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The
New Corporate Raiders
If
you want something done right, you have to do it yourself.
It’s true at home and, as some are finding out, it’s just
as true in business. So, tired of waiting for a political
action hero to take up their cause, ticked off investors have
found an unlikely champion: themselves. That’s right. The
little guys have reached the breaking point and are taking
matters into their own hands—stepping into the breach with
the one-two punch of proxy resolutions and lawsuits. Corporate
evildoers beware.
The confrontational mood promises to make the approaching
run of annual shareholder meetings a radical departure from
the corporate love fests of the past, and the most entertaining
spring spectacle around now that the networks have blown their
reality wad on February sweeps. A storm is brewing, patience
is at an end, war looks inevitable, and it has nothing to
do with Saddam.
All across corporate America, CEOs and board members are steeling
themselves for hostile debate on a record number of proxy
resolutions, the vast majority of which demand change on corporate
governance issues. And it’s no coincidence that among the
reforms shareholders are seeking are three key concerns the
Sarbanes-Oxley Corporate Responsibility Act failed to address:
bloated executive compensation packages, the pervasive use
of offshore tax havens, and the continuing refusal to expense
stock options or link them to performance.
These are messy matters corporate chieftains would much rather
handle behind closed—or, even better, locked and barricaded—boardroom
doors. No wonder Richard Sykes, the former chairman of drug
giant GlaxoSmithKline—a company whose shareholders last year
blocked an attempt to double the already hefty pay package
of his successor—said earlier this month that small shareholders
ought to be barred from annual shareholder meetings on the
grounds that their input was disruptive and a waste of time.
Imagine the nerve of those small-fries, disturbing Sykes’
piece of mind just because they don’t want to have their nest
eggs looted.
Perhaps he’s just afraid that the next resolution those annoying
Glaxo shareholders might offer is one barring the company
from aggressively marketing a product even after executives
are shown evidence that it’s killing people. Let’s hope they
do, since newly uncovered documents indicate that this was
exactly what happened with Baycol, the anti-cholesterol drug
that Glaxo and Bayer partnered on before too many bodies began
piling up and it was yanked from the market.
Thankfully, it’s not just small investors with scrambled nest
eggs who are pushing for change. Powerful union and state
pension funds are also finally starting to play hardball,
with encouraging—if limited—results. Last week, for instance,
GE, facing union-backed resolutions, agreed to stop inflating
the pay of senior executives by including pension-fund income
in its calculations. And last year Coca-Cola made changes
to its supplemental retirement plan rather than contend with
a proposed AFL-CIO resolution.
The other smart bomb being wielded in the battle to hold corporate
America accountable is litigation. Tens of thousands of irate
investors have filed suit—individually and collectively—against
a wide array of scandal-plagued companies, investment banks,
and the high-profile individuals who run them (often, into
the ground).
Among those being hauled into court is Citigroup, which has
managed to pull off a rare defendant’s hat trick. Not only
is the banking behemoth the target of shareholder lawsuits
for helping prop up Enron and WorldCom, it is also being sued
for falsely inflating the value of a host of tech stocks in
an effort to land more business for its investment banking
division. Plus, onetime Citigroup big shot Jack Grubman is
facing the legal wrath of investors for providing misleading
stock ratings. Not exactly the kind of synergy we were promised
when the feds allowed these giant conglomerates.
And Citigroup isn’t the only Wall Street bastion under attack:
A federal judge ruled last week that a massive class action
lawsuit targeting 55 investment banks that allegedly manipulated
the IPO market in the late ’90s could proceed. The ruling
will force the banks to open their files to shareholder lawyers,
meaning we could be treated to another round of damning—not
to mention highly entertaining—e-mails. To keep their dirty
laundry safely in the bag, the banks—including Goldman Sachs
and Merrill Lynch—will likely agree to a settlement.
But even taken collectively, the proxy resolutions and the
lawsuits are not enough to change fundamentally the way corporate
America operates. The vast majority of proxy resolutions are
nonbinding, which means company execs can disregard the ones
they don’t like—and they don’t like most of them. And, when
all is said and done—when all the appeals have been exhausted,
and the legal fees deducted—even successful lawsuits usually
end up returning only pennies on the dollar to ripped-off
investors. That doesn’t make them meaningless endeavors, however.
Far from it, because they place corporate leaders on the hot
seat and in the public spotlight—two of the last places embattled
execs want to be right now. Good old-fashioned bad publicity,
and the shame that comes with it, is still a powerful force
to be reckoned with.
So here is my advice. If shareholders are really looking to
seize the moment and capture the backing of the largest possible
body of supporters, namely taxpayers, they should focus their
outrage on an issue with deservedly broad consensus: offshore
tax havens. At a time of soaring deficits, corporations continue
to cheat the government, and the public, out of billions of
dollars a year while the rest of us dig deep to make up the
difference. It is the kind of issue that not only epitomizes
the unfairness of the current system, it will also stick in
people’s throats. Especially between now and April 15.
Average Americans may yet roar loud enough to take back the
power from their corporate overlords. My patience has run
out. Let the war begin.
—Arianna
Huffington
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Columns
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