Investor outrage has cooled -- for now

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Thursday, April 1, 2004

Investor outrage has cooled -- for now

By BILL VIRGIN
SEATTLE POST-INTELLIGENCER COLUMNIST

HEY, WHERE'D EVERYBODY go? The tines on the pitchfork have been sharpened, the tar is the right consistency, the feathers are freshly plucked and we've laid in a full supply of rails.

What we seem to be lacking are torchbearers and pitchfork wavers. For all the big talk about shareholder revolts, the outrage over corporate scandals and bloated executive pay and outsourcing and layoffs, the climate among investors, to judge from the reduced number of shareholder resolutions on many proxy statements, not to mention the reduced flow of outraged e-mails from investors, seems oddly muted as we head into annual meeting season.

You call this a revolution?

At some companies the shareholders appear as feisty as ever, if the volume of resolutions is any indicator. The Boeing Co., which can always be counted on for some liveliness, has seven resolutions on its proxy ballot; it's outdone by Alaska Air, which has eight this year.

But at other companies the number of shareholder-submitted resolutions is off from a year ago. Weyerhaeuser has three, down from five last year; Paccar has two, down from three. Safeco and Washington Mutual have one apiece, both on limiting executive pay.

And some, like Starbucks, have none at all (it had two a year ago). Instead, what Starbucks had earlier this week was an over-the-top entertainment extravaganza, featuring a miniconcert with Emmylou Harris, disguised as an annual meeting. (Not to wish ill on the company, but it would be fascinating to see what kind of production Starbucks would come up with for an annual meeting at which executives had to explain crummy earnings and a plunging stock price to an audience of grumpy shareholders.)

So does this mean that the furor has dissipated, that CEOs can safely emerge from their bunkers knowing that investor outrage has dissipated? Do investors not care, or have they given up in disgust?

As with most things in life, it's not quite that simple. Here are four reasons:

Most people can sustain outrage only for so long. It's natural that attention would drift to other pressing subjects of the day -- war, the economy, politics, Janet Jackson. Helping to defuse the situation are improving stock prices, earnings reports and economic conditions. Even within the business realm attention has shifted from CEO misdeeds to misbehavior by mutual funds (the people who were supposed to be looking out for the interests of the average investor).

Investors have reasons to believe there's improvement on corporate governance issues. Congress and the Securities and Exchange Commission have imposed new rules (whether they'll be effective or enforced is a separate matter). Bad-actor CEOs are going on trial.

Instead of fulminating at every CEO of every publicly traded company, which was the prevailing sentiment a year or two ago, investors are directing their wrath at those who appear to have earned it. Michael Eisner was stripped of his chairman's title at Disney, and he may be lucky to escape with only that. Now news accounts suggest the next to be roasted will be the head of grocery store chain Safeway.

Companies have heard their shareholders -- and in some cases are responding. At least two companies have on their proxy ballots this year management-offered resolutions in direct response to issues raised by shareholders. Boeing's board has offered a proposal to require only a simple majority of the vote to approve certain business combinations and changes in capital structure. One of the seven shareholder resolutions calls for a broader change in rules on majority votes, although the statement in support of that resolution praises management for at least taking some action.

Weyerhaeuser's board, meanwhile, has put on the ballot a proposal for annual election of all its directors (they're currently elected for three-year terms in staggered groups). That's in response to a non-binding resolution last year on the subject, which 64 percent of shareholders approved.

Proponents contend that making directors go before shareholders every year makes them more accountable. Opponents, usually in management, contend annual elections raise the possibility of an unfriendly takeover. It's interesting that even as the board puts the issue before shareholders, the proxy statement notes the directors' opposition to the idea.

There may well be fewer resolutions to vote on this year and fewer pointed questions raised in the Q&A portion of the annual meeting, and those may indeed be indicators that outrage has been tempered. No one should mistake that for a permanent condition.

All it will take is a few crash-and-burn stocks, a few new indictments of chief executives, a few more revelations of corporate fraud and cover-ups, and shareholders will start reaching for the pitchforks and someone to jab them with -- and it'll take more than a guitar-strumming singer to thwart them.

P-I reporter Bill Virgin can be reached at 206-448-8319 or billvirgin@seattlepi.com. His column appears Tuesdays and Thursdays.

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