Don't Let Washington Kill Shareholder Rights

Last fall, we issued a shareholder call to arms -- a community campaign to win individual investors more influence on Wall Street.

Since then, we've received hundreds of emails from you in support of shareholder rights, and followed the progress of the Shareholder Bill of Rights legislation, submitting testimony to the House Financial Services Subcommittee, getting answers from White House officials to questions you submitted about Wall Street reform, and using our bully pulpit to keep the issues that directly affect our portfolios in the spotlight and on Washington's agenda.

We were so close, Fools. The Shareholder Bill of Rights is now officially on the record and up for a vote, having made its way into the financial regulatory bills in the House and Senate. Earlier this month, a conference committee of key legislators began meeting to decide exactly what would be included in the final bill.

The signs were promising. All they had to do was hash out a few minor nuanced differences between the House and Senate versions of the bill. It looked like most of the provisions that we supported were going to get the "all clear" from the legislators hammering out the final details.

Good thing we didn't uncork the champagne yet.

Surprise! Shareholder rights may still get shafted
Now it appears that two of the most important provisions are being completely defanged. One puts an end to Wall Street's dictatorial board-of-director voting rules, and another would let shareholders nominate candidates to the board.

While these are just two of the provisions of the larger Shareholder Bill of Rights -- the others are say on pay, splitting chairman/CEO roles, establishing risk committees, and giving the SEC the power of enforcement -- they're the backbone of this legislation. But the talks taking place now threaten to leave us with a bill with hardly any spine.

Why majority voting matters
At stake is a provision that would require companies to follow "majority voting" policies. Simply put, that means a director must receive the majority of shareholder votes in order to represent shareholders on a company's board of directors. It's the kind of system that investors might assume was standard, and while names like Chevron (NYSE: CVX  ) , E*TRADE (Nasdaq: ETFC  ) , IBM (NYSE: IBM  ) , and General Electric (NYSE: GE  ) have majority voting rules, it's an embarrassment that only two-thirds of S&P 500 companies actually require that a majority of shareholders approve their representatives on the board.

Mandating majority voting would put an end to the alternative practice of using "plurality voting," whereby a director can be elected with a single vote, even if it's his or her own. This practice -- common among small- and mid-cap companies -- leads to high-powered corporate cliques controlling the voting process, thus ensuring job security for themselves and their cronies, regardless of job performance. As of late 2009, a record 93 board members up for reelection at companies like Pulte Homes (NYSE: PHM  ) failed to receive a majority vote. Not one of them stepped down, because their companies didn't have majority voting rules.

Why we care about proxy access
For years, public companies counted on investor apathy during proxy season (where ballots are sent to shareholders to vote on company issues like electing directors, choosing auditors, acquisitions, and sales). Most of these statements were tossed in the trash (or the recycling bin), giving executives carte blanche to rubber-stamp their bad behavior.

That was before the financial crisis. Now investors like us are reading the fine print and exercising our right to weigh in on how the companies in our portfolios run their businesses. Needless to say, CEOs aren't too fond of the increased scrutiny.

Since the board of directors is supposed to represent us shareholders, it makes sense that we should be able to nominate our own candidates. Unfortunately, the CEO often gets to choose who will compete for the board that is supposed to oversee him or her. It's a joke of a system. That's why last year, only 39 board members had to run against anyone at all. It's easy to see why shareholders are turned off, when their choices between candidates are the CEO's pick and ... no one else.

Both the House and Senate passed rules affirming the SEC's right to let shareholders nominate candidates to the board. But last-minute arm-twisting by well-connected lobbyists inserted a rule into the bill that requires a group of shareholders to own more than 5% of the company before they could even nominate a candidate. Even huge pension funds typically hold no more than 0.3% to 0.5% of large and medium-sized companies, so it's impossible to picture that happening very often.

As lawmakers hose down the Shareholder Bill of Rights, we've got to ask: Exactly what rights do shareholders gain from a Shareholder Bill of Rights that allows these inane practices to continue?

Don't let Washington wimp out on us
We cannot allow legislators to kill shareholder rights. Remember, this is our bill, Fools. It was intended to protect the rights of investors who buy stocks to become part-owners of businesses we believe in. We must tell our representatives that the 11th-hour under-the-radar revisions are unacceptable.

We think Frank and Kanjorski are sympathetic, so it's important to remind them to support us. It's likely that Jarrett is the person who's fighting against shareholder rights on behalf of CEOs.

We've set up a petition that registers our opposition to these changes, and put together a list of key committee members and their contact information. We urge you to add your name to the list (a note in your name will be sent to committee members; we will not save your contact information) and then reinforce your support with a phone call to Washington.

As owners of the companies in which we invest, it's time for us to demand the authority to weigh in on how they are run. Please take one minute right now to sign the petition and make that call.

Petitions by Change.org|Start a Petition »

 

Thank you for joining the community of Motley Fools to tell Washington what rights investors must be given in the final version of the Shareholder Bill of Rights. We want Washington to hear us loud and clear, so take a minute to call a few of these key committee members listed below. Simply tell the person who answers that as a voter (and a Motley Fool!), you want the shareholder protections in the financial reform bill to include mandated "majority vote" board member elections, and you want to kill the completely unreasonable 5% threshold for proxy access.

White House
(ask to be connected to Valerie Jarrett or leave a message)          (202) 456-1414

Rep. Barney Frank                                                                        (202) 225-5931

Rep. Paul Kanjorski                                                                       (202) 225-2511

The Motley Fool is investors writing for investors, and individual investors fighting for fellow investors' rights.


Read/Post Comments (20) | Recommend This Article (52)

Comments from our Foolish Readers

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 June 18, 2010, at 2:27 PM, fennecfoxen wrote:

    I missed the original call to arms. What do you have to say of the contention that big unions will use this legislation to abuse business (as exemplified in Donohue's editorial in the Wall Street Journal last July?)

  • Report this Comment On June 18, 2010, at 2:42 PM, TMFSchool wrote:

    Some of you may recall that in 2007 -- April 1, 2007, to be exact -- The Motley Fool came out in support of H.R. 401, The CEO Bill of Rights Act of 2007. (http://www.fool.com/features/ceo-bill-of-rights/2007/04/01/c... The bill was designed to promote and protect America's most valuable human resource: CEOs. It sought to ensure their job security, buoy their compensation, and shield these valuable leaders of industry from shareholder criticism.

    We were joking -- c'mon, a CEO Bill of Rights? That's comedy! It might still be funny if Washington weren't dangerously close to making this parody a reality right now.

    Click the link above to sign the petition and tell our legislators to stop with the funny business: A financial reform bill stripped of the very rights that shareholders deserve is no laughing matter.

  • Report this Comment On June 18, 2010, at 6:32 PM, JustinSeine wrote:

    This is not the fault of any of our legislators. They are being coerced by Wall Street and their henchmen to act and vote like inept, indifferent and corrupt imbeciles. How? They are being Moneyboarded. Moneyboarding is a form of torture administered by the agents of special interests (a.k.a. Lobbyists) to active legislators. It involves tying the subject to a board then stacking bricks of cash on the chest. When the weight of the cash becomes so heavy and the subjects can no longer breathe, they cry "UNCLE" and promise to say and do whatever the Lobbyists want! They are then untied and told they can leave after they clean up the bricks of cash. They are so anxious to get out of there after enduring such a harrowing ordeal that they typically just scoop up the cash and take it with them. They return to their normal lives and await further instruction from the Lobbyists. Now, if they get taken to task for doing things that are illegal or just obviously bad for the American people, they can claim “The Moneyboarding Defense!” and get exonerated from any wrongdoing and laugh all the way to the bank!

  • Report this Comment On June 18, 2010, at 6:47 PM, cdenny6 wrote:

    As a senior and an investor and a consultant to medical practices and someone who has "lobbied on Capitol Hill on behalf of physicians, I am trying to do whatever I can to do what we can to overcome the ineptness, corruption and impotency of our Congressional legislators (oh yes, I also reside in California - even worse).

    So I will support this action by MF. I have already forwarded it to others.

    Just this week I learned that I will not get my dividend from BP - due this week. I bought the stock for its dividend - lost quite a bit on the principal before unloading - and then find that either BP or Congress decided the shareholder does not matter.

    Shareholder rights? Yes, that would be good.

    So while we are going after reforming corporate America - let's be sure to remember that Congress is in lockstep (as in, in their pockets) with them.

    By the way, Congress is also jerking around with the healthcare access for seniors and their Medicare "guarantee". In case you are over 65 - or getting there, you might want to look out for this travesty, too.

    FWIW

    PeetoFool

  • Report this Comment On June 18, 2010, at 6:52 PM, jomueller1 wrote:

    a bill with hardly any spine...

    Sometimes I wonder if the legislators are moles. Their work always ends up with lots of loopholes, covered shortcuts and buried treasures for their cronies. Legislators have a spine, though a warped one, and so their work must be spineless or at least warped.

    The process of making laws is so flawed that it seems to me that laws are not made to regulate things but just give the impression they would whereas in reality they create loopholes for "smart" buddies and create work for lawyers. Laws show the attitude of lawmakers to be heavy handed and they would rather be dictators than allow judges leeway in really judging cases. Also, the fact that judges are either elected by simple people or are appointed by biased politicians shows that this branch of government is hardly independent.

    The USA is a democracy of the powerful but not "by the people and for the people". The spine of the lawmakers is in the pockets of the robber barons and their heirs.

  • Report this Comment On June 18, 2010, at 7:10 PM, sendrandynotes wrote:

    The only reason that I would own shares of a company would be because of a recomendation from TMF. With that said the only reason I would vote for a specific director would be because of a recomendation from TMF. Otherwise, like many ballots, mine gets tossed. I would be less appathetic if I received some kind of direction in this regard and would seem like a good opportunity for TMF to gain a more powerful voice!

  • Report this Comment On June 18, 2010, at 7:21 PM, TMFDiogenes wrote:

    fennecfoxen,

    Donahue's editorial overlooks two things: currently, all board members are nominated by management/the present board. In terms of the balance of power, that has its own dangers. Second, even if there was a large long-term shareholder who nominated candidates that would wouldn't serve in the interest of most shareholders, we wouldn't vote for them. All this does is let shareholders vote between management's slate and other choices.

    Justin,

    You're right. It was probably the Business Roundtable, a group that lobbies for CEOs, that did the arm twisting. We're hopeful that Frank and Kanjorski understand that 5% is totally unreasonable.

    Ilan

  • Report this Comment On June 18, 2010, at 7:51 PM, JustinSeine wrote:

    After to today, we may not have to worry about what our "esteemed" legislators are up to. The IRS might take care of it for us. Check out today's Boomberg piece for a "Laugh":

    http://www.bloomberg.com/apps/news?pid=20601208&sid=aOgA...

    I bet ya I can rattle off 535 names that are likely on the list,

  • Report this Comment On June 18, 2010, at 11:09 PM, wilsonced wrote:

    Be afraid..be very afraid! I'm rereading "Atlas Shrugged" and you can substitute our current politician's names (BOTH PARTIES!) for the names used by Ayn Rand. We need to protect producers and those who invest in those producers or we are doomed to the mediocrity the "Share the Wealth" crowd wants to force everyone into.

  • Report this Comment On June 19, 2010, at 6:41 AM, gmmpa wrote:

    As much as I believe something should be done to protect share holder value and rights this is the wrong time to bring this legislation to the hill. This group in Congress and the executive branch are anti-business, anti-private-sector, anti-wall-street socialist hungry for power. It is overrun and controlled by anti-American leftist and union sympathizers that hate American Capitalism. I am not surprised they want to dictate the rules for boardroom elections and company compensation to kill private companies. They could even require Card Check for all companies that will kill American companies!

    I believe the American voters can fix this by 2013 but it will take time. Regardless this President is such a ridge ideal-a-log that nothing of value for shareholder value will ever be signed into law under this administration.

  • Report this Comment On June 19, 2010, at 11:51 AM, wrk2hrd wrote:

    CHANGE.ORG???

    While I agree with the premise of the petition I was shocked to see the Motley Fool’s association with this left wing liberal organization. These are the very same people who are undermining our countries values. Don’t associate me with any cause associated with Change.org. Tom and Dave you should be ashamed of yourselves

  • Report this Comment On June 19, 2010, at 1:39 PM, TMFDiogenes wrote:

    Hey wrk,

    Change.org is simply a website that lets anyone create petitions for free. They didn't create this petition -- I did.

    You can see my name as the author in the top left: http://www.change.org/petitions/view/tell_congress_dont_kill...

    Ilan

  • Report this Comment On June 19, 2010, at 2:42 PM, vinagary wrote:

    So, if you are progressive, you are left wing, anti-business and hate American capitalism. Well I'm a liberal. I've been investing in "American" companies for years. I don't cheat on taxes and I do support the need for unions. Tell me, how has good old "American" capitalism worked lately? About the same as the trickle down theory since it;s inception? Voter's rights? I remember when they were used in the courts to enable corporate raiders to pillage company assets, drain empoyee retirement accounts, and screw over the average investor to reap millions on their LBO's. Come up with a slogan that's less tainted.

  • Report this Comment On June 19, 2010, at 5:31 PM, FinnMcCoolIRA wrote:

    NO!

    Only the unions, enviro-freaks and radical leftists will benefit.

    Come up with a better way IF there is indeed an actual problem.

  • Report this Comment On June 20, 2010, at 1:03 PM, cordwood wrote:

    Re unions being able to "stuff" the BOD : They offer resolutions etal on the proxies now...doesn't take much to vote "NO". Therefore I don't see that as a stumbling block to scrap the "5%" proposal.

    One thing that does bug me are the companies that I don't receive a mailed COMPLETE proxy from..yes it costs money for the company to do so,but no one insinuates that running a company or organization isn't cost free....

  • Report this Comment On June 21, 2010, at 3:21 PM, TMFDiogenes wrote:

    "As much as I believe something should be done to protect share holder value and rights this is the wrong time to bring this legislation to the hill. This group in Congress and the executive branch are anti-business, anti-private-sector, anti-wall-street socialist hungry for power."

    This actually isn't a right-versus-left thing. It's an investor-versus-entrenched CEO thing. The group that opposes proxy access is Business Roundtable, a lobby for CEOs.

  • Report this Comment On June 22, 2010, at 6:53 PM, PoundMutt wrote:

    "Thieving Government" plus "Thieving Corporate Executives" plus "Thieving Corporate Boards" plus "Thieving Wall Street" equals "Ponzi Scheme".

    Investors Beware!!!

  • Report this Comment On June 26, 2010, at 1:33 PM, MrsCathyGF wrote:

    The Motley Fool USED to be a fiscally sensible place to go. Not anymore. All the blasted irrational lefties are allowed to ruin it. What's the deal, guys ? Caved in, BIG time. I am SO dsiappointed. Have to be careful with the thinking shareholders should run the company idea. So, how are we supposed to know what is best ? Quite impossible, really, not unless we ALL get paid to run the company like a collective. Think it's been tried, folks. Works for small groups, for a very finite period of time, every time. Even those group get tired of the idea and move on, in short order. Note to self : Does George Soros live in a commune ? Wy does he want all of US to exist that way ? To serve his ideas, nothing more.

  • Report this Comment On July 03, 2010, at 12:25 AM, rotinski wrote:

    Whoa.. some very ignorant comments here... Ilan is talking about protecting OWNERS capitalism. You know that radical lefty idea that the owners of a corporation should have a strong say corporation they OWN.

    And that the MANAGERS of the OWNERS capital ought not be able to put their country club buddies on the board, vote themselves fat salaries and recklessly risk the corporation to boost short term profits so they can get paid more then retire to luxury, while the OWNERS are left holding the bag.

    If you want to learn about how managers have pushed aside shareholders to the detriment of US capitalism read "the battle for the soul of capitalism" by John Bogle founder of Vanguard . It's a great read.

    Or I guess you could stay in your happy little place of calling everything you don't understand a communist plot and tell us all that Bogle is just a pinko hippie who wants to destroy our freedom.

  • Report this Comment On February 20, 2012, at 10:23 PM, MFMerlin wrote:

    Whatever happened to this?

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