Shareholders: Remember Your Rights on Independence Day

The Fourth of July brings to mind barbecues and fireworks. The idea of living in a free country underlies these festivities. It's the perfect holiday for thinking about freedom and the rights of individuals, as well as the importance of having rights such as free speech and voting in political elections.

Those who have invested in public companies have votes, too. For a long while, the corporate governance element of stock investing got lost in the bubbly times over the last several decades. As long as stocks made money, few investors thought much about corporate governance and their rights as shareholders.

However, we're moving into a more informed, more critical era. Incidents like the shareholder vote regarding Jamie Dimon's dual role at JPMorgan Chase illustrate that shareholder votes are important, and shareholders are beginning to take voting seriously.

Big bangs
Speaking of fireworks, shareholder votes have become more interesting at many companies this year. CEO compensation was previously one of the most accessible issues individual investors recognized, but other corporate governance issues are apparently building in shareholder support.

Majority voting is one of these. Really, majority voting is a simple and common-sense policy. It simply means that a majority of votes are required for functions such as director elections. Under plurality voting, a director can be elected with just one lousy vote. (Yes, that is outrageously similar to the kinds of things that would go on in a banana republic, in case you were wondering.)

This past proxy season, more investors have apparently seen the light when it comes to majority voting, and believe it will be a good thing at their companies. Check out the following significant vote results.

  • ExxonMobil (NYSE: XOM  ) is a massive and popular blue chip company. However, a sizable 45% of its shareholders voted in favor of majority voting.
  • Devon Energy (NYSE: DVN  ) shareholders pretty much split in half on the majority voting issue, with 51% voting for the policy. In that case, individual investors who sat on the sidelines and didn't vote (and we know that many still do) could have made a difference in a victory that barely squeaked by.
  • Aetna (NYSE: AET  ) experienced a landslide -- a landslide defeat on this issue, that is. John Chevedden's proposal for majority voting received 76% of shareholders' votes.

Significant shareholder revolts
Executive compensation remains the less esoteric issue, and it's alive and well in 2013 as majority voting gains more traction. This year, a few high-profile say-on-pay defeats or squeakers should grab our attention.

Target (NYSE: TGT  ) shareholders just barely approved the company's compensation policy. In contrast to Devon Energy's narrow defeat, Target gained narrow approval, with just 52% of its shareholders voting for its executive pay policies. That's an even bigger deal when you consider that in last year's say-on-pay vote, 83% of shareholders gave the thumbs-up to Target's executive compensation.

Corporate governance experts and proxy advisor Glass Lewis didn't approve of Target's pay policies, or ability to parallel pay and performance. One issue is that one of Target's executives received a one-time stock award valued at $2.7 million, and he's not even CEO; he's the discount retailer's new chief marketing officer. 

Abercrombie & Fitch (NYSE: ANF  ) has been a serial offender when it comes to shareholder abuse in the executive pay arena. It recently lost its say-on-pay vote when a pathetic 19% of its shareholders voted in favor of CEO Mike Jeffries' pay. In fact, shareholder support for Abercrombie's compensation scheme has been deteriorating over the course of several years.

Speaking of abusive CEO pay rates, corporate governance junkies know that the average ratio of CEO pay to that of the average American worker is crazy; as of the AFL-CIO's latest calculation for 2012, the ratio was 354-to-1. 

If you think that's bad, just wait. Although Dodd-Frank has not yet mandated that companies disclose their specific internal pay ratios, Bloomberg conducted a fascinating bit of number crunching in April. According to the research, Jeffries' $48.1 million in fiscal 2012 pay created a compensation ratio of 1,640 times that of the average worker. Apparently flattery gets you everywhere in that company, notorious for hiring and exalting "beautiful people" -- it'd better, since they sure as heck aren't making much compared to Jeffries.

Barbecues and a side of food for thought
Beer, burgers, and pyrotechnics can certainly distract us from the reasons we celebrate July 4. However, let's remember that we do have rights and that we can and should use them. That goes for shareholders, too. After all, if everyone's brainwashed into thinking their votes and voice don't matter, it's a slippery slope into tyranny in one form or another.

Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," the Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.


Read/Post Comments (2) | Recommend This Article (3)

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 July 03, 2013, at 9:10 AM, sailfish777 wrote:

    Timely reminder why it's time the NYSE and Nasdaq make majority voting for directors in uncontested elections a listing standard, as the Council of Institutional Investors has urged: http://www.cii.org/

  • Report this Comment On July 03, 2013, at 9:52 AM, TMFLomax wrote:

    Very nice, sailfish777! The time has come and thank you for sharing this!

    Best,

    Alyce

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2520420, ~/Articles/ArticleHandler.aspx, 12/20/2014 11:02:17 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 17,804.80 26.65 0.15%
S&P 500 2,070.65 9.42 0.46%
NASD 4,765.38 16.98 0.36%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/19/2014 4:03 PM
AET $90.84 Up +0.71 +0.79%
Aetna, Inc. CAPS Rating: ****
ANF $27.57 Down -0.15 -0.54%
Abercrombie & Fitc… CAPS Rating: *
DVN $61.31 Up +1.02 +1.69%
Devon Energy CAPS Rating: ****
TGT $73.95 Down -0.69 -0.92%
Target CAPS Rating: ***
XOM $93.64 Up +2.48 +2.72%
ExxonMobil Corp CAPS Rating: ****

Advertisement