More Power for Shareholder Activists?

Spurred by a slew of portfolio-punishing accounting scandals and angered by decades of corporate indifference to their requests, institutional investors have gone on the offensive.


In a new survey conducted by CFO magazine, 56 percent of respondents said dealing with shareholder requests has become a distraction, and 53 percent indicated they're spending more time with shareholders than ever before. Yet only 11 percent of the executives polled believe that adopting the recommendations of the shareholder activists will improve their ability to create value for those investors.

In truth, many executives appear to have been soured by the actions of a few high-profile groups. The California Public Employees' Retirement System (Calpers), the world's largest pension fund, for example, withheld votes on one or more directors at an astounding 90 percent of the 2,700 companies it holds in its $180 billion portfolio. The hit list included even such pillars of virtue as Coca-Cola director Warren Buffett, long an advocate of shareholder rights.

Likewise, Institutional Shareholder Services (ISS), a proxy-services firm that advises institutional investors on how to vote their proxies, told clients to remove Buffett from Coke's audit committee, citing a conflict of interest. Pitt, now CEO of Kalorama Partners, in Washington, D.C., was taken aback by the Buffett bashing. "When you start attacking Warren Buffett," he says, "you've gone off the deep end."

As the Buffett episode shows, however, governance advocates may be overreaching to make a point. In the CFO survey, 55 percent of respondents said shareholder activists have simply gone too far. Many believe investors and advisory firms are starting to take a broad brush to governance, ignoring a company's particulars and deferring instead to a checklist of governance best practices.

The checklists touted by consultancies such as ISS — which go through proxies for portfolio managers, summarize the issues, offer a yes or no recommendation, and then explain the recommendation — have come in for the most criticism. In fact, half of the respondents to the CFO poll said proxy-advisory firms are not familiar with the fundamentals of their business. And 65 percent said governance checklists fail to account for the individual circumstances of a business. "The problem is, they're formula voting," argues Roger Plank, CFO of Houston-based Apache Corp. "I don't think they make an effort to look at us as an individual company."

Plank experienced this blunderbuss approach firsthand in a recent document sent by a dissident shareholder group. In it, the investors torched Apache, chiding the company for failing to adopt the group's vision of good governance policies. But as Plank read through the indictment of Apache, he noticed one small error. In one part of the document, he says, "[the shareholder group] called us by our competitor's name. Turns out it was just a form letter." (For more, see the September CFO magazine cover story, "Who's the Boss?")

Your View

Findings from CFO's survey of 105 finance executives.

A Vote Too Far?

What is your opinion of the efforts shareholder activists (Calpers, ITAA-CREF, ISS, etc.) have made during this year's proxy season to improve corporate governance?
They have gone too far

They have not
gone far enough

They have done just enough

No opinion




Compared with last year, are you spending more or less time on share holder issues (meeting with shareholders, responding to shareholder requests, etc.)?

More time

Less time

No change


Attention Deficit

Do you think that shareholder activists are distracting your management and board from the task of running the business?



No opinion


A Knowledge Gap

How familiar do you think shareholder activists are with the fundamental issues of your business?

Very familiar

Somewhat familiar

Not familiar

Not sure


Best Practices?

How do you think that adopting the corporate-governance practices advocated by pension funds such as Calpers would affect your company's ability to create value?

It would improve our ability to create value

It would reduce our ability to create value

It would have no effect

Not sure


Note: Figures may not add up to 100% due to rounding.


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