Angered investors speaking up
By Ben White
Washington Post
PEMBROKE, Bermuda — In 1996, no board members bothered to show up for Tyco's annual meeting.
The few shareholders who attended heard from just one man: chairman and chief executive Dennis Kozlowski. When one investor complained about not being able to question directors on the company's ferocious appetite for acquisitions, Kozlowski brushed him off.
"Nobody ever asks any questions," he said. "And if they do, I answer them."
Seven years later, Kozlowski and his top deputy, Chief Financial Officer Mark Swartz, face criminal charges of looting Tyco International Ltd. for $600 million. And every member of Tyco's new board showed up for the March 6 annual shareholder meeting in Bermuda and listened quietly as frustrated investors demanded that the company change the way it operates.
The Tyco meeting offered a taste of the investor anger that continues after a year of corporate scandal that helped wipe out trillions of dollars in shareholder wealth and shake confidence in the stock market. Efforts by regulators, lawmakers and prosecutors to enact broad reforms and crack down on corporate criminals have failed to erase the anger.
Investors are pressing hundreds of other companies to adopt more changes at annual shareholder meetings this spring. The corporate environment that emerges will probably be one in which chief executives have less power.
For example, many chief executives may be able to keep their seats as board chairmen — a dual role that critics say prevent boards from exercising strong oversight. But companies are expected to do other things to make boards more independent — and thus better watchdogs — of chief executives, such as putting more power in the hands of outside directors. Many executive compensation packages will probably be trimmed.
Individual shareholders, large pension funds and other investor groups have submitted more than 900 proposals, more than ever before. Most would be nonbinding, but companies eager to win back investor confidence will be hard pressed to ignore resolutions that are approved.
"The best way to view this is as a long-distance race toward better corporate governance," said Patrick McGurn, special counsel at Institutional Shareholder Services, which advises mutual funds and other big investors.
"The first leg was the legislation passed by Congress last year and the second leg was the new listing standards proposed by the stock exchanges. Now the baton has been passed to shareholders."
Shareholders also are rallying around the issue of compensation.
Shareholders have introduced resolutions at more than 150 companies, including Gateway Inc., Intel Corp., Yahoo Inc., BellSouth Corp. and Starbucks Corp., to phase out or change stock-option programs, which critics say encouraged executives to manipulate accounting to boost stock prices and the value of their options.
Investors are taking two approaches. Some want companies to treat options as an expense, which would make them a less attractive way to pay executives. Others want options tied to a company's long-term financial performance. Tyco and Walt Disney Co. shareholders have voted down such proposals.
Corporate boards are also under attack. Shareholders are asking more than two dozen companies to prohibit chief executives or other corporate insiders from also serving as chairmen.
Hundreds of corporations have sent "no action letters" to the Securities and Exchange Commission, seeking permission to ignore shareholder resolutions at their annual meetings.
Martin Dunn, deputy director of corporate finance at the SEC, said the agency has received at least 474 such letters. The SEC received around 460 of them all of last year.
