I Read Morgenson; Now What?

Gretchen Morgenson’s What Iceberg? Just Glide to the Next Boardroom (NYTimes, 12/26/09) tells of directors who were supposedly minding the store as disaster struck at companies like Countrywide Financial, Washington Mutual or Fannie Mae and how many have moved on to other boardrooms. For example, Thomas P. Gerrity was a board member of Fannie Mae from 1991 to 2006 and is now on the board of Sunoco.

After going through a litany of such directors, Morgenson notes that “because of the way director elections are structured, board members can win their seats if they receive just one vote of support.” While that is still true at most companies, at 2/3 the S&P 500 and many others directors must offer their resignation if they don’t get a majority of share votes. Of course, boards can reject such resignations. Even if they are accepted, the board can simply replace Tweedledum with Tweedledee.

“Shareholders interested in ousting a director or two must mount an expensive proxy fight,” writes Morgenson. The SEC will probably adopt a mild form of proxy access in 2010, which will allow a few directors to be nominated by very large shareowners or groups beginning in about 2011. Other solutions offered up include: instituting term limits for directors, separating the roles of board chairman and chief executive, and allowing shareowner groups holding 10% a company’s to call special meetings where we can throw tainted directors out.

So, what should the average retail investor do with this information? If you have a pension plan or own mutual funds, see how they are voting. You can either do this by:

  • going to the fund’s individual site and searching for their proxy voting record and policies or
  • going to FundVotes or ProxyDemocracy. Here you can quickly see if your fund actively votes against directors, votes in favor of corporate governance measures (term limits, split CEO/chair, 10% threshold) or see if your fund is basically a lapdog… always voting with management.

Once you get a look at how your funds are voting, you may want to either switch to other funds that take their fiduciary duties to vote seriously or you may want to write them a letter or e-mail suggesting they support measures such as those mentioned by Morgenson.

If you own stocks you should be exercising your right to vote. Think your votes don’t count? Think again. Read On2 Adjourns Meeting on Google, Solicits More Votes, where the ProxyDemocracy Blog discusses the impact of Moxy Vote, the proxy-voting platform for individual investors. Management has extended the voting deadline twice, in part because ballots representing 18.9 million On2 shares, or 11% of those outstanding, were cast through the Moxy Vote Web site. Under e-proxy rules, up to 95% of retail shareowners are simply clicking delete. In such circumstances, your one vote can basically have the power of twenty! Apathy may make you stronger as an individual voter, but since we also need to overcome the apathy of all those lapdog funds, we need to mobilize retail shareowners.

If you have some time and want to put in some effort, search corpgov.net for “proxy voting” or “research.” If you just want to “do the right thing” and are willing to trust funds and advisors, check out the following three resources and copy from your trusted brand:

  1. TransparentDemocracy.org not only offers advice from various sources on proxy voting but also voting in civic elections. They are just getting started, so one of the problems is that you are likely to find yourself looking up a company but finding no advice.
  2. ProxyDemocracy.org has been around the longest and reports on advanced voting by some huge funds like CalSTRS, CalPERS, and Florida SBA, as well as SRI/CSR funds like AFSCME Employees Pension Plan, Calvert, CBIS, Domini, Green Century, MMA Praxis and Trillium Asset Management. Go to this site a week before the deadline and you’ll probably be able to see how several funds are voting. In fact, you can tell them what stocks you own and they will notify you by e-mail when they know how funds are voting.
  3. MoxyVote.com is the newest site. Again, you’ll probably find they won’t have advocates offering advice on many of the stocks you own at this point. However, a handy feature is that you can actually vote your stock through their platform and they keep track of votes cast. You can either manually enter the control number sent by your broker or you can link your brokerage account directly.

Now that you know how to be a responsible owner of stocks by voting your proxies, you should also consider signing up at Shareowners.org to network with like-minded shareowners. You’ll get some news, intelligent discussion and they’ll help you prod elected officials. It is critically important to work to reform corporations as well as they government, since corporate managers have so much influence over both.

Also sign up at the Investor Suffrage Movement. Volunteer to be a “field agent. You could save an activist shareowner hundreds of dollars in travel expenses by simply standing up at an annual meeting near you and reading a prepared statement in support of a shareowner resolution, like one calling for shareowners representing 10% of a company’s stock being able to hold a special meeting. If you want to get further involved, this is the place… from t-shirts to building a proxy exchange database.

Last, keep up with the news at CorpGov.net. We’re moving much of the news to a blog format by the beginning of 2010, so you’ll be able to subscribe through RSS or via e-mail and each news item will finally have its own URL… so important to many of you who would like to link to our coverage and comments. Sign up for Kachingle, the coming crowdfunding source. For $5 a month, you’ll be supporting not only CorpGov.net but many other important web-based resources.

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