April 22, 2013

Director Removals: Yes, Shareholder Votes Really Do Matter

A few weeks after the NY Times ran this article – “Bad Directors and Why They Aren’t Thrown Out” – Hewlett-Packard announced that two directors had resigned and its chair had stepped down due to low vote totals at the company’s annual shareholder meeting as noted in this NY Times article. So the original article that claimed that shareholder votes make no difference doesn’t seem all that fab (but this NY Times entitled “When Shareholder Democracy Is Sham Democracy” is spot on – and this article entitled “The Case of H.P.’s Obstinate Director” is downright excellent. This column entitled “Daring to Knock on the Boardroom Door” also is good).

Oddly, in this article, the reporter intimates that the resignation announcement – made during the annual meeting – might have influenced the vote totals for the two H-P directors. I suppose the reporter doesn’t realize that 99.9% of the votes were already cast by the time the meeting starts. But I do agree its odd that a resignation announcement was made at the meeting and not some time afterwards. I reached out to long-time inspector of elections Carl Hagberg for his thoughts on this – here is Carl’s ten cents:

Yes, that struck me as being weird too…especially the reporter’s speculation that the comment may have swayed voters to vote for the two low-vote-getters – like for WHAT? To throw them a bone out of sympathy, thinking that it wouldn’t matter anyway?

It IS true that sometimes, institutional investors actually do come to a meeting bearing “legal proxies” and make up their minds on how to vote – or decide to revoke a previous vote – then and there, after seeing and hearing the proceedings and sniffing the wind,,,(been there, seen that many times, especially in formal proxy fights)…but I do not see that as anything that was happening at the H-P meeting.

For the H-P meeting, the oddest thing were that the comments came from Ralph Whitworth – who had no “official role” in the meeting – and no particular reason to even speak at the meeting…except, maybe, to signal that HE was really in charge…and/or that he would personally see to it that the low-vote getters would be gone very quickly – since, for sure, HE knew what the votes were at that point.

Checklist: Director Removal

Lot of practical advice in this checklist on director removal, courtesy of Denise Kuprionis of The Governance Solutions Group (who was in-house for two decades before). Let me know if you would like to contribute to our growing “Checklist Library“…

Here’s a DealBook article about the rarity of director removals, even for poor performance…

Collective Shareholder Engagement? A UK Idea

Here’s news from Subodh Mishra of ISS’ Governance Exchange:

Recently, three of the U.K.’s leading investor umbrella organizations announced plans to form a working group to explore the feasibility of collective engagement as called for under the Kay Review. The trio’s plans are being welcomed by the government, though officials are calling for action in the near- rather than long-term. In a joint announcement, the National Association of Pension Funds, Association of British Insurers, and Investment Management Association, said they would facilitate–though not participate in–the working group after having jointly conducted “extensive discussions regarding the potential benefits of an investor forum and potential impediments to its effectiveness” with their members and “a broad range” of other stakeholders.

The Kay Review, released in July, called on financial market participants to address the disincentives to engagement that arise from fragmented shareholding and the perceived regulatory barriers that inhibit collective engagement by establishing a forum for institutional investors in U.K. companies. In their March 26 statement, the trio argued that broader collective engagement may have the potential to improve investment returns over the long-term. “There is already considerable collective engagement and we now intend to explore how the processes enabling such engagement might be enhanced by establishing a working group of investors drawn from a broad range of investor types, including overseas investors in U.K. companies,” the trio said. The intention is to appoint the working group by the end of April and to ask it to report any recommendations by this fall, the group said.

Meanwhile, U.K. Secretary of State for Business, Innovation and Skills Vince Cable told lawmakers that he hoped the group would take action in “weeks or months, rather than years” and also cautioned against the possibility of forum members improperly acting in concert. According to Cable, BIS had no remit to manage the process of establishing an investor forum and called on trade bodies to do so, as envisioned by Kay. “Trade bodies should promote an investor forum but shouldn’t run it,” Cable said, while also warning that investors must act collectively without compromising controls on the flow of information. “We don’t want collusion, we don’t want insider trading,” he said, warning to do so would be “the worst form of conversation that could take place.”

Conservative party parliamentarian Robin Walker said the group’s March 26 press release announcing plans for the working group made a “mastery of saying very little while using lots of words to do it,” effectively pressing Cable to tell lawmakers when they could see an investor forum in action. In response, Cable said that if the forum hasn’t come together by this fall when the steering group reports in, “you’ll have good grounds for coming to me and saying ‘why aren’t you [pushing] these people along, the report’s been out for a year or so why is nothing happening?'”

– Broc Romanek