Wednesday, September 01, 2010

'Proxy Access' Is Here and I Don't Feel Fine

By Eric Jackson, Senior Contributor09/01/10 - 09:16 AM EDT

Stock quotes in this article:YHOO, GOOG, MSFT, OXY

The Securities and Exchange Commission last week passed something called "proxy access" which will allow shareholders to nominate directors for election to the board in a simpler and less expensive process. The move is being hailed as a major victory by shareholder advocates promoting stronger governance standards. It's taken 30 years of debate to get this change out of the SEC so I agree that any change in a positive direction toward open access is good. However, I fear that proxy access will actually be much ado about nothing due to unrealistically high requirements.

The principle behind the need for proxy access is pretty simple (at least in my mind) -- management shouldn't have a stranglehold on selecting the board of directors who ultimately holds management accountable, which I define as being able to hire and fire company executives. Prior to proxy access, the only recourse shareholders had to remove terrible directors was to run a full-blown proxy contest which can run several millions of dollars after all the lawyers and other service providers get paid. Most shareholders, save Carl Icahn, have not chosen this path.

So management has had a pretty good 30-year run of no interference from shareholders. CEOs have stocked their board seats with their buddies. Why wouldn't Dick Fuld have asked an actress, Broadway producer, and a retired admiral to serve on his board at Lehman Brothers? These folks didn't understand a damn thing about CMBSs, CDOs, or CDSs, which probably made them even more attractive to Fuld precisely because they wouldn't get in his way as he ran the business exactly the way he wanted.

I was in a battle with Yahoo!(YHOO) in 2007 when I advocated a number of Yahoo! directors resign from the board (Terry Semel was the only one of them to graciously take me up on my suggestion). I remember the current chairman of Yahoo!, Roy Bostock, talking down to shareholders at the 2008 annual meeting after Yahoo!'s board had botched the Microsoft(MSFT)buyout offer saying that Yahoo! just needed more time to execute its vision for the company.

Shareholders needed to be patient, Bostock told us confidently and without a trace of humility.

Yahoo! is company with a stock price that's declined 80% in 10 years. The board passed twice on the chance to buy Google(GOOG). The company invested for many years in a new version of its own search engine called Project Panama and then reversed course and signed a deal to use Bing search from Microsoft instead.


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