your position about simply not owning the stock is that I don't agree that I should have to sell my shares in a company just because a management team manages to use the corporate governance structure to essentially capture all the economic gains the company makes.

     

    If I own shares in company XYZ for 10 years and a new CEO comes in and over a couple years stacks the board with his golfing buddies and the management bonusses and raises replace what used to be increasing shareholder dividends who should be leaving? Not me IMO.

     

    I agree we don't need more government intrusion. But we need to fix what exists. Corporate governance as we have it was built in a time when the majority of shareholders were direct shareholders. That is no longer true. The vast majority of shareholders are now funds. And those funds own so many different companies in their portfolios that they can't possibly have an idea of what all the management teams are doing. As a result they pass off this responsibility to a firm that name escapes me this morning - and they hardly ever say to vote no.

     

    Management teams know this. This is especially true at small & mid-sized firms. There needs to be some way to require mutual funds, index funds, pension funds to be active in their evaluation of boards. I realize no system is perfect, but the one we have serves only the interest of management.
    14 Apr 2013, 12:58 PM Reply Like
  • wyostocks
    , contributor
    Comments (8868) | Send Message
     
    davidbdc

     

    Good morning. I ask that you think about your position in terms of other legal entities.

     

    For example, if your favorite grocer where you shopped for 10 years suddenly started charging triple the price of everything compared with the store down the street would you fight the management and continue to shop there, or simply stop going there?

     

    I could think of many other examples but I am sure you get my point. Sometimes simply selling is the best action. Additionally, if all shareholders sold their shares, management would quickly get the message.
    14 Apr 2013, 01:12 PM Reply Like
  • blueice
    , contributor
    Comments (3816) | Send Message
     
    X-Ray, be gone...

     

    Tack, thank you for exposing the NY Slime...
    14 Apr 2013, 03:44 PM Reply Like
  • Philip Marlowe
    , contributor
    Comments (1189) | Send Message
     
    The number of shareholders that withheld their votes of approval does not include those that abstained or did not vote. To withhold your vote of approval you have to fill out a proxy form and check the "withhold" option and mail the proxy form. Thus, when the times says that more than 50% withheld their votes of approval that means that more than 50% actually voted against the nominees. There is nothing misleading abut the article in this respect. If you do not believe me feel free to look at a proxy form. There is usually an option to withhold your vote.

     

    Here we reach another peculiarity of corporate voting and that is that boards usually run unopposed. It is usually difficult and expensive for an outsider to nominate their own director and put him/her on a proxy. Plurality voting is usually ok when there is choice, i.e., there are multiple candidates running. But when there is only one candidate plurality voting can reach ridiculous results, such as someone winning with one vote for and a million votes opposed.

     

    For this reason comparisons with politics have to be taken with a grain of salt. In western politics you almost always have a choice when voting. Not so in corporate elections. Imagine if Obama ran unopposed for president and won with less than majority. Would you say that he was properly elected president?

     

    By the way, for the above reasons, I believe the proper solution is not to adopt majority rule but to make it easy and cheap for shareholders to nominate their own directors.

     

    Regarding Delaware, anyone can point fingers at Delaware when discussing corporate law for the simple fact that most corporations incorporate there.

     

    Your last point is very wrong and dangerous, because it does not respect ownership rights. If you own a business and do not like the way it is run, you have a right to change it to your liking (as long as your liking is within the law, of course). Selling is an option but cannot be the only option. Otherwise the concept of ownership loses its meaning. If you own something, you have the right to exercise control over that thing. Of course with public companies there are multiple owners so control has to be exercised through voting but that does not mean that the mechanics of voting can be used to remove the right of control from the owners.
    14 Apr 2013, 04:02 PM Reply Like
  • Philip Marlowe
    , contributor
    Comments (1189) | Send Message
     
    This grocer analogy is wrong because it again fails to respect ownership rights. In the grocer scenario you are customer. In the shareholder scenario you are an owner. Can you not see the difference?

     

    If I was a customer of a grocery store, my only recourse is to shop somewhere else. If I were the owner of the grocery store, then I have a right to make the prices in that store be exactly what I want them to be.
    14 Apr 2013, 04:11 PM Reply Like
  • Jake2992
    , contributor
    Comments (831) | Send Message
     
    Thanks for that explanation Philip. Tack, as usual, is clueless. The NYT is one of the last remaining honest news outlets out there.
    14 Apr 2013, 04:25 PM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    PM:

     

    I vote shares electronically all the time. The individual board members have listed next to their names: approve, disapprove or abstain, or identical synonyms. That's what an abstention is, a withholding of a vote, and it can be done on an individual member or resolution or for the entire slate offered to the shareholders.

     

    For the purpose of tabulating votes, there's no difference between an abstention and a failure to reply (vote) at all, as regards plurality voting. Unless the rejections exceed the approvals, or a quorum is not met, the member is re-elected.

     

    And, no, when someone withholds their vote, they are expressing neither an approval nor a rejection, as those two options are also offered, and they didn't choose them. Only in the NYT's mind is a choice to withhold or abstain a vote against, which it is not, either technically or legally. It's an expression of "no opinion."
    14 Apr 2013, 04:34 PM Reply Like
  • Philip Marlowe
    , contributor
    Comments (1189) | Send Message
     
    Tack, I am not sure which companies you vote for, but I suspect you may be a bit confused. We are talking about plurality voting, and in plurality voting the choices are usually "for" or "withhold". In majority voting, the choices are usually "for", "against" or "abstain". See this nice explanation from the SEC:

     

    http://1.usa.gov/ZqKz13

     

    Thus, in plurality voting if there is only one board nominated usually the only way to express dissatisfaction is to vote "withhold." But lets look at some specifics. The NYT article mostly talked about Cablevision. This is an example of one of Cablevision's proxies:

     

    http://bit.ly/ZjmD2z

     

    As you will note the section that deals with the board gives you only two choices: "for" or "withhold".
    14 Apr 2013, 05:10 PM Reply Like
  • davidbdc
    , contributor
    Comments (3183) | Send Message
     
    Wyo,
    Let me address this point first - if all shareholders sold their shares, management would quickly get the message.

     

    With the majority of shareholders being passive owners - ie mutual funds, sector funds, index funds, and pension funds. Shareholders as management knows them are captive - they all won't sell.

     

    Now lets talk about the local grocer. Lets say I put up some of the money for the grocer to open his/her doors twenty years ago - actually four of us do and the owner puts up the other 20% - so we all own 20%. For 17 years things are fine. The store is successful. Profits are earned. Some profits are re-invested into the store and facilities and people. And some are returned to myself.

     

    Now, the original owner retires and his son-in-law becomes the new CEO. He triples prices and sales and profits decline. What will happen? Well, I imagine the five of us owners meet over dinner and kindly let the old CEO know that his son-in-law is going to have to move on.

     

    But now lets change the example a bit. Same original owners but after 5 years we go public - build 50 more stores over 12 years and we all now own 2% of a much larger entity. Instead of the son-in-law an equally incompetant CEO takes over when the owner retires. Over three years he stacks the board. He triple prices and sales fall - as do profits. His salary has doubled and his bonusses have triple. But shareholders see no returns and the value of the firm is declining. What to do now? Well, the majority of shareholders only own the company because 1. they own the whole market (ie index fund). 2. they own the whole sector (ie sector funds/mutual funds). 3. they own the whole market as a part of their massive pension fund. The individual shareholder is now at the bottom of the totem pole. All shareholders are receiving less but management is receiving more. And basically nothing can be done.

     

    That is the situation with a vast number of companies. Corporate governance rules that exist today are the same ones put in place when individual shareholders where the vast majority of shareholders. The result is that the economic gains go primarily to management at the expense of both shareholders and labor.

     

    And I also believe this issue contributes to some of the societal problems we have in regards to jobs. Management thinks nothing about firing 2000 people to increase next year's profits - which makes their bonusses increase and stock options increase this year - but does absolutely nothing for the company in three years. When I hear these CEO's get lauded for their "difficult decision" to fire people I get nauseous. It takes zero talent to fire people - any idiot can do it. What they are really announcing is that "Senior management has totally failed to execute a strategy that best serves our existing customers and markets. We have not innovated, we have not executed, we have failed". But instead 2000 folks get fired, management collects even bigger paychecks - and shareholders own a gutted company.

     

    And even when firms are doing ok or well, management is still able to capture the vast majority of economic gains. CWH is a case study of corporate governance run amuck. If you've owned since the IPO you've seen 4 or 5 companies spun off - management fees increased dramatically. Yet, I as a shareholder have zero shares in any of the spin-offs, zero special dividends from the spin-offs, lower dividends from the spin-offs. Management salaries and bonusses increase - and they own the management company which the firm pays to run the actual properties - which gets paid based on..... assets under management! Its basically a scam that is totally legal under our existing corporate governance structures and there is little chance anyone can ever dislodget the management team (and there is a current effort to do so by two real estate hedge funds). Its gone on for years and years. And I don't believe its capitalism - its a perverted form of something with legal protection that allows a small group of inviduals to steal from a larger group of individuals (most of whom don't realize they are being stolen from).

     

    I'll end there and get back to watching the Masters - no reason to be upset on the weekend!
    14 Apr 2013, 05:12 PM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    PM:

     

    Thanks for that info. I am going to have to review my previous proxies, again, if I still have any copies in my "trash" file.. With domestic and international issues, perhaps, there have been some of both.
    14 Apr 2013, 05:25 PM Reply Like
  • robgra
    , contributor
    Comments (445) | Send Message
     
    " if all shareholders sold their shares, " To whom might they sell, and at what economic loss? In order to sell, one must find a buyer. As long as there are buyers, there is NO impact to management other than perhaps to get a more disinterested batch of shareholders. the very idea of "voting with your feet" is a complete fallacy.
    14 Apr 2013, 08:07 PM Reply Like
  • jclampit
    , contributor
    Comments (3) | Send Message
     
    To davidbdc, unfortunately times have changed with the new Progressive "shareholder activism". A company with a particular political belief wants to destroy a company that has supported a candidate that they do not want elected. They buy a large percentage of stock that gives them a right to vote the bums out. They shake up the company and drive the price down while shorting the stock. They make money off the short, and this pushes the board to liquidate large amounts of their stock at a reduced price. The board members lose millions, the activist company buys more stock at a extremely low price and then benefit when they vote to sell the company to new buyers, who have their same political beliefs because they decide who can buy the company. This is happening right now with a company which will not be good for anybody except the "activist shareholders". The other shareholders will lose big time. See if the current administration will stop this. If you have any doubt, just check the players and see who they support! That will tell you what is really going on!
    14 Apr 2013, 09:09 PM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    PM:

     

    Just want to report further that I just received proxy statements for Annaly, Merck and Chevron, and each and every director vote line shows: "affirm, reject, abstain" as the voting options.

     

    Apparently, there are more than two options.
    19 Apr 2013, 04:52 AM Reply Like
  • expatsp
    , contributor
    Comments (220) | Send Message
     
    Tack:
    It depends on the proxy, some of mine have 3 options, others 2. Keep looking, with time you'll surely get a few like Cablevision in the NYT article, with just 2.
    19 Apr 2013, 07:37 AM Reply Like
  • davidbdc
    , contributor
    Comments (3183) | Send Message
     
    Here is a real world example from one of my least favorite investments:

     

    CWH announced today the results from their annual meeting:

     

    Mr. Joseph L. Morea received less than the majority of shares required to be re-elected as an Independent Trustee. As a result, Mr. Morea resigned from the Board. The Board determined that the insufficient vote for Mr. Morea appeared not to be directed at any personal failings of Mr. Morea, but rather to be the result of the positions taken by the Board to oppose the hostile takeover efforts being pursued by Corvex Management LP and Related Fund Management, LLC. In these circumstances, and because the Board's determination that Mr. Morea's continued service and leadership would be in the Trust's best interest, the Board requested that Mr. Morea accept appointment to the vacancy created by his resignation. Mr. Morea subsequently accepted appointment as an Independent Trustee.

     

    We, the shareholders managed to throw the bum out - and the very same day he's back on the board!!!!!
    15 May 2013, 10:28 AM Reply Like
  • wyostocks
    , contributor
    Comments (8868) | Send Message
     
    david
    There is only one thing to do; sell the stock. No point in investing with crooked management.
    15 May 2013, 11:09 AM Reply Like
  • wyostocks
    , contributor
    Comments (8868) | Send Message
     
    What's with this site today truncating the right side
    of all paragraphs?
    14 Apr 2013, 12:21 PM Reply Like
  • wyostocks
    , contributor
    Comments (8868) | Send Message
     
    Reading from from my tablet and the display is just fine. Ignore my above.
    14 Apr 2013, 12:52 PM Reply Like
  • davidbdc
    , contributor
    Comments (3183) | Send Message
     
    Well I'm using a laptop and having the same issue.
    14 Apr 2013, 01:09 PM Reply Like
  • Retired and loving it
    , contributor
    Comments (366) | Send Message
     
    This is a sad state of affairs. I once met the folks who run Vornado. Not a crew who I would trust to hold my milk money. Even for real estate people they were incredibly greedy and low minded.
    14 Apr 2013, 09:08 PM Reply Like
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