First Published in the Atlanta Journal-Constitution May 8, 2009
by Rob Hassett
As part of the federal stimulus package, more than 400 financial institutions will be required to hold non-binding shareholder votes this year approving or disapproving executive compensation.
Shareholders at many public companies will also be voting whether to permit shareholders to vote on non-binding resolutions on executive pay.
None of this will have much impact unless each shareholder is given the right to be notified by e-mail when a proposal is to be voted on. The e-mail should link to a clear description of the proposal and link the shareholder to a proxy or other method to vote. Most companies will only offer this convenience if required by the Securities and Exchange Commission.
Under new SEC rules, public companies are required to post information about proposals to be voted on by the shareholders on their Web sites. But the SEC does not require companies to allow shareholders to grant proxies or otherwise vote via the Internet. Most shareholders who obtain information over the Internet would probably not go to the trouble of then mailing a proxy grant. Probably for these reasons, fewer individual shareholders are voting now than in the past.
In most cases shareholders can learn what methods of receiving materials and voting are available by checking the company’s investor relations page.
Failure of shareholders to cast votes is a primary reason that challenges to managements’ positions are almost always defeated. As a result, outrageous executive pay and conflicts resulting from executives serving on the board of directors have not been curbed.
Under Delaware and Georgia corporate law, the percentage of shares needed to constitute a quorum can be set as low as one-third of the shares outstanding. In companies that set a quorum at the minimum, when most shareholders do not vote, as few as one-sixth of the shares (plus one) can block any reform. Additionally, in some corporate bylaws, a failure to cast a vote by proxy or other means results in that shareholder’s shares being deemed cast in favor of management’s position. Finally, management is often supported by managers of mutual and hedge funds who genuinely believe that executives, like themselves, are entitled to exorbitant pay for mediocre performance.
Coca-Cola recently held a shareholder vote on whether to have a shareholder advisory vote on executive compensation. Certainly most individuals holding shares would want a chance to review and give an opinion on executive pay. That said, only 36 percent of the shares were voted in favor of the proposal.
An increasing number of companies are permitting individual shareholders to grant proxies over the Internet. On May 20, Intel is set to become the first public corporation to allow shareholders to participate in the annual shareholders meeting over the Web, which will include the ability to ask questions and cast votes during the meeting.
Most executives and board members will not want shareholder input on executive pay and other sensitive issues. Many shareholders will say that they do not have the time to adequately review the materials to make an informed decision on these matters. Ten years ago these attitudes may not have made much difference. But not today. In light of recent abuses and the dismal records of executives and directors, these kinds of decisions should not be left up solely to management.
Rob Hassett is a corporate and technology lawyer with the Atlanta law firm of Casey Gilson P.C.
Copyright 2009, The Atlanta Journal-Constitution.