Shareholder Battles Rage On

America's most effective shareholders exhibit true grit in their tireless efforts to encourage better corporate governance policies. Not surprisingly, several major public companies are now trying to curtail activist investors' rights to push for such shareholder-friendly changes. With shareholders increasingly fighting back against bad corporate behavior, perhaps these dubious companies are scared that they might actually lose.

Unpleasant deja vu
For more than a decade, shareholder activist John Chevedden has filed hundreds of shareholder proposals agitating for solid corporate governance policies at well-known public companies. Needless to say, managers haven't always appreciated his efforts.

Apache (NYSE: APA  ) took legal action last year to block his shareholder proposals. Today, more companies may start piling on the litigation bandwagon to silence proponents like Chevedden, who has advocated the declassification of boards, majority voting, and separating the roles of CEO and chairman, among other sensible measures.

KBR (NYSE: KBR  ) has already followed Apache by taking legal action against Chevedden, similarly questioning adequate proof of stock ownership. A federal judge ruled that KBR could omit Chevedden's proposal from its proxy statement.

It's worthwhile to note that these companies have skipped the usual step taken in such disputes: the "no-action" process at the Securities & Exchange Commission (SEC). That's not surprising, since the SEC actually rejected similar complaints from Devon Energy (NYSE: DVN  ) , Prudential Financial (NYSE: PRU  ) , and Union Pacific (NYSE: UNP  ) , all of whom sought permission from the agency to omit Chevedden's proposals last year.

Forgive me for growing suspicious when companies turn to litigation instead of dealing with the SEC, the very agency charged with protecting investors. It's also probably not a coincidence that the KBR suit landed before the very same judge who ruled in favor of Apache last year.

Just say no
The growing tension between corporate managers and shareholders isn't limited to situations like that between KBR and Chevedden. Battles over executive pay, by far the most accessible corporate governance issue, have gained momentum this year.

The AFL-CIO-affiliated American Federation of State, County, and Municipal Employees, or AFSCME, will wage a "vote no" campaign against executive compensation plans at Johnson & Johnson (NYSE: JNJ  ) and Pfizer (NYSE: PFE  ) when the companies' shareholder meetings take place on April 28.

Johnson & Johnson's William Weldon pocketed compensation valued at $29 million in 2010. AFSCME points out that Weldon enjoyed this hefty payday despite the company's 11 drug recalls, which cost $900 million. The company also lost $7 billion in market value on Weldon's watch.

Pfizer CEO Jeffrey Kindler may be retired now, but his $25 million payday represented a 60% increase over his 2009 compensation. AFSCME complains that during his time leading Pfizer, he received more than $72 million in pay, even though the company lost about $68 million in market value.

Both companies have given shareholders good reason to question high levels of executive pay, and after recent high-profile shareholder rejections of executive compensation plans, AFSCME's "vote no" campaign has a good chance of catching on with shareholders.

The tide is turning, which probably explains why so many companies' managers are trying so aggressively to shut down shareholder revolts before they begin.

The "vote no" battle cry
According to the folks at corporate governance firm RiskMetrics, the uncertainty surrounding proof-of-ownership cases like Chevedden's needs clarification and guidance from the SEC. Earlier this year, RiskMetrics described the Apache case as a prime example of the "convoluted manner through which most U.S. investors own their stocks." Extra SEC attention to this issue could lend it much-needed clarity.

Whatever good might come of this situation, investors should still think twice about buying into any company willing to sue its own investors to keep them from presenting their concerns for a shareholder vote. Management-centric businesses that relegate all other stakeholders to second-class status won't do your portfolio any favors in the long run, and likely don't deserve your investing dollars at all. Heck, if they work so hard to shut down shareholder dissent, perhaps they shouldn't have gone public in the first place.

Shareholders incensed by corporate crackdowns on their rights have many ways to issue a resounding "no." Vote against outsized executive compensation, sell your stake, or screen out such offenders when searching for stock ideas. Whatever action you take, your rights are always worth fighting for -- especially when corporations actively try to make that fight less fair.

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

Johnson & Johnson and Pfizer are Motley Fool Inside Value picks. Johnson & Johnson is also a Motley Fool Income Investor recommendation. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. The Fool owns shares of Devon Energy and Johnson & Johnson. Motley Fool Alpha LLC owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned; for more on this and other topics, check back at Fool.com, or follow her on Twitter: @AlyceLomax. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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