Apple’s co-founder Steve Wozniak warned Facebook’s CEO Mark Zuckerberg, via a national newspaper today, that shareholders can be distracting and demanding.
Tensions between shareholders and company leaders are nothing new, but shareholder activism is a different matter.
Shareholders activism is on the rise, here and overseas, fuelled by new laws that give shareholders greater influence and power, by low share prices and dividends, and by a growing use of the media to agitate for change.
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This activism is not limited to voting down executive salary packages – although this is on the rise – it extends to agitating for chief executives or directors to be removed, and accepting offers to sell the company against the recommendations of the board.
The rise of superannuation funds led, in part, to a long hiatus in direct engagement between shareholders and the companies they own. This is because superannuants in the main have no idea where their money is invested, and the trustees of their accounts saw no reason to take a stand on issues of management and leadership.
However, superannuants are demanding answers to their eviscerated retirement balances, forcing trustees to take a more active role. Some fund managers – notably, but not solely, Allan Gray (formerly Orbis) – are breaking the mold of their typically compliant peers to call for change in poorly-performing companies in their portfolios.
It’s a trend that leaders would do well to attend to, with the following examples showing the areas of contention most likely to provoke shareholders’ ire.
Yahoo CEO and board members sacked
Shareholders demanded and yesterday succeeded in getting the CEO of Yahoo, Scott Thompson, to resign after unearthing a lie in his resume. The discovery has already claimed the scalp of board member, Patti Hart, who was found to have lapsed in due diligence in Thomson’s recruitment, and then also revealed to be guilty of resume fraud herself.
Spotless sold out from under board
Against the wishes of the board, shareholders of the cleaning and facility management company, Spotless (ASX:SPT), voted to sell the company to a private equity group, Pacific Equity Partners.
Spotless chairman, Peter Smedley, fought against the takeover for five months, but eventually succumbed after shareholders threatened to take the matter to an extraordinary general meeting, fearing that a protracted battle would force the share price even lower. Smedley is now demanding an overhaul of the takeover laws.
PaperlinX chair nearly unseated
Harry Boon, the widely-respected chair of paper-maker, PaperlinX (ASX:PPX), held onto his job by a whisker after shareholders agitated for the board to remove him in March.
Shareholders were not really interested in Boon’s scalp; they wanted the CEO, Toby Marchant. During four years of his leadership, the share price fell 98% and the company lost $1.13 billion.
The shareholders lost the vote in the end, but Simon Marais, of Allan Gray, told LeadingCompany that he thought the shareholders’ point had been clearly made anyway. Marchant continues in the role with the threat of another shareholder revolt hanging over his head.
Billabong chief ousted
Just last week, Ted Kunkel, the chair of surfwear company Billabong International (ASX:BBG), doused mounting shareholder anger by ousting the company’s CEO of 20 years, Derek O’Neill, and replacing him with former CEO of Target, Launa Inman.
Kunkel managed to stave off analyst criticism of the board and himself by replacing O’Neill with the well-credentialed Inman, who had already spent months consulting to the struggling company, hit with a large fall in the share price and plummeting underlying net profits.
Richard Chandler has made a living from shareholder activism. He has a history of investing in troubled listed companies and turning them around by taking an active role.
He recently ran the ruler over the Tasmania timber company, Gunns (ASX:GNS), and then walked away from the opportunity. The beleaguered company has suffered a long battle with environmentalists over the building of a new pump mill.
The former chair of Gunns, John Gay, was vocal in his derision of the environmentalists’ views, but they retaliated, pressuring the ANZ bank to walk away from funding the $2 billion project.
Gay resigned two years later under pressure from shareholders.
Chandler’s decision was a powerful disincentive for other investors considering whether to back the company, which continues to try to re-engage investors in its business.
- The CEO of British company, Aviva, stepped down after shareholders recently voted against his remuneration package of £960,000.
- Citigroup shareholders voted down a proposal to pay CEO Vikram Pandit’s a salary of £9.4m ($15 million) for a year during which its shares fell by 44%.