'Tis the season for most corporations' annual shareholder meetings. As shareholder votes on various topics roll in, one type of shareholder rights proposal is gaining significant support this year: the ability to take action by written consent.
As part-owner of a company, you should want the power to do something if an urgent situation threatens your long-term profits, right? Shareholder action by written consent allows shareholders to take major actions without calling a special meeting. These actions might include, say, removing directors without waiting around for the annual meeting or a special gathering.
The writing's on the wall
Proxy Monitor's database lists shareholder proposals at many major corporations, updating the tallies once the votes are in. Check out its recorded percentages of votes in favor of written consent at the following well-known companies over the last month or so:
- Allstate (NYSE: ALL): 52%
- Dow Chemical (NYSE: DOW): 42%
- CVS Caremark (NYSE: CVS): 56%
- Bank of America (NYSE: BAC): 48%
- International Paper (NYSE: IP): 53%
- AT&T (NYSE: T): 54%
Even though some of those percentages don't represent majority support, they're still sizable and significant.
This trend has been emerging for a while now; a Harvard Law School post last year called the amount of support for shareholder action by written consent proposals "striking." Although the proposals were only directed at a small number of companies, average support came in at 54% in 2010.
The Manhattan Institute, which provides the Proxy Monitor service, has also shared data showing that between 2008 and 2010, 19% of corporate governance proposals like this won approval at Fortune 100 companies, making such proposals among the most likely to succeed.
The threat of serious action
It's only fair to address why corporate managers and boards of directors might not welcome shareholder action by written consent. In essence, this right could empower shareholders to remove entire boards of directors without allowing those individuals to provide a defense or rationale for their actions, for example.
On the other hand, for too many years shareholders have had few rights to do anything about corporate managers' strategies (or screaming mistakes). "Like it or sell it" has been most shareowners' primary recourse.
Incumbent, entrenched, complacent boards of directors who seem to always protect management's interests plague too many corporations these days. Boards of directors are supposed to represent shareholder interests, but too often, that's more theory than practice.
Shareholders have been asked to trust that corporate managements and directors have their best interest in mind, but they've seen that trust betrayed over and over. Witness skyrocketing CEO pay, too infrequently linked to meaningful performance metrics; mergers and acquisitions that never amounted to an increase in shareholder value over the long term; or bad business strategies that have led to awful long-term outcomes, from individual bankruptcies to the entire financial crisis.
If shareholders increasingly desire more power to take some real action in a fast and efficient way, why should anyone be shocked? When nobody's standing up for their long-term interests, shareholders have to find ways to stand up for themselves.
There are no kings in corporations
I'm not sure it's fair or even particularly logical to assume that shareholders wouldn't act responsibly with a power like shareholder action by written consent, nor use it sparingly unless there's a real problem. Although we all know that some shareholders do have various agendas, I'm pretty sure that most shareholders would rather see companies succeed, and would reject actions that seem too extreme for the circumstances.
Furthermore, this powerful shareholder right would simply help add accountability and consequence into more corporate boardrooms. The fact that some seem to believe that's too much to ask reveals that corporations consider themselves too much like monarchies. For that reason alone, shareholders must keep demanding this right.
Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.
