Better to Switch Than Fight?
July 1 2004 by Chief Executive
This year’s hot topics? Executive pay remained a big issue, as did global warming. Shareholders were also intent on shaking up boards, voting in unprecedented numbers to block directors from being reappointed (most notably, the 40-percent-plus “no confidence” vote for Disney’s Michael Eisner). “The big story this year is the €˜no’ votes,” says Nell Minnow, editor of the Corporate Library, the governance watchdog.
The less publicized story, however, may be a shift in the way that CEOs and boards manage vocal shareholders. A growing number of companies took steps to cooperate with shareholder groups and head off potentially damaging situations. To misquote an old advertising slogan, it seems they’d rather switch than fight.
In the case of J.P. Morgan, investors were concerned about the company’s environmental risk. After meeting with shareholder groups that sponsored the proposal, including Christian Brothers Investment Services and Domini Social Investments, the bank agreed to assess the environmental impact of deals it helps finance. In response, the groups withdrew their resolution.
Similar scenarios unfolded across the energy industry. AEP, the country’s largest power generator, agreed to investors’ requests for better reporting on its efforts to reduce greenhouse gas emissions. AEP’s change of heart came after a similar resolution last year grabbed a surprising 27 percent of the vote. Other energy companies, including Cinergy, Southern Company and TXU, followed suit.
In some cases, management actively supported a resolution. Tyco International’s management, for example, backed a resolution that called for a companywide environmental reporting system aimed at reducing emissions of toxins. The proposal won 85 percent of the vote and pleased shareholder groups.
Or take Coca-Cola. Rather than negotiate to get the resolution withdrawn, Coke’s board urged investors to vote “yes” on a resolution concerning the economic impact of HIV/AIDS on the company’s operations. The shareholder groups argued that the AIDS pandemic in Africa afflicts Coke’s employees and customers. They urged Coke to analyze the impact and take action. With a nod from the board, 97 percent of shareholders voted “yes.”
Governance watchdogs say the new spirit of cooperation is smart. “If there’s more dialogue with shareholders, you won’t have those resolutions coming to a vote,” says Tracey Rembert, a coordinator at the Social Investment Forum. That would indeed be a lovely thing.
Here are just a few of the privileges that membership provides: a first-class ticket to Bangkok from wherever you live; a motorized cart and driver to whisk you from the gate and through your own immigration line; limo transfers; access to airport VIP lounges; free greens fees at dozens of private golf courses; free 90-minute daily Thai massages during your stay; the ability to purchase a home in Thailand (usually forbidden to foreigners); and a 24-hour call center to take care of restaurant reservations and other needs. “We do everything for you,” a government marketing executive in Bangkok says. “You don’t have to do anything.”
The government had expected at least 100,000 well-heeled takers, but in the six months since the program launched, only about 400 folks have signed up. So the government, through the Tourism Authority of Thailand, is next planning to issue a Super Elite Card, by invitation only, offering even more privileges. Bill Gates, because of his wealth, and Tiger Woods, owing to his Thai heritage, are to be among those invited.
So far, there are few American participants, however, due to a lackluster marketing campaign in the U.S. The 400 or so members who have signed up already are primarily from elsewhere in Asia, particularly China, as well as the Middle East.
But the Elite program won’t let in just anybody. A screening process requires the applicant not to have been declared bankrupt (no Donald Trumps, please), or mentally incompetent (we won’t mention any names). But being convicted of a crime isn’t grounds for disqualification, apparently. Applicants merely cannot have been “sentenced to a term of imprisonment for more than six months.” So can Martha Stewart sign up? We’ll have to wait and see.