Yesterday’s unanimous high court ruling in Delaware upheld the exceedingly slipshod and over-generous way that Michael Eisner hired and fired Michael Ovitz.
Interestingly, today, the Wall Street Journal carries a closer look at the way corporate boards are held accountable – or rather, frequently not held accountable.
Two weeks ago, the New York Stock Exchange announced it was seeking commentary about a potential rule change. Its considering ending the practice of letting brokerage firms vote the shares they hold on behalf of their stockholders who don’t express a preference in director elections.
What isn’t widely known is that unless you, the shareholder, bother to read the mind-bendingly small print, narcolepsy-inducing proxy statements that come in the mail and select actual candidates for a company’s board, your brokerage firm gets to vote for you.
We know: You were too busy deciding between Taylor Hicks and Katharine McPhee to take notice. But if you’re Disney shareholder, you ought to care, because – to use an analogy “American Idol” watchers would understand, if you didn’t vote for Taylor, essentially, your cable company could wind up using your vote to for Katharine instead.
“In the election of Walt Disney Co. board members in 2004, 45% of the votes were cast against, or ‘withheld’ from, former Chairman and Chief Executive Michael Eisner. But hundreds of millions of shares cast for Mr. Eisner were voted on behalf of stockholders who never returned their broker-supplied proxies querying how they wanted to vote.”
What if they only counted the votes actually cast? Well, as the Journal notes, Eisner would have been toast.
We’re all in favor of the change: Not because it will incentivize shareholders to pay attention to who’s running their companies, but because it will incentivize CEO‘s to pay attention to their shareholders.