April 30, 2006
The Pfizer Annual Shareholders Meeting: Calling a Loss a Victory
Gretchen Morgenson of the New York Times has been using her column to encourage Pfizer shareholders to "withhold" their votes for two members of Pfizer's board of directors who were up for re-election. (See, e.g., today's "Can't Take it Anymore?") The board members were on the corporation's compensation committee and have approved a very lucrative pay packages for the company's CEO for five years even though the company's stock price has plummeted during that period. Significantly, Pfizer has adopted a "resignation" bylaw; if over 50 percent of the shareholders withhold votes for a nominee, the nominee, if elected, must submit a letter of resignation to the full board of directors. Morgenson was supporting the efforts of two well known proxy advisory firms and by a well known non-profit promoter of shareholders rights, Investors for Director Accountability. The result? A measly 21 percent of the votes cast were withheld. Morgenson declared victory. Incredible. Reminds me of the advice Nixon received when he inquired about how to get out of Vietnam: "Declare victory and leave." The meager results of such a high profile campaign demonstrate once again that shareholder voting in directors elections the management slate of directors is 99.99 percent likely to win. Shareholders who do not vote leave votes in the hands of their brokers, who vote for management, and large institutional shareholders, such as mutual funds, with the exception of public pension funds, also vote with management to stay in the CEO's good graces for consulting, advisory, underwriting and other sizable fees. This was a huge setback in a very high profile case with consolidated, visible, powerful advocates. If dissident shareholders cannot win here they cannot win anywhere unless the CEO is has been indicted. Morgenson, by calling such a result a victory, does a disservice to more serious efforts to modify the shareholder voting system in the United States for public traded companies. Call it a what it is -- a big, disastrous, embarrassing loss -- and figure out, first, whether we should worry (there is a respectable argument that we should not), and, second, if so, how to fix the voting system.
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