Investors get tough on boards in tough times

When the going gets tough, investors start paying attention.

It’s easy for shareholders to be complacent when their company is performing well and the economy is chugging along. However, as margins are squeezed, the masses who own the world’s publicly traded companies are more likely to pay attention, especially during proxy season.

The new website MoxyVote.com was created to make the process of being an active shareholder more accessible to the individual investor.

“At its core, Moxy Vote is an online voting service for shareholders,´ said Jeff Marshall, cofounder of the site. “Our main intent is to encourage participation.”

Moxy Vote launched its beta site in November. It includes information on the voting items on recently filed proxies, recommendations on voting from third-party advocates and vote alignment for shareholders. Shareholders who register (for free) with Moxy Vote can actually cast their votes from the site.

So far Moxy Vote has about 620 registered users. Marshall said there is no intention to ever charge the end-user/voters but added that the firm is still working on the revenue model for the site.

Moxy Vote is also collecting third-party advocates — professionals and organizations who will post their “expert” opinions on specific proxy items. Moxy Vote executives have approached Denver’s Gerald Armstrong, an activist shareholder and professional investor, about participating.

Armstrong, who guesses he’s filed 40 shareholder proposals in the past year, said he’s hesitant to participate because he doesn’t necessarily want to put himself out there that much, but he is supportive of the site’s purpose of getting shareholders involved.

Annual elections

Armstrong has actively pursued board accountability issues for many years. Most recently, he presented a shareholder proposal for Woodward Governor Co., in which he has been invested for about seven years. The proposal asked that Woodward remove the classification of terms for the board so that directors would be elected annually rather than once every three years.

“I’ve gotten this through at a number of companies,” Armstrong said of the proposal.

He presented the single-year board term item as a proposal to Xcel Energy shareholders in 2003. The next year the board presented the item for amendment to the articles governing the company.

The Woodward board unanimously recommended a “no” vote on Armstrong’s proposal this year. The board argued that the staggered three-year terms for directors allows for continuity and stability. President and CEO Tom Gendron, who also sits on Woodward’s board, pointed out that an annual election would benefit a company in which the board has a history of acting to enrich themselves rather than the company. That is not the case, he said, at Woodward.

“Our board is excellent,” he said. “They hold me accountable all the time.”

On the other hand, the item was endorsed by Risk Metrics Group, a firm that consults with institutional investors. More than 60 percent of Woodward’s stock is held by institutional investors.

Armstrong argues that annual elections are the best way to hold the board of directors accountable and make sure they are doing best by the company. He was unable to attend Woodward’s annual meeting, held Jan. 22, but in a statement read for him by a representative, Armstrong quotes from former U.S. Securities and Exchange Commission Chairman Arthur Levitt’s book “Take on the Street”:

“In my view it’s best for the investor if the entire board is elected once a year. Without annual election of each director, shareholders have far less control over who represents them.”

Others also share that philosophy. In May, New York Sen. Charles Schumer introduced legislation dubbed the Shareholder Bill of Rights Act of 2009, which would, among other provisions, require the annual election of directors. The bill went to the Committee on Banking, Housing, and Urban Affairs for further analysis.

Woodward’s shareholders voted in favor of Armstrong’s proposal with about 67 percent of the voting shares approving it.

But that doesn’t mean any change will occur this year. The proposal is an advisory item that lets the board know the sentiment of the shareholders. The board will now consider whether or not the item should be adopted. If they do, the item will appear on next year’s proxy and will need a two-thirds vote in order to amend the company’s articles.

Armstrong said he intends to send a letter to the Woodward board soon, encouraging them to act with the will of the shareholders. He plans to include a few other recommendations as well.

Kristen Tatti covers technology for the Northern Colorado Business Report. She can be reached at 970-221-5400, ext. 219 or ktatti@ncbr.com.

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