More Angry Investors Say, Throw the Boards Out

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Industry experts say they aren't surprised by the rising shareholder discontent.

"Not at all. If anything, I'm surprised it's not even higher," says Richard Yamarone, director of economic research at Argus Research Co. "The board is what rules the roost and if there are shenanigans going on, then they're the ones who should be held accountable."

Many market observers believe the uptick in shareholder activism is related to the surge in interest in the stock market from mainstream America, which wasn't there a quarter-century ago.

"Basically, 25 years ago, people who owned stocks were the guys that looked like the chubby guy in a tuxedo in the monopoly game," says Bob Profusek, a partner at Jones Day. "Today everybody has an interest in it because of their 401(k)s, IRAs and all the rest of it."

He believes the strategy will likely make management communicate better with shareholders. "This is a different ballgame and companies are taking it seriously," says Profusek.

However, dissident shareholder voting isn't without risk. "If every time there's a downturn in performance shareholders get to say 'Throw the bums out and put somebody else in,' you're making it even more difficult for management and boards to take a long-term view and not worry about short-term business cycles," says John Healy, a partner at Clifford Chance.

Some industry experts believe the report's results could be used as ammunition by Congress and the SEC to bring in changes to corporate-governance rules. Currently Congress is considering a number of changes like the "say on pay" rule that would give shareholders the chance to vote on executive pay packages, as well as new rules that put limits on golden parachutes. Also, the SEC is mulling a new "access to proxy" rule that would allow angry shareholders to add their own board nominees directly to a company's proxy, thereby eliminating costly shareholder fees associated with disseminating information in a proxy fight.

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