When you buy a stock, you've taken a tiny ownership stake in
a company -- in theory, anyway. Generally speaking, you're not
encouraged to think like an owner, much less given any voice to
act like one. The times may be changing though. Proxy access,
an important topic in shareholder rights, has been coming to
the fore and touching companies as disparate as
Whole Foods Market
Proxy access gives shareholders the right to nominate a few
of their own directors to their companies' boards. As strongly
opposed as many business interests are,
: It's simply the right to
candidates, who would still be subject to an overall
As it stands now, most directors are nominated by the
companies themselves, and companies and their lobbyists have
worked hard to keep it that way. When one thinks about all the
problems that can be caused by managements who care only for
their own self-interest, often enabled by entrenched,
complacent boards, you can see why there are some logic
problems with that policy.
A situation at Whole Foods Market ignited fresh controversy
about proxy access a few short months ago -- and as the topic
gained momentum, a few big companies have been making changes
in favor of this shareholder-friendly policy.
Giving shareholders the right to vote
Whole Foods Market had moved to exclude a shareholder proposal
from James McRitchie on the company's proxy ballot this year.
McRitchie had proposed that a group of up to 20 shareholders
owning 3% of the company's shares for a three-year period
should have the right to nominate their own director
Whole Foods' argument was that the proposal conflicted with
its own on the same topic, which had far more onerous
requirements. The company's proposal originally called for a
single shareholder to hold a whopping 9% of the company's
shares for five years before gaining the right to nominate
Even if you feel completely comfortable with the quality of
Whole Foods' leadership (and personally, I do), that policy and
the precedent it was setting for companies overall was the rub.
Just for starters, when it looked as if the Securities &
Exchange Commission would allow the exclusion on that grounds,
about two dozen other companies began scrambling to use the
same tact to keep that type of shareholder proposal off their
Then, the SEC stepped aside, retracting its previous stand
that it was OK to exclude shareholder proposals due to such
proposal "conflicts." By having no opinion, the SEC basically
put the proposals back on the table and back in the proxy
On Feb. 13, Whole Foods released an SEC filing announcing
the postponement of its annual meeting as it considers its
alternatives given the matter.
It's been an interesting several months since, as shareholders,
business interests, and shareholder advocates and advisers
chimed in on the topic.
Glass Lewis, which advises shareholders on how to vote their
proxies, has taken the stand that significant, long-term
shareholders should have the right to nominate their own
directors, as long as reasonable thresholds of ownership and
time frames are in place. Note that it still says it advises on
how to vote on specific proposals on a case-by-case basis.
ISS, another proxy adviser, has taken it a step further and
says that it will generally support voting for such
, in January, Anne Simpson of California Public Employees'
Retirement System, or CalPERS, -- a pension fund worth $296.3
billion -- said of the proxy access situation, "This is not
going to be a merry dance... We find this very important for
board accountability. And if boards do not respond
constructively on this, we'll take our votes to the
The good news is a few megamajor companies are responding
already, and could inspire others to act.
have all recently announced that they will allow
shareholders owning 3% of shares for three years to nominate
directors. They're wise to take voluntary action as opposed to
waiting for a shareholder proposal and vote to force the
Meanwhile, if you were wondering how Monsanto fits into the
fray, 53% of its shareholders voted in favor of a shareholder's
proxy access proposal at its annual meeting several months ago.
Monsanto responded that "the board will take into consideration
the shareowner vote and the thoughtful shareowner discussion
we've had regarding the evolving role of proxy
What about you?
If you own individual stocks, you may have the chance to vote
on such a proposal yourself. New York City Comptroller Scott
Stringer started filing proxy access proposals at 75 companies
last fall, and plenty of other corporate governance advocates
have likely filed their own proposals that could appear on the
proxy statements you receive this year.
Of course each of us should vote our ballots in any way we
see fit, keeping the long-term health of our companies in mind.
However, I think there are some important points to ponder.
Most managements will argue that they don't want
shareholders to have this right because they don't want
short-term investors to push for things that won't be in the
interest of the company and shareholders.
I'd be the first to admit that our marketplace is threatened
by short-term investors and traders; the myopic,
quarter-by-quarter profit perspective is often damaging to our
companies and to the marketplace at large. On the other hand, I
think many companies' managements use shareholders as a
scapegoat for all that goes wrong on their watches. The truth
is, most of the time shareholders don't really have much of a
say or influence at all, other than selling their shares, and
that's just how many managements want it.
The requirement that shareholders must hold 3% of shares for
three years before they can make this move blocks out
fly-by-night investors who would condone unwise strategies to
turn a quick buck. Furthermore, a 3% stake still can represent
one heck of a sizable chunk of change at many companies.
Meanwhile, sad as it is, a heck of a lot of investors have a
hard time being patient and not trading for three months, much
less three years, so I'd say that time frame shows a degree of
Even if some shareholders do nominate a few candidates,
there's still the actual shareholder vote. Sometimes investors
do crazy things, but I doubt many truly long-term shareholders
who care about their returns would opt to shake up boards and
push against management unless there's a really good
Last but not least, I think it bears repeating that many a
shareholder has been fleeced by companies that had shoddy,
self-interested managements and complicit boards, and in many
cases, shareholders had to stand idly by with no power or
Checks and balances
If things are going downhill at a public company, it makes
perfect sense that a rational solution would be to nominate a
few directors who are actually willing to push back. Even
shareholders having the
to do so might keep some managements in check and head off some
problems at the pass.
Giving shareholders rights to make moves like this may be
one step to help us avoid some pretty terrible situations at
public companies -- for our own portfolio returns and even for
society at large. Poorly run or, worse, failing companies often
carry external costs that hurt quite a few stakeholders, hardly
limited to shareholders.
And at the very least, it shows management respect for
shareholders -- and that's a start.
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Here's a Shareholder Issue That's Shaking Some
originally appeared on Fool.com.
John Mackey, co-CEO of Whole Foods Market, is a member of
The Motley Fool's board of directors.
owns shares of Whole Foods Market. The Motley Fool recommends
Whole Foods Market. The Motley Fool owns shares of Citigroup
Inc, General Electric Company, and Whole Foods Market. Try any
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