Skarbeck: Shareholders must hold fiduciaries' feet to the fire

April 6, 2009

Proxy season is under way, and considering the current state of affairs, this certainly could be a contentious year at many annual meetings. The economic downturn has provided shareholders an opportunity to press for change on a variety of corporate governance issues.

Of course, the lightning-rod subject is executive compensation. Raising the ire of shareholders and the public alike are glaring examples of corporate boards and management reneging on the principle of pay for performance.

With the opportunity at hand, it is incumbent on shareholders to raise the pressure on these fiduciaries. Company leaders need to awaken to a new reality— that those one-sided governance policies that sailed through boardrooms in the past will not be met with shareholder indifference going forward.

To begin with, investors should be diligent in reviewing proxy issues. The proxy statement typically arrives with the annual report, and investors can return their vote via mail or vote online.

If you own mutual funds, most likely your voting powers have been delegated to the fund manager. You should call or write the manager and encourage him to vote according to your position on issues. If you did not receive a paper copy, the proxy statement for public companies can be found at sec.gov under Forms and Filings, and then Search for Company Filings.

After searching by company name or ticker symbol, the list of filings will be presented. Look on the left side for Form DEF14A, which is the proxy statement. This document contains a wealth of information on the company's board members, share ownership and executive-compensation policies, along with detailed discussion on the proposals up for vote.

We routinely withhold our vote for board members who are on a company's compensation committee if we view their pay policies to be excessive. In addition, we overwhelmingly vote against expanding stock-option programs and other anti-shareholder proposals. Once again, it's imperative that shareholders, large and small, exercise their vote if investors as a group are to regain some of their rightful power over corporate matters.

Without making ourselves heard, some companies will continue to trample over shareholders' rights. For example, one disturbing example of lousy governance that has resurfaced is the practice of companies re-pricing options that were originally granted at higher prices.

The quest to rein in excessive pay will be difficult, as an air of entitlement has become entrenched in corporate boardrooms fostered by compensation consultants who operate like lobbyists for excessive pay packages. Yet corporate fiduciaries should be taking notice. That the public is mad is an understatement.

We by no means are arguing that executives should not be paid well, and certainly do not advocate physical protest. Yet significant reform of governance policies is overdue at most companies.

Skarbeck is managing partner of Indianapolis-based Aldebaran Capital LLC, a money management firm. Views expressed are his own. He can be reached at 818-7827 or ken@aldebarancapital.com. 

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