Investors in U.S. companies have a new way to weigh in on corporate matters. Thursday marks the launch of changes to how they vote for board directors, and it’s likely more companies will be targeted by cage-rattlers, sometimes with absurd demands. Still, chieftains who are doing their jobs have little to worry about.
Previously when an activist proposed alternative directors for election at the company’s shareholder meeting, they had to send a separate voting card to investors with only their candidates on it. New rules approved last year by the U.S. Securities and Exchange Commission say companies must include dissident nominees on the same voting card as their own. Shareholders no longer have to choose between one group or another.
Campaigning against a company’s board may now get cheaper. Activists won't have to try so hard to get shareholders to pay attention, and many have noted that it could make it easier for shareholders to put a potential board member up for election. But the change may be subtle. Many companies already let shareholders who have been around for more than three years propose a director for election, but it’s hardly ever used.
It’s good that shareholders have more freedom to express their preferences, something even dissenting SEC commissioner Hester Peirce supported back in November. But a campaign is only as strong as the suggestions a grumpy activist makes. Suggestions will only resonate with other shareholders if they too are disappointed in the company’s performance – and specifically the chief executive’s.
Even the most obstreperous activists have struggled with campaigns that had bark but little bite. Carl Icahn earlier this year failed in his bid to shake up fast food chain McDonald’s. His gripes about the treatment of pigs didn’t resonate, but also McDonald’s performance versus peers wasn’t bad enough to be worth the battle.
Company bosses have other challenges aplenty. Rising interest rates make funding more expensive, workforces are restless and global economic conditions remain shaky. But shareholders ought to be able to tell the difference between a bad market and bad management. Even with universal voting, head honchos on top of their game will find their control is as assured as ever.