Manhattan Institute on Shareholder Activism

I welcome the Manhattan Institute‘s Center for Legal Policy to the corporate governance debate.

The Manhattan Institute launched its Proxy Monitor project. The database assembles information on the 150 largest corporations (by revenues, as ranked by Fortune magazine) and currently includes searchable and sortable information on every shareholder proposal submitted at each company from 2008 through August 1, 2011. (Earlier years’ proposals, and a broader data set of companies, will be added to the database in the months ahead.)

They recently released A Report on Corporate Governance and Shareholder Activism. Activists may want to check out companies this right leaning think-tank sees as most vulnerable:

The one sector in which shareholder proposals are most likely to pass is retail. While shareholders at the nation’s largest retailer, Wal-Mart, passed no shareholder proposals—likely because of the company’s sizable family holdings—a “who’s who” of other retailers saw one or more shareholder proposals pass from 2008 through 2011: CVS Caremark, The Home Depot, J. C. Penney, Kohl’s, Kroger, Lowe’s, Macy’s, McDonald’s, Safeway, Staples, Supervalu, TJX, and Walgreens. The types of proposals receiving majority support at retail companies include executive-compensation proposals calling for “say on pay” or restricting “golden parachutes,” as well as corporate-governance proposals calling for majority voting, board declassification, and shareholders’ ability to call special meetings or act by written consent. It is not clear from the data at hand why companies in the retail sector are more likely to see these shareholder proposals pass than those in other sectors. These companies may have had different preexisting norms for corporate governance and executive compensation, they may have had different share-price performance, or they may be owned by different classes of investor.

Retail companies are more subject to public opinion and reputation changes. I would guess they also have more of a retail shareowner base. If we invest in what we understand, such companies should have the broadest base. Recent developments in social media might even make them more vulnerable to criticism. On the other hand, companies that work with their customers and shareowners could see substantial benefits from such a participatory approach.

Individual investors sponsored over 70 percent of all proposals related to corporate-governance rules, led by the chief corporate gadflies, Evelyn Davis and members of the Steiner, Chevedden, and Rossi families. Labor unions backed one-quarter of all such proposals, led by AFSCME and the United Brotherhood of Carpenters. Religious groups and socially oriented investors sponsored a mere 2 percent of these proposals.

Generally, I found the facts presented in the report informative and certainly the Institute’s database is useful. However, much of their criticism of those seeking more democratic forms of corporate governance is unconvincing. For example:

Overall, the evidence tends to throw into question the motives of shareholder activists submitting proposals for consideration at corporations’ annual meetings and suggests that such shareholder activism may be more a vehicle for interest-group capture of corporations rather than for mitigating agency costs and improving shareholder returns.

While I can see that groups like People for the Ethical Treatment of Animals certainly use annual meetings to bring issues to the attention of shareowners and the public, I see little evidence in the report of “interest-group capture of corporations.” It would be interesting to see an analysis interest-group capture of Goldman Sachs. As a shareowner I certainly haven’t seen any benefits. There’s a case of a company that appears to serve its upper management, rather than its shareowners. Blankfein reaped almost $22 million last year while my shares in the company lost about a third of their value. Wouldn’t it be great to see an analysis of “interest-group capture” by management at various companies from the Manhattan Institute?

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