When shareholders topple CEOs

May 8, 2012
Shareholder Spring.

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The Telegraph has dubbed it Shareholder Spring: in the UK, these days, CEOs are falling left and right after shareholders complain about their pay. First came David Brennan, the CEO of pharmaceutical company AstraZeneca, who decided to spend more time with his family after shareholders made it clear they wanted him out. Next up was Sly Bailey at publisher Trinity Mirror, who was also facing a shareholder revolt. Now it’s the turn of Andrew Moss, the head of insurer Aviva, who waited until after shareholders voted against his pay package before handing in his resignation.

Mark Kleinman notes something very interesting about the Aviva vote: while a majority of shareholders voted against Moss’s pay package, less than 5% actually voted against him staying on as chief executive.* The former vote, on pay, was non-binding, while the latter vote was binding — and clearly almost no shareholders had the appetite to actually fire Moss, even if that was what they ultimately ended up doing. In the UK, says Kleinman, “the effect of the pay vote was to leave Moss in an untenable position”. At the same time, says Helia Ebrahimi, “Man Group chief executive Peter Clarke is currently hanging by a gossamer thread after shareholders turned on his remuneration package”.

In the US, of course, none of this is true: Citigroup CEO Vikram Pandit is still comfortably ensconced in his position, despite clear shareholder rejection of his compensation package.

I suspect that what’s going on in the UK is a harbinger of what will happen, eventually, in the US. One can’t expect a perennially tone-deaf company like Citigroup to set the tone for corporate America as a whole — this is a firm, remember, which honestly thought the Fed would allow it to buy back $8 billion of its own precious equity. And if you don’t listen carefully to your regulators, you’re definitely not going to listen to your shareholders.

But as we see more pay package rejections in the US, I think that CEOs with cleaner ears will prove themselves capable of understanding the message being sent. After all, few shareholders vote no on pay with the thought process “I think you would be a great CEO, just as long as you earn a little bit less money”. These votes are a clear rejection of cronyism at the board level, and it behooves boards to start listening.

I might be dreaming, here, but in the age of Occupy, there’s a case to be made that boards are just a little bit more aware than they used to be that they answer to shareholders, and that the biggest shareholders — pension plans, mutual funds, that kind of thing — are ultimately representing the interests of the 99%. So long as the masses stand idly by, the plutocrats will happily award themselves ever more obscene quantities of money. But when shareholders notice and object, CEOs like Andrew Moss know that the gig is up.

*Update: Originally I said that more than 95% of votes were cast for Moss staying on as CEO, that’s wrong. Only 4.6% of votes were cast against him, but another 5% or so were withheld.


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