Transparência e Governança

The Economist

Mar 9th 2013

Activist shareholders are right to mount the barricades, but politicians are wrong to cap bonuses

UNTIL recently, the only unpredictable thing about a company annual meeting was what sort of canapés would be served after the “yes” vote. This has started to change. Boards of public firms now lose votes occasionally, though not yet often enough to justify talk of a “shareholder spring”. Still, the annual shareholder proxy season now getting under way in America could be the liveliest ever (see article). The bosses of Apple and Disney have drawn flak not only for their strategies but also for their pay. Activist shareholders are on the march.

About time, too. Shareholders own companies. Managers and directors should serve them. If the owners do not like the way their servants are performing, they have a right to do something about it. Trying to improve the way a firm is run is more constructive than the traditional “Wall Street walk”, whereby disgruntled shareholders simply sell their shares.

Yet shareholder activists are unloved. From the right comes the gripe that they have the wrong motives. Last year only 1% of shareholder resolutions in America were proposed by investors “unaffiliated with organised labour or a social, religious, or public-policy purpose”, says the Manhattan Institute, a think-tank. But so what? Activists prevail only when they persuade a majority of shareholders that their ideas will make money. An eco-warrior who buys a few Exxon shares and tries to stop the firm from pumping oil will not get far.

Another moan is that some activists are hedge funds motivated by short-term profits. Maybe, but how can you tell investors apart? David Einhorn, whose Greenlight Capital has been pressing Apple to reduce its cash mountain, says he is a long-term investor attracted by the firm’s growth prospects. Apple seems to have conceded his point that it has been hoarding cash inefficiently, even without a shareholder vote. Third Point, another hedge fund, seems to have had a good long-term effect at Yahoo. Short-termism at companies probably owes more to disengaged shareholders than overactive ones.

Long-term greed is good

One reason why shareholder activism has been increasing is that regulators have encouraged it, especially on pay (see article). For a decade Britain has required firms to give shareholders a non-binding annual vote on executive pay. The colossal Dodd-Frank act of 2010 gave shareholders in American companies a “say on pay”, too.

Now come two new moves. On March 3rd the Swiss voted to oblige firms to hold a binding annual vote on directors’ pay: in the small print, the referendum also banned golden handshakes and severance packages for board members, and bonuses that encourage the buying or selling of firms. Then on March 5th EU finance ministers (with only Britain objecting) agreed to cap bankers’ bonuses to 100% of their basic salary, or 200% if shareholders vote for it.

If the Swiss had merely given shareholders an annual vote on pay, it would have been a good thing; but the accompanying bans are not. There are times when a golden handshake to a talented manager can be in shareholders’ interests: far better to let the owners vote on it than restrict the firm from trying it.

The EU’s proposal has less still to recommend it. The rationale for it is that banking bonuses have encouraged risk taking, because they reward bankers hugely for bets that come off and punish them only slightly for those that don’t. But banks have come a long way since the crisis, by deferring bonuses and making them partly payable in their own debt and equity. Blunt laws could undermine such progress. And bonus caps will either hold pay down, thus sending clever people elsewhere, or push up salaries, thus making pay less responsive to performance. Empowering shareholders is a good idea; requiring them to channel populist fury is not.