The Wrath of Shareholders

<body> <h1>The Wrath of Shareholders</h1> <p class="blog_body" style="margin-bottom:12.0pt">I just got back from Chicago and Akron, America’s rust belt. I was attending two shareholders meetings, moving resolutions on behalf of other shareholder activists. One of the company’s was Schering-Plough; the other one was First Energy. </p> <p class="blog_body" style="margin-bottom:12.0pt">The First Energy meeting was a circus. The board of directors has been blatantly ignoring shareholders’ interests for years. For the last five years shareholders have moved a particular resolution related to majority voting. They have passed it at every shareholder meeting by substantial margins—every time by at least 70 percent votes.</p> <p class="blog_body" style="margin-bottom:12.0pt">Technically, the way the SEC sets things up, most shareholder resolutions are advisory only. The board of directors doesn’t have to implement them. And that’s exactly what the First Energy board of directors have been doing, consistently year in and year out, for five years. The shareholders keep passing this same proposal, and every year the board of directors ignores them. This year at the shareholder meeting, I was the person moving that same resolution.</p> <p class="blog_body" style="margin-bottom:12.0pt">It was a large shareholder meeting. About 500 people attended—a lot of angry individual investors. There was a tremendous sense of frustration in the room—investors pushing on a string. What could they do to influence the board of directors? It seemed like there was nothing they could do. The board of directors just ignores them.</p> <p class="blog_body" style="margin-bottom:12.0pt">What shareholders have been doing recently has been withholding support for directors. At a shareholder meeting, not only do you vote on resolutions, but you also elect the board of directors. What shareholders have been doing is withholding their support from the nominees for the board of directors. It’s not like these are real elections. The board members are nominated by the board, and they run uncontested. When you have plurality-wins voting, as opposed to majority-wins voting, the board members will automatically get in. This is because, with plurality based voting, where all you need is a plurality to win, and you’re the only candidate running, as long as one investor votes one share for you, you’ve got a plurality. No one else receives any votes, so you've got the plurality. This is a situation where shareholders could withhold 99.99999 percent of votes for a given director, but as long one share is voted for that director, the director is elected. </p> <p class="blog_body" style="margin-bottom:12.0pt">So this too is very much pushing on a string. But shareholders have been withholding support for directors. Last year, at First Energy, four directors got 47 percent withhold votes. This was a strong expression of shareholder dissatisfaction. The situation is getting embarrassing for the corporation. But First Energy has just been obstinate, ignoring the shareholders. The situation was just covered in the <b>Wall Street Journal</b> on the morning of the First Energy meeting. </p> <p class="blog_body" style="margin-bottom:12.0pt">The board of directors, should start paying attention to shareholders. What they did instead was take shareholder money and coordinated with the SEC to spend that money on a special solicitation to institutional investors, asking them—begging them— to please not withhold support for the directors.</p> <p class="blog_body" style="margin-bottom:12.0pt">So I was there at the meeting. I moved two resolutions, actually. At the end, I asked a pointed question related to this very topic. For me, this was an empowering experience. It is this same empowering experience that we want to make available to other shareholders. After that meeting, several shareholders lined up to shake my hand and thank me for being there. Two reporters came up and interviewed me. A former CEO of the corporation, now retired, came up and shook my hand. We talked for 15 minutes. He told me about the good old days, back when he as CEO traveled around Asia raising money for the nuclear power plants they were building at that time.</p> <p class="blog_body" style="margin-bottom:12.0pt">He and I agreed, times have changed. Power utilities used to be run by engineers—"pipes and wires guys." Not anymore. Corporations are being taken over by lawyers and financiers—people who don’t know anything about pipes and wires, or running a real public utility. </p> <p class="blog_body" style="margin-bottom:12.0pt">This shareholder meeting, like so many I have attended, was a fantastic experience for me—and it was a fantastic experience for the other shareholders there. I was attending as a field agent—a representative of the United States Proxy Exchange. By just doing my job, I was showing other shareholders how they too can be activists. That’s what the people at that meeting so much appreciated. They said "thank you for being here; thank you for making a difference; we have learned from you."</p> <p class="blog_body" style="margin-bottom:12.0pt">This is what the Investor Suffrage Movement is working on today. A wonderful announcement just came out recently. The Investor Suffrage Movement has been operating as an unincorporated entity for about a year now. Just a couple weeks ago, we incorporated. We also incorporated the United States Proxy Exchange. </p> <p class="blog_body" style="margin-bottom:12.0pt">The two organizations are practically one and the same right now, but they’re going to diverge. The Investor Suffrage Movement is going to be the activists’ organization. It’s going to go out and implement proxy exchanges in different countries around the world. So we’ll have a Canada Proxy Exchange. We’ll have a UK Proxy Exchange. An Australia Proxy Exchange. A Germany Proxy Exchange. A Singapore Proxy Exchange. The United State Proxy Exchange is the first of these proxy exchanges.</p> <p class="blog_body">Thank you for listening. There’s a great future for shareholder activism and it’s beginning today with the Investor Suffrage Movement. I encourage you to become involved. The experience I had at those shareholder meetings—and that other individuals who’ve stepped forward to become field agents are having—is empowering stuff. I invite you to join us. Thank you. </p> <p> </p> </body>