SEC puts Under-performing CEOs and Directors on Notice
Some great news today that the SEC is planning to end the current broker vote rules. This is a "win" for any shareholder who is tired of seeing over-paid and under-performing directors re-elected by seemingly vast majorities of shareholders at their annual meeting.
Take the Citigroup (C) meeting earlier this week. Several in the media pointed out that, despite the large number of angry shareholders voicing their displeasure at the meeting, Citi's board (including Vikram Pandit) was "comfortably" re-elected with about 70% of the vote. Turns out this is really an inflated number.
As the Wall Street Journal reported today, these vote numbers are skewed because the large number of brokers, who hold shares in companies and never hear from the underlying shareholders as to how they want those votes cast, end up throwing them behind management.
The article discusses the upcoming Bank of America (BAC) meeting next week where Ken Lewis will face a lot of heat. Because Ken Lewis will have 1.22 billion broker votes in the bag from the start, he only will need to capture about one-third of the votes from real voting shareholders to "win" a majority of support.
The SEC, under Mary Schapiro, is saying that this free ride is over starting in 2010. These broker votes will no longer count towards the encumbents' stash. All CEOs and directors will truly have to receive a majority vote. That's good for everyone -- including, ultimately, the directors. We'll have much more vigilant boards and better capital markets.
If Ken Lewis survives the vote next week, he likely won't in 2010 under these new rules, which is why my bet is that he announces his departure sometime this summer (after declaring that BAC is stonger than ever and poised to reap the benefits of his Merrill and Countrywide deals).
Position: None.
Originally published in RealMoney.com on 4/24/2009 2:48 PM EDT
