Shareholders activate corporate accountability

A new corporate governance paradigm is emerging with the board becoming more responsive to shareholders

Activist shareholders have scored resounding successes this proxy season with proposals to make corporate directors more accountable to shareholders, and efforts to tie executive pay more closely to company performance also are gathering steam.

Shareholders at 15 companies approved proposals asking boards to make it easier for future shareholder proposals to pass by removing requirements that they receive more than a simple majority, according to Institutional

Shareholder Services Inc, which tracks proxy issues for pension funds and mutual funds. Shareholders also gave majority support to 70 proposals that make it easier to get rid of directors, Rockville, Md.-based

ISS said.

8216;8216;There8217;s a new corporate governance paradigm emerging8230;. It8217;s a sign of boards becoming more responsive to shareholders and less captive to the CEO,8217;8217; said Patrick McGurn, ISS executive vice president. Proposals asking for annual election of directors8212;rather than staggered multi-year terms8212;won majority support at 38 companies.

By the end of this year, more than half of the nation8217;s 500 biggest publicly traded companies will hold annual elections, up from 45 per cent two years ago, McGurn said. Ballot proposals that directors be elected by a majority of shares voted got majority support at 32 companies, and more than 100 other firms have adopted some kind of majority-vote standard without putting the question to shareholders.

About 145 companies in the Standard 038; Poor8217;s 500-stock index now elect directors by majority vote or require them to tender their resignations if a majority of shareholders withhold their support, said Claudia Allen, a Chicago lawyer who studies the issue.

Fewer than 30 companies had such policies in place at the start of 2005, and eight more have announced plans to adopt similar standards.

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While most shareholder resolutions are nonbinding, a study by Council of Institutional Investors suggests boards are taking them more seriously. The study found that 61 of the 97 companies whose shareholder proposals received a majority vote in 2005 had done something along the lines of what was requested, up from 28 per cent the previous year.Brooke A. Masters