A Pivotal Proxy Season

Individual investors often meet yearly proxy seasons with apathetic shrugs. Annual proxy statements hold ballots for shareholder voting, and the key to an additional treasure trove of information, but still elicit yawns. But this year may be different.

The financial crisis made U.S. corporate dysfunction crystal clear, and much of that malfeasance arguably happened because executives thought hardly anyone was watching. Now, with shareholders more awake and aware than they've been in years, the latest proxy season could begin to fundamentally change managers' attitudes.

The vision (and voting) of crowds
Lax corporate governance policies have made it extremely difficult for shareholders to have their say. However, the Internet is giving more investors an increased awareness of their companies' workings, and fomenting major changes in how those businesses are run.

Take Moxy Vote, a beta service that allows shareholders to engage in online proxy voting and follow shareholder activists (and dissidents). Investors can keep tabs on "Top Advocates" like Calvert Investments, a socially responsible fund; The Center for Political Accountability, a nonprofit that examines corporate giving to political campaigns; ProxyAnalyst, an organization focused on corporate governance; and entities like PETA, International Brotherhood of Teamsters, and The Humane Society.

"Hot ballots" on Moxy Vote at the moment include Bank of America (NYSE: BAC  ) , General Electric (NYSE: GE  ) , Citigroup (NYSE: C  ) , and Carnival, to name just a few.

Before you shrug, note that according to a recent Wall Street Journal article, Moxy Vote has already made an impact. Shareholder activists voting through the site successfully blocked Google's (Nasdaq: GOOG  ) acquisition of On2 Technologies, which spurred Google to increase its bid before the buyout went through. Could this be just the beginning of future victories?

Last year's ouster of Bank of America's Ken Lewis was another big recent win for unhappy shareholders. And back in 2005, our own Motley Fool Hidden Gems team, which had recommended Flamel to subscribers, suggested shareholders support hedge fund O.S.S. Capital Management in a proxy fight to replace the company's board of directors and CEO. The Fools won. In the future, shareholder-driven outcomes like these may become a lot more common.

Gauging the climate
Need another example of how proxy statements can forecast a change in the corporate weather? In one possible reflection of investors' increased interest in environmental sustainability, the Securities & Exchange Commission has issued updated guidance on how companies should disclose their carbon emissions and other climate-risk data. Shareholders filed 95 resolutions related to climate change in this year's proxy season, a 40% increase from last year.

In that light, expect some environmentally tinged shareholder-resolution fireworks in proxy statements for usual suspects such as ExxonMobil (NYSE: XOM  ) and ConocoPhillips. You may also find eco-friendly proposals at more surprising companies like Apple (Nasdaq: AAPL  ) , Wal-Mart (NYSE: WMT  ) , or Toll Brothers.

Proxy statements provide an awesome way for individual investors to understand the major issues their companies face, since shareholder resolutions often reflect investors' biggest concerns. Other goodies nestled in the proxy statements include management teams' compensation packages and related-party transactions, both of which can make for interesting reading.

Thousands of watchful eyes
True, many shareholder activists have political agendas -- some more in tune with the majority of customers' and investors' concerns than others. Nonetheless, hedge-fund activists and other gadflies often agitate for many useful changes that could increase profits, oust incompetent managers, or unlock shareholder value.

Whether you agree with a particular shareholder resolution or not, you should cheer the notion that someone's keeping an eye on your company's management. Under apathetic, absentee owners, executives might have more leeway to run their businesses into the ground.

If this proxy season begins an era in which more managers and boards keenly feel investors' scrutiny -- and, if they step out of line, face the heat of shareholders' wrath -- that can only be a good thing.

Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Wal-Mart is a Motley Fool Inside Value choice. Google is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 29, 2010, at 12:31 AM, grendeth wrote:

    When is Citibank shareholders allowed to vote and kick out Vikram Pandit?. If Ken Lewis got the boot, as a share holder, I would like to suggest kicking out Mr.Pandit, now that would be some real shareholder power and Pandit has been as effective as an eel out of water.

  • Report this Comment On March 29, 2010, at 1:56 PM, corpgov wrote:

    It took until 1987 for shareowners to finally win their first resolution. By 2007 shareowners were winning 24% of those taken to a vote. That has since gone up to 30% in 2008 and 37% in 2009. Last year, “say on pay” proposals averaged 46% support.

    The tide is turning toward more democratic forms of corporate governance and sites like MoxyVote.com and the Motley Fool are beginning to play pivotal roles.

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