Investor relations used to be about telling a company’s value story and managing the flow of information to shareholders. But like all communications over the last decade, what used to be one-way disclosure has turned into a two-way conversation. Lately, it has escalated into more of a screaming match.
Those tasked with shepherding the reputation of a public company have often argued that rich executive pay packages were necessary and appropriate to assure performance and protect investors – essentially paying for quality. Lately, shareholders are voicing a different opinion.
The new say on pay provisions have empowered shareholders to issue their own wake up call to Boards and Chief Executives. Last year, shareholders only rejected 2 percent of compensation packages. In the U.K., at least three CEOs have been ousted in the last month over executive pay. In the U.S., Citigroup shareholders held a non-binding vote rejecting an executive compensation package that totaled $15 million, in the wake of the bank’s poor stock price performance and a lackluster recovery from the crisis.
Shareholder activism hasn’t been confined to rejecting remuneration. A Yahoo! shareholder has demanded the documents involved in the hire of CEO Scott Thompson after it was revealed pieces of the CEO’s professional bio may have been fabricated. Investors of Indian tech company Infosys are clamoring for changes to the corporate culture to return the company to profitability.
It’s not just shareholder activists, but activists turned shareholders, in some cases buying single shares of companies to gain admittance, participate in votes, and cause disruptions at shareholder meetings around the country. What used to be a perfunctory event has turned into blog fodder and backdrops for the nightly news.
Politicians are taking a more active role in influencing and empowering shareholders. At the beginning of this month, a UK parliamentary committee declared Rupert Murdoch to be “unfit” to lead NewsCorp. While this backfired in the short term (stock prices went up since the report was released), it continues to blur the lines between investor, politician, and concerned citizen.
All indications suggest this is only the beginning of a global movement of shareholder unrest. Frustrations will continue to rise, fueled by income disparity, political pressures, and the Occupy movement.
These trends pose some interesting questions: will revolts die down as the economy picks up? Or does this mark a fundamental change in how companies communicate with shareholders? Will they need to campaign just like anyone else to shore up shareholder support of new proposals, executive pay increases, even CSR and sustainability programs? Will CEOs approach shareholder meetings like a Presidential candidate approaches Super Tuesday – counting votes, and crossing fingers?
It’s hard to argue that giving shareholders a greater voice in the process is a bad thing. But the current trend seems to pose more questions than answers. Is “say on pay” effective or disruptive? Or is it yet another example of a proposal’s intent being diluted or altered when it comes to practical implementation? Will we see CEOs “campaigning” for their jobs, and their pay? Or will executive compensation be restructured to fall just below the “friction point” for shareholder approval?
What are your views?