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April 24, 2006

A voice in the wilderness is heard, Mon., Apr. 24, 2006, 6:40 AM

Sometimes I jabber on about how things should be in the financial trading markets, wondering all the time who really is listening.

This article on a new organization called Investors for Director Accountability gives me hope -- even if I don't know if there is a link to my writing.

(President) Rowe said the philosophy of Investors for Director Accountability is simply to exercise free speech. It's entirely staffed by volunteers, doesn't plan to take an economic interest in any of the companies it targets, doesn't intend to wage proxy fights, and doesn't plan to approach companies or investors for dialogue. Rowe said that he or some of the members may own stock in the companies they target, as many members own index funds, but they "have no economic interest in the outcome" of their campaigns and don't intend to pursue any voting strategy if they do own the stock directly.

Specifically, Investors for Director Accountability is urging shareholders to withhold their votes for the four nominees for the Pfizer's compensation committee: Robert N. Burt, Stanley O. Ikenberry, George A. Lorch and Dana G. Mead. All have served at Pfizer for some time - Ikenberry since 1982, Mead since 1998, and Burt and Lorch since 2000.


I have always said there needs to be a check and balance in every system for it to work properly in the long-term. I have even said that corporate directors need to be more accountable to shareholders, and that one place to put this notion to the test is with respect to approving or rejecting the recommendations of executive compensation committees. Rejection ought to mean terminating the offending board members, and getting in some truly independent people who will keep management dreams in check.

Now I feel the Investors for Director Accountability (IDA) organization could become an effective control over corporate management and directors who have been trampling the interests and rights of the owners of capital for too long.

I have long asked "When does the nonsense end?" The answer could be "Starting with IDA".

Posted by Posted by Bill Cara on April 24, 2006 06:40:38 AM | Category: Cara Today in the Market

Discourse

There are too many "passive investors" who should take the time to realize that pay packages for the top cons are way over the top in too many companies, and that reduces the value of the company's stock while also preventing decent wage increases for the very people who actually design, make, and sell the product.

Here is a great (not) example:
"Exxon Chairman Got Retirement Package Worth at Least $398 Million" New York Times
http://www.nytimes.com/2006/04/13/business/13exxon.html?ex=1231300800&en=b596c86eeb70813c&ei=5035&partner=MARKETWATCH

Posted by: spot [TypeKey Profile Page] at April 24, 2006 7:10 AM [link]

Dear Bill,

Thanks for addressing this issue. The web address to IDA is as follows: http://investorsfordirectoraccountability.org/index.html

I hope all your readers will take a interest in this subject in order to remind CEO's who they work for.

Cheers, Lazza

Posted by: lazza [TypeKey Profile Page] at April 24, 2006 7:51 AM [link]

IDA is an important effort, but so many investors are now buying ETF's and Mutual Funds in which the shares are controlled by Institutional Fund Managers.

For example, I might want to hold my proxy vote for a thousand shares of XOM or PFE, but I might also have a thousand shares in XLE or XLV and who's deciding the vote on all those collective shares??

Here's a little more information:
"... Representing the owners of shares

Institutions control huge shareholdings. In most cases they are acting as agents (intermediaries between owners of the shares and the companies owned) rather than principals (direct owners). The owners of shares theoretically have great power to alter the companies they own...via the voting rights the shares carry and the consequent ability to pressure managements, and if necessary out-vote them at annual and other meetings.

In practice the ultimate owners of shares often do not exercise the power they collectively hold (e.g. because the owners are many and diverse each with small holdings), and the financial institutions (as agents) may or may not choose to do so. There is a general belief that shareholders, by which is often meant the institutions acting as agents, could and should exercise more active influence over the companies they hold shares in (e.g. to hold managements to account and to ensure that Boards function effectively). This would mean that there would be another effective pressure group (additional to the regulators and the Board) overseeing management.

Some institutions have been more vocal and more active in pursuing such matters than others. Some institutions have believed that there were investment advantages to building up substantial minority shareholdings (e.g. 10% or more) and then bringing pressure on managements to change the way firms were run. Another widespread tactic is for institutions to effectively collude to force management change. Perhaps more widespread is the sustained pressure that large institutions can bring to bear by talk and persuasion as they liaise with managements over time...."
http://en.wikipedia.org/wiki/Institutional_fund_management

Posted by: spot [TypeKey Profile Page] at April 24, 2006 8:20 AM [link]