Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. Print
July 08, 2002 01:00 AM

SPEEDING AHEAD: Shareholder activism hot in poor business climate

Enron collapse, accounting woes spur push for aggressive corporate governance action

Barry B. Burr
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    The Enron Corp. debacle, accounting problems, securities analysts' integrity and a falling stock market roused shareholders and accelerated the evolution of shareholder activism and corporate governance reforms.

    Although this proxy season hasn't necessary provoked more shareholder resolutions or proxy fights for board seats, shareholder activism grew more aggressive.

    "A number of first-time resolutions generated a significant level of support, which is unheard of for a new resolution," said Carol Bowie, managing director-corporate governance services, Investor Responsibility Research Center, Washington.

    Notable first-time shareholder resolutions challenged auditor appointments and auditor conflicts following the scandal involving Enron and Arthur Andersen LLP. Many received substantial support, although none got a majority of votes. The highest vote was at PG&E Corp., San Francisco, where 46.5% supported a resolution to eliminate auditor conflicts, according to the IRRC.

    "There is a lot more focus on corporate governance (this year)," said Kenneth A. Bertsch, director-corporate governance, Teachers Insurance and Annuity Association- College Retirement Equities Fund, New York. "Shareholder resolutions that have substantive implications are getting a lot more votes."

    Enron fallout

    "You're seeing a definite impact from the fallout from Enron," said Patrick McGurn, vice president and director-corporate programs, Institutional Shareholder Services Inc., Rockville, Md.

    "There is what I call the Enron tan - votes for many shareholder proxy resolutions are up 10 percentage points or better than last year. There is really nothing else to attribute (the rise in votes) to."

    "There is a growing number of institutional investors speaking out" on corporate governance, Mr. McGurn said. "And it is beginning to show up on sell-side analysts' reports, where typically they ignored it."

    Ms. Bowie said shareholders sent three "loud and clear messages to corporations" in the first post-Enron proxy season:

    * Hire more independent directors. The average vote in support for independence resolutions was 29%, up from 22.5% last year.

    * Permit votes on executive pay and severance. "Golden parachute" resolutions, for example, received an average of 39.6% of votes, up from 31.8% last year.

    * Don't use the company's auditor for consulting work. This first-time resolution received an average of 29.8% of votes in support.

    "Before, the independence issue was raised by activists, now you are hearing it from all quarters," said Charles M. Elson, law professor at the University of Delaware, Newark, and director of its Center for Corporate Governance. "That's a sea change."

    "On the whole I think it will be a shareholder-friendly year," said Mr. Elson. "This season is colored by the controversies surrounding Enron and Global Crossing." Anxiety about these companies "heightened shareholder awareness on the independence of directors."

    "The trend has accelerated concern on these controversies in corporate governance," Mr. Elson added. "Corporate governance has been growing steadily, but support accelerated this year.

    Productive season

    Robert A.G. Monks, a longtime shareholder activist, crowed about witnessing "the most productive season for corporate governance in the U.S. since I became interested more than 20 years ago."

    In Vermont, corporate governance has become an issue in the campaign for state treasurer. Edward Flanagan, who is seeking the office, cited the state pension fund's loss of $4.2 million in Enron. He said he would steer the state's pension fund investments toward companies that demonstrated corporate responsibility. The state treasurer "must join the budding national reform movement, which seeks greater corporate accountability and greater shareholder activism," Mr. Flanagan said in a statement.

    Among particular shareholder achievements were:

    * For the first time at any company, shareholders at Mentor Graphics Corp., Wilsonville, Ore., voted on a resolution calling for major stock option plans to be submitted to a shareholder vote for approval. The resolution, sponsored by TIAA-CREF, won 56.7% of the shareholder vote. The IRRC's Ms. Bowie called the support "astounding" for such a new resolution, while Mr. Bertsch called it "remarkable."

    * At EMC Corp., Hopkinton, Mass., a first-time shareholder resolution on putting more independent directors on the board, sponsored by the Connecticut Retirement Plans and Trust Fund, Hartford, got 56% of the vote. Mr. Bertsch called the support surprising because management generally had been good and the company had good performance until recently. Even the resolution stated, "EMC has a positive record on a number of corporate governance issues." But the vote showed shareholders are less patient, several activists said. The large vote "indicates to me that probably mutual funds are supporting that issue (of independent directors)," Mr. Bertsch added.

    * Shareholder resolutions seeking to separate, or limit, auditing from consulting work by the auditor, another first in proxy statements, "got very high votes for first-time shareholder resolutions," said Mr. Bertsch. These resolutions sought, to different degrees, to prohibit or limit corporations' use of one auditing firm for both audit and consulting work. Generally, the auditor independence resolutions got 30% to 40% of the vote, although none received a majority.

    Enron apprehension

    "That kind of vote support is unheard of" on first-time resolutions, said Mr. Bertsch, who attributed the additional backing to apprehension due to the Enron situation. "There is greater motivation on the part of management to communicate to investors on corporate governance policies, auditor independence (and) increased financial disclosure," such as outside entities involved in financing or shifting revenue to other subsidiaries or companies, he added.

    Mr. Bertsch noticed improved communications this year in some conglomerates, such as General Electric Co., Fairfield, Conn., and Tyco International Ltd., Pembroke, Bermuda, which especially is under a lot of pressure over its performance.

    "Tyco executives have made themselves very available to investors," he said, speaking just before Tyco's latest round of troubles, which include the resignation of L. Dennis Kozlowski, chairman and chief executive officer.

    The vote on the merger of Hewlett-Packard Co. and Compaq Computer Corp. "created a public debate that was mostly pretty constructive," Mr. Bertsch said. "It was a corporate governance phenomenon for a director to take this (dissident) approach," he added, referring to Walter Hewlett. Mr. Hewlett, the son of William Hewlett, co-founder of the company, led a dissident effort to oppose the merger, meeting with institutional investors, a rare undertaking for a director of a company.

    "Very seldom is there such opposition to a merger. A lot of mergers haven't worked out that well. There is an increased skepticism on mergers."

    "I think Enron served as a warning," Mr. Elson said. "It rattled a lot of people's confidence in the system.

    "With a much higher vote on shareholder resolutions," Mr. Elson added, "there is a more willingness by the board to accede to what shareholders are calling for."

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    Private Markets
    Sponsored Content: Private Markets

    Reader Poll

    August 10, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Gaining Momentum: Where Next for Trend-Following?
    The market opportunity in U.S. residential mortgage-backed securities
    Credit Indices Evolve with Enhanced Data Inputs
    Hedge Funds 2.0: Back to the future
    How Has 2022's Carnage Reshaped Global Stock and Bond Markets?
    Crossroads: Politics, Inflation, & Bonds
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    August 1, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit