1 Shareholder Takes On 21 Big Targets
Jan 18th 2012 1:59PM
Updated Jan 18th 2012 5:20PM
The 2012 proxy season is already gearing up to be a busy one. One powerful shareholder is taking on some of the biggest companies on issues that cause corporate dysfunction and increase the chance of declining shareholder value. One such issue is "the imperial CEO."
The American Federation of State, County, and Municipal Employees' AFL-CIO Employees Pension Plan is filing shareholder proposals at 21 major companies. These proposals aim to increase director accountability and independent corporate board leadership, as well as foster greater transparency at the targeted corporations.
These propositions touch on some of the most important factors in encouraging solid, shareholder-friendly corporate governance policies at public companies in the U.S.
Toppling petty empires
AFSCME's notion that one of its 2012 resolutions is to take on "imperial CEOs" is familiar to anyone who closely follows corporate governance issues.
Director independence is a simple, logical way to foster more robust boards of directors, and separating the chairman and CEO roles acknowledges the fact that a chief executive officer isn't an emperor, he or she is in fact an employee. These high-ranking employees answer to shareholders, and more directly, to the directors who are charged with the responsibility of keeping an eye on management and looking out for shareholder interests.
When a chief executive officer also holds the chairman title, it's easy to see a potential conflict of interest. How "independent" can any board be when its chairman does double duty as the most vaunted member of the company's management team? As AFSCME puts it, "the CEO effectively becomes his or her own boss."
Anyone who has read pieces by Rolling Stone reporter Matt Taibbi, has happened across Occupy Wall Street protests, or was the least bit awake during the financial crisis probably noticed Goldman Sachs' superlative rotten reputation among all Wall Street firms. Lloyd Blankfein possessing both the CEO and chairman titles sounds like a pretty bad idea for a company that many allege not only hovers above the law but also tends to figure it's above doing right by its own customers.
Meanwhile, JPMorgan Chase has particularly caught AFSCME's attention as a major candidate for change. AFSCME President Gerald McEntee contends that Chairman and CEO Jamie Dimon has gone from "The Last Man Standing" to "The Most Dangerous Man in America."
Among the litany of complaints regarding Dimon's tenure: a 20% decrease in the company's shares in five years, as well as a list of legal and reputational risks including alleged involvement with Bernie Madoff, controversies regarding improper mortgage documentation, and a settlement related to allegations that it misled clients regarding a collateralized debt obligation.
Even worse, Dimon's pay has increased from $1.3 million in 2009 to $27.8 million in 2010. It's good to be the king, right?
"Imperial CEOs" aren't the only issues AFSCME intends to tackle in 2012.
The amount corporations spend on lobbying is another major target for its slew of shareholder proposals. AFSCME describes lobbying risk as follows: "Management's unconstrained use of corporate funds to support lobbying activities that may be unrelated or deleterious to the company's economic purposes is a risk to shareholder value."
The group's apprehension about how corporations try to swing government policies in their favor through lobbying is a timely concern. Given the two examples above, AT&T clocked in at No. 6 in the Center for Responsive Politics' "Top Spenders" lobbying category in 2011, and ConocoPhillips beat it with the No. 5 slot.
This is particularly interesting given AT&T's recent high-profile defeat on its controversial desire to take over rival T-Mobile. Meanwhile, ConocoPhillips spent $5.6 million in lobbying the federal government in the third quarter alone, related to the hotly debated practice of hydraulic fracturing (or fracking) and other issues.
Last but not least, AFSCME is taking on a few companies on risky tax policies, with the contention that when managements try to avoid or reduce taxation on their businesses, they're drumming up the risk of eventual financial restatements. The shareholder is asking for tax-related risk assessment at just two companies: Amazon.com (NAS: AMZN) and Boeing.
Taking aim in 2012
It's only January, and proxy season won't swell into full swing until springtime. Still, shareholders of all stripes are preparing their resolutions, aiming to catalyze change at public companies, make investing more shareholder-friendly, and boost shareholder value.
Solid corporate governance policies, including independent boards and full disclosure, help the marketplace avoid dysfunction. Will you help take on the big targets and join the revolution to improve corporate governance in 2012? Remember, if you're invested, your vote on shareholder proposals counts, so watch your proxy statements and vote your ballots according to your conscience.
A couple of the companies AFSCME is targeting in 2012 happen to be among the picks outlined in our free report: "Secure Your Future With 11 Rock-Solid Dividend Stocks." Be sure to check out this Fool exclusive by clicking here, but don't wait -- read it today.
Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.
At the time this article was published Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Amazon.com and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Amazon.com and Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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