Who’s the Boss?

Shareholder activists want more say in how American companies are run.

Critics, however, say the amendment could force corporate boards to kowtow to narrowly focused investor groups rather than risk withhold campaigns. “There are groups, mostly Calpers, attempting to hijack the director-nominating process,” insists John Castellani, president of Washington, D.C.-based chief-executive group The Business Roundtable. “We’re on the threshold of turning proxy season into a political campaign.”

There is also fear that the director access proposal could make a kingmaker out of ISS, a charge McGurn vigorously dismisses. “If we know access will be triggered,” he offers, “we’ll think long and hard about our recommendation.”

Nevertheless, corporate executives could find themselves accommodating powerful shareholders whose key benchmarks have little to do with earnings per share or economic value added. Board members backed by union pension funds, for example, might push for overly generous human-resources policies. “[Some of the proposals] do kind of make the hairs on your neck stand up sometimes,” says Plank. “I don’t get the sense that some of these groups want to advance the interests of all shareholders.” Managers of one small fund, for instance, wanted Apache to nominate board members from a particular ethnic group, even though that group makes up only about 2 percent of the U.S. population. “Let’s say we tumble to that,” posits Plank. “How many 2 percenters are there out there? How big will our board have to be?”

Fun It Ain’t

Rather than building an addition to the executive suite, investor-relations executives advise CFOs to rethink how they deal with shareholders. The rethinking must start with the assumption that IR is simply going to take more time these days. It might also require hiring additional staff. “This is an expensive activity, and it’s resource-draining,” acknowledges American Electric Power’s Tomasky. “Nobody wants to do this for fun.”

By ratcheting up the dialogue between shareholders and management, however, CFOs can at least help their companies stay ahead of controversies. “We do have to get over the notion some executives have,” says Tomasky, “that shareholders ought not to care about governance issues.” Besides, says Louis Thompson, president and CEO of the Vienna, Virginia-based National Investor Relations Institute, ducking their issues will only make things worse. “By the time an issue is in the lap of a company’s corporate secretary, it’s already a contentious issue.”

Finance executives can expect their fair share of contentious issues in the coming years. Shareholder activism, it would seem, is not going to simmer down any time soon. Officials at Calpers are already planning their campaign for next proxy season. “Executive compensation will be front and center [in 2005],” promises Macht. “So it won’t get any easier for some of these companies next year.”

Probably not. “I think we’re going to be dealing with this for some time,” laments Plank. “These days, everybody wants to get their agenda across.”

John Goff is technology editor at CFO.

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