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Jul 12

A season of rising shareholder discontent

Posted by SherylNash01 in shareholdersshareholder dissentshareholder activistscorporate governancecareer/management


This proxy season is shaping up as one of shareholder revolt, as more and more directors fail to receive the support of a majority of owners.

While the Corporate Library, a corporate governance research firm, is still collecting data, early indications suggest that many more directors will fail to win support from less a majority of their shareholders than in previous years.

"The results are much, much, different than in the past," Annalisa Barrett, senior research associate with the firm, told CFOZone. "There are a higher number of directors being voted against or where the majority vote was withheld."

Some have already won less than a third of their shareholders, a markedly low level, she added. Six directors won fewer than three in 10 votes. Because such votes are non-binding, all remain in their seats at present.   

Edward C. Nafus, director and former CEO of CSG Systems International, so far has had the highest percent of withhold votes, with 80 percent. The former CEO was a member of the nominating committee. Subsequent to the election, Nafus resigned from the committee, leaving it with no members who are not independent.

Next came Peter Davis, a member of the audit committee at Nabi Biopharmaceuticals, where 76 percent of shareholders withheld their support for his re-election to the board. Nabi's board has a resignation policy for those directors who do not receive support from a majority of shareholders. However, despite his poor numbers, the board rejected the resignation he tendered after the election. The controversy seems to reflect lingering investor concern about the company's burn rate and strategy after the board agreed in 2006 to appoint two members recommended by hedge fund Third Point.

 At United Online directors Kenneth Coleman and Robert Berglass, both compensation committee members, each received 71 percent votes withheld. What specifically led to their rejection is unclear, but Barrett suspects the votes against them reflect dissatisfaction with the company's compensation policies.

Only 29 percent of shareholders at Helix Energy Solutions Group supported the re-election of Bernard Duroc-Danner, who attended only four of eleven board meetings during 2009.

And at Skywest, director J. Ralph Atkin, who founded the company and now chairs the board's audit committee, received support from less than 25 percent of shareholders. The controversy may reflect concern paternalism, as Atkin's nephew, Jerry Atkin, is currently the company's chairman and CEO.

Opposition to such directors clearly is rising in part because of the poor economy as well as a sour public mood resulting from financial scandals and bailouts. Less obvious is the role played by the elimination of broker voting in uncontested elections, which means that the proportion of "for" votes is likely to be smaller at most companies.

While the shareholder votes are non-binding, the outcry against directors who don't put shareholders first seems to be building. And at some point, the complaints could become too loud to ignore.



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