June 22, 2006
Stratfor Analysis Says Rise in Support for Shareowner Activism is Hitting a Plateau
by Bill Baue
The analysis suggests that corporate executives are building up a tolerance to higher resolution
votes; mutual fund proxy voting transparency represents the next frontier for shareowner activists
to boost votes.
As the passing of spring into summer marks the winding down of the active proxy season, the private
intelligence company Stratfor has produced
an analysis of trends in shareowner activism over the past half-decade through the currrent proxy
season. The analysis advances several interpretations and projections that foretell changes to
Stratfor Analyst Bart Mongoven commences by tracking the
trajectory of recent shareowner activism.
"Between 2001 and 2005 . . . shareholder
activism was a realm of dramatic change, with shifts in everything from the way resolutions are
written to the numbers of votes they typically receive," writes Mr. Mongoven. "This revolution now
appears to have slowed, marking a plateau, and a view of the new world of shareholder activism is
"If anything, this plateau year has made it evident that the promise of
shareholder activism is being realized: Corporations and activists are indeed sitting down and
negotiating solutions," he adds later. "The reason for the increased number of withdrawn
resolutions is the high numbers of votes that resolutions are winning."
provides no statistics for the current season to back up his assertion, so it is difficult to
ascertain whether the success of shareowner activism is indeed leveling off. Looking backward, he
does provide some ballpark figures.
"Until the late 1990s, a shareholder proposal was
considered successful by its sponsors if it won more than 3 percent of the shareholder vote," Mr.
Mongoven states. "Ten percent was almost unheard-of, and a vote of more than 10 percent would
drive management to the negotiating table with activists."
"But 10 percent is now
routine," he adds. "During the past five years, the number of shareholder resolutions that have
received more than 20 percent support has increased dramatically."
There are two
particularly interesting aspects to Mr. Mongoven's assertion. First, he suggests that shareowner
activism has hit a kind of glass ceiling--if this is indeed born out by statistics, the question is
whether this is a mere pause in upward trajectory or whether this flattening out will be sustained
Mr. Mongoven later extends his line of reasoning, proposing that shareowner
activism may become a victim of its own success.
"Senior executives inevitably will grow
accustomed to seeing proxy votes as high as 20 percent--and as they do so, the pressure they feel
to come to the negotiating table alongside activists will subside," Mr. Mongoven asserts.
"Ultimately, the number of shareholder resolutions that are presented and then withdrawn will
gradually be reduced."
In other words, shareowner activism creates a kind of tolerance
requiring ever-increasing dosages to create the same effect as in the past. Of course this line of
interpretation may or may not accurately reflect current or future reality, but it behooves
shareowner activists to strategize for this potentiality.
Mr. Mongoven identifies the
primary cause behind increasing support for shareowner resolutions in the recent past.
"The increased participation of large pension funds in shareholder activist campaigns, more
than any other factor, is responsible for the uptick in support for activist proposals," writes Mr.
Mongoven. "During the past three years, corporate annual meetings have become platforms from which
ambitious state treasurers and attorneys general portray themselves as promoting the interests of
the public over those of large corporations."
Activist treasurers such as Phil Angelides
of California, Alan Hevesi of New York, Denise Nappier of Connecticut, and Richard Moore of North
Carolina may warrant the cynicism Mr. Mongoven expresses, suspecting political ambitions eclipse
true concern over climate change. However, Mr.Mongoven neglects to mention that shareowner
activism has emerged as a legitmate force in the public eye, and perhaps more importantly, that
issues such as climate change have been recognized as material by investors and therefore fall
under the umbrella of fiduciary duty.
According to the "tolerance" theory, shareowner
activism will need a new infusion of support to feed the increasing vote percentages necessary to
nudge management to the negotiating table. Just such a knight in shining armor is arriving on the
scene in the form of mutual funds proxy voting transparency, according to Mr. Mongoven.
"Shareholder activists are beginning to force mainstream mutual companies to explain (or
justify) why they voted as they did with their proxies," states Mr. Mongoven, pointing out that
large mainstream mutual funds often holding 2 to 5 percent of the stock in major companies. "Recent
SEC rules force these companies to publicize how they vote on resolutions, and these companies'
positions easily can be held up to public scrutiny."
Whereas shareowner activists have
forged alliances with pension funds, they are instead applying the same kind of pressure to
mainstream mutual funds as they do to companies. Shareowner activists use existing regulations to
compel companies and mutual funds to account for their positions on environmental, social, and
governance issues--especially when they are out of step with societal standards of social
responsibility. Given the success shareowner activists have achieved with these methods against
corporations, it seems reasonable to anticipate similar success using these very methods against
mutual funds--and increasing support for resolutions, regardless of whether the tolerance theory
holds true or not.