Next spring’s annual crop of shareholder meetings may hold some surprises. That’s when new Securities and Exchange Commission rules giving investors more muscle will be put to the test. It will then be easier for major investors such as pension firms and hedge funds to get rid of directors who are too cozy with company executives.
Some steps have already been approved, and more are coming. In July, the SEC OK’d a measure that prohibits brokers from casting votes on behalf of investors who don’t vote themselves in elections for directors. The ban ends a huge advantage for director candidates backed by management. “Brokers vote almost 100% of the time with management,” says Patrick McGurn, executive vice president at RiskMetrics Group. “So investors started clamoring” to end broker votes.
In addition, later this year, the agency plans to finalize rules that require boards to disclose director qualifications and explain why they are qualified to hold their positions -- a move that will help investors identify weak board members and ensure that board members have relevant experience in a company’s industry. “What we are seeing for the first time in modern history is that shareholders have a meaningful say on who is on a board,” says Stephen Davis, executive director of the Millstein Center for Corporate Governance and Performance at the Yale School of Management.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Boards will also have to outline how executive pay packages relate to risk. The idea is to give investors a better idea of whether the compensation structure may encourage executives to take undue risks.
As a result of the changes, boards will have to work harder to win shareholders’ confidence and spend much more energy gauging investors’ opinions before meetings. “The big word these days is ‘engagement,’ ” says McGurn. “Chairpersons of key board committees will have to spend more time talking with shareholders to find out the hot button issues.”
Come 2011, another big shift in the balance of power is likely. The SEC will finally get around to giving large, long-term shareholders the right to place their own candidates on company proxy ballots, making it much easier to oust management’s candidates. “We will see more directors losing their seats, particularly in troubled companies,” says Davis. “That would have been extremely rare before.”
-
What's at Stake for Alphabet as DOJ Eyes Google's ChromeAlphabet is higher Tuesday even as antitrust officials at the DOJ support forcing Google to sell its popular web browser. Here's what you need to know.
-
Lowe's Stock Is Falling After Earnings. Here's WhyLowe's stock is lower Tuesday as Wall Street weighs a beat-and-raise quarter against declining revenue. This is what you need to know.
-
Kiplinger Outlook: Telecom Companies Brace for Tough TimesThe Letter The telecom industry is entering a new era that threatens profitability. But the coming Trump administration will make it easier for the major players to adjust.
-
Start-ups Trying to (Profitably) Solve the World’s Hardest ProblemsThe Letter More investors are interested in companies working on breakthrough science to tackle huge societal challenges. The field of deep tech has major tailwinds, too.
-
The Big Questions for AR’s FutureThe Letter As Meta shows off a flashy AR prototype, Microsoft quietly stops supporting its own AR headset. The two companies highlight the promise and peril of AR.
-
China's Economy Faces Darkening OutlookThe Letter What the slowdown in China means for U.S. businesses.
-
AI Start-ups Keep Scoring Huge SumsThe Kiplinger Letter Investors continue to make bigger bets on artificial intelligence start-ups, even for small teams with no revenue. Some backers think a startling tech breakthrough is near.
-
Should We Worry About the Slowing U.S. EconomyThe Letter With the labor market cooling off and financial markets turning jittery, just how healthy is the economy right now?
-
New Phones Get All the Hype, but Consumers Still Love Old Models
The Letter Even as flashy artificial intelligence features drive sales of new smartphones, used phones continue to fetch big bucks as demand outstrips supply.
-
Starlink's Internet Beamed From Space Is Taking OffThe Kiplinger Letter Satellite broadband provider Starlink is taking over the space market. Amazon’s mega-constellation will soon join the fray, adding to the unprecedented disruption.
