Corporations target largest shareholders with charm offensives
Activist hedge funds are not the only ones trying to get an audience with institutional shareholders. The Wall Street Journal reports that pension funds like TIAA-CREF are receiving as many as five delegations per week from corporations seeking to get support for their compensation programs an on other governance issues. TIAA-CREF met with 450 companies this past year and CALSTRS met with over 100.
Most companies appear focused on trying to minimize resistance to compensation plans. According to one expert interviewed by the Journal, “companies realized last year that they had to court shareholders after failing say-on-pay votes, and have beefed up their efforts.”
In April, Citi shareholder voted 55% to 45% to reject the compensation packages offered to CEO Vikram Pandit and other top execs at the firm. The vote was nonbinding, but it no doubt spurred corporations to up their IR efforts. “C.E.O.’s deserve good pay but there’s good pay and there’s obscene pay,” said one money manager with a large position in Citi.
So, should activist funds, who also want to sway the votes of pension funds an other institutions be worried that their phone calls might not be returned because of the charm offensive? I don’t think so. With the economy moving sideways, companies are going to have to work smarter and harder to keep investors satisfied. Most will not live up to expectations and an activist with a plan should find traditional money managers more receptive than ever.
Reuters points out that “large shareholders are becoming more vocal because earnings no longer justify compensation at pre-financial crisis levels.” This is particularly evident at investment banks and Reuters notes that at a meeting of Morgan Sanley’s investors0, “‘furious’ representatives from mutual funds who were among the bank’s 10 biggest investors sharply questioned executives, including the chief financial officer and head of investor relations, asking why Morgan Stanley could not cut compensation to about 30 percent of revenues.” Compensation at Morgan Stanley is 51% of revenue.
In the end, it’s probably a good thing that corporations are spending more time with their largest shareholders, but the agenda better get more interesting than compensation programs, if they expect asset managers to continue to listen.