Americans own trillions of dollars in stock through pension funds, savings plans and as individual investments. And increasingly, they're using their clout to rein in corporate America, launching campaigns to dump a CEO, to change a company's unprofitable course or to go green. Retiree groups are among today's most active shareholders, confronting directors they consider overpaid and fighting for more generous health and pension benefits.
Shareholder activism has been on the rise ever since the Enron and MCI WorldCom scandals, when employees and shareholders lost hundreds of millions of dollars to fraud, says Amy Borrus, deputy director of the nonprofit Washington-based Council of Institutional Investors. "Directors realize they have to take note when shareholders raise concerns."
The increased activism is reflected in lawsuits, in legislative pressure on regulatory agencies and in the record number of shareholder resolutions submitted to American companies—more than 1,191 so far this year. Among the big issues are boardroom accountability, financial performance, executive compensation, labor practices, jobs, the environment and campaign contributions.
"The potential for activism by individual investors has never been greater," says Patrick McGurn, special counsel with the New York-based RiskMetrics Group. He says new media—including Internet blogs, group websites, YouTube and podcasts—have given investors a much bigger platform.
Stronger disclosure rules, particularly involving executive pay, have also prompted investor activism. The Securities and Exchange Commission has in recent years required companies to disclose information on executive compensation packages, the selection process for boards and how shareholders can participate in that process. But the SEC went in another direction earlier this year when it proposed a rule that would limit shareholders' rights to sponsor resolutions.
And in a case that is being closely watched by business groups, the U.S. Supreme Court is expected to rule on whether shareholders can hold third parties, like accounting or brokerage firms, accountable for fraudulently inflating a company's financial performance. AARP has filed a brief in the case urging the court to allow investors to sue.
Investor retirees have long challenged corporate behavior at telecommunications giant Verizon. C. William Jones, 69, president and executive director of the Association of BellTel Retirees, which includes Nynex, GTE, Verizon and Bell Atlantic, has been leading the fight to improve Verizon's pension and health benefits for employees and retirees. His group won three increases for retirees with minimum pensions starting in 2000.
His 100,000-member organization also fought to restrict executive compensation. According to Jones, it took as long as five years to persuade Verizon to pass, in 2003, the retiree group's proposal to reduce senior executives' retirement benefits, which were running five times higher than that of company managers. Jones, of Easton, Md., who with other retirees regularly attends annual shareholder meetings, produces a quarterly newsletter that keeps retirees informed of company practices and association activities.
"If the retirees and employees are asked to tighten their belt because of the health of the company, don't you think the top should lead by example?" says Jones.