Will There be an "Investor Spring"?

By Cydney Posner

You might be interested in this column from this weekend's NYT, in which author Gretchen Morgenson suggests that we may at the early stages of an "Investor Spring." The column concerns an investor who used the InvestorVillage Web site to identify other shareholders of a biopharmaceutical company based in new Jersey who were unhappy with executive pay relative to stock price performance. While acknowledging that the company was well-managed, with "fine operational performance and plenty of promise," the investor expressed his frustration " ‘regarding shareholders' lack of returns relative to management's pay packages. The stock has been roughly flat, in spite of executional excellence. In the meantime, the C-suite has been richly rewarded.'" He also noted that the "top four executives received a total of $24.6 million in 2010, up 30 percent from the amount paid to the four highest-paid executives during the previous year. The company's stock price, by comparison, rose a mere 5 percent last year." The investor found help from an associate professor of political science who developed a Web site to attract other dissatisfied company investors, but with a specific caution against personal or emotional attacks that "would ‘detract from the possibility that our concerns will be seriously considered by existing directors and/or institutions.' " (Presumably, they relied on Rule 14a-17 to establish an electronic shareholder forum. ) The investor ultimately received "commitments" from investors holding 2.7 million shares to vote no on the company's say-on-pay proposal, for annual say-on-pay votes and against compensation committee directors up for re-election. The company countered that its shares have been "top performers" and that its pay practices "receive good grades from institutional proxy advisory services." The investor characterized his efforts as a " ‘test case to see how far one can go with this….It seems like it's worth a shot. Maybe the individuals in the C-suite will have a greater sense of empathy for the collective individual investor.' " Given that the company has 461 million shares outstanding, collective action by 2.7 million shares is unlikely to have a significant impact on the vote or even the C-suite. Nevertheless, it will be interesting to see if this path is one followed by more dissatisfied investors in the future – where performance relates to more than just stock price, but also to operational or other fundamentals of company performance, these types of organized efforts may ultimately have greater impact on votes.

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