Home Depot Addresses Activist Shareholders
By George Anderson
Owners of publicly traded company stocks, large and small, are taking their investment seriously and seeking to influence how business is done through proposals voted on at annual shareholder meetings.
A recent example of this were two proposals put before Home Depot shareholders calling on the company to restrict severance packages unless approved by shareholders and another asking the company to declare its political neutrality.
The non-binding severance proposal was opposed by the company’s board but approved by 56 percent of shareholders.
A report in the Atlanta Journal-Constitution said the proposal came from Trowel Trades S&P 500 Index Fund of Detroit, which owns 76,541 shares of Home Depot stock. The group believed Home Depot’s severance packages were excessive.
The call for political neutrality, however, was rejected.
Shareholder Evelyn Y. Davis made the proposal. According to the AJC report, Ms. Davis brought the proposal over her concerns about chief executive Bob Nardelli’s active support of President Bush’s re-election campaign and company donations made to that campaign and the Republican National Committee.
Home Depot said this level of involvement was needed so ‘federal, state and local governments have an understanding of how their actions impact’ the company, its employees and customers.
Moderator’s Comment: Are shareholders becoming more active in attempting to influence company policy? What are your
thoughts on specific proposals voted on by Home Depot’s shareholders? –
George Anderson – Moderator
Institutions and mutual funds are the biggest investors, generally, and they’re fairly vocal behind the scenes. But they, too, are comprised of many voices, and clear directives or desires are seldom articulated. These investors control significant votes on any issue, but prefer to avoid supporting drastic policy changes as long as the company is doing well. But if a company is underperforming, they simply divest the shares and are never in a position to vote on drastic changes. Catch 22. Those with the most votes are usually satisfied with company policies.
Yes, they are becoming more active, which can be good and bad. Good, when they control the out-of-hand bonuses and severance packages given by “the buddies on the board.” Bad, when they don’t act for the company’s best interest but just for short-term profit (sound familiar?). It’s sort of like the town where most of the people are empty-nesters, and they keep voting against the school budget. Sometimes, as we know, “the tyranny of the majority” is very possible. But net-net, I don’t think nut cases will rule, and that what is happening is very healthy. More informed, active shareholders could result in stronger companies over the long haul. I vote both Republican and Democrat based on the candidate, but I thought Home Depot’s response about its contributions to the Republican party sounded disingenuous. It was disappointing to see that.
I also think shareholder activism is great. However, unless you own a mother lode of stock, you really don’t have much power. I’ve been to a lot of stockholder meetings and most are scripted events. It’s nearly impossible to get a shareholder proposal on the proxy. I think the best form of shareholder activism is to simply not owning stocks of companies you disagree with.
Shareholders should be more activist than they are. However, as Warren points out, it can be both good and bad. In the end, these are the real owners and their voices should be heard.
There is no question that compensation, bonuses, and severance are excessive in most, if not all, of the corporations today, not just retail. It’s quite sad that we’ve become a nation and a culture that rewards failure and punishes success. While that is not always true, it’s become more of a trend than I’d like.
Shareholders speaking out can be a source of ‘shame’ or a force to do the right thing. They can, in the converse, be a source of discord that can cause the wrong thing as well. It’s a double edge sword. The main thing is that the proposals came up, came to a vote, and either were enacted or turned down. That’s called the light of day.
The more shareholders call into question the activities, the better. The more boards are called to do the right thing or stand on their own actions, the better as well. At that point, the shareholder can decide to be an investor or not. It is their choice. Both actions can speak loudly.
Investors or shareholders or owners, if you will, also need to keep in mind that it is their choice of ownership (in most cases, but not all) and the action of pulling out and moving on is an option. Nevertheless, both parties need each other, and I support the dialogue and believe it’s the investor’s choice to either be happy with the result or move on. In the end, they hold the real strings when it comes to any traded company’s viability.
Activism: On the increase, but for how long?
Severance: Excessive…but sometimes it is the only way to attract the kind of talent a company needs.
Politics: I think Ryan captured the essential point very well.
I think this shareholder activism is great. This should send a message to the “rubber stamp” boards that they must act in the best interest of the shareholders. The Home Depot situation points out that issues are handled individually by shareholders as one initiative passed and the other failed. Now, if some of the stockholders at Home Depot could do something about the product selection and reduce the “Out of Stocks” – that would be progress and also might boost their share price.
I agree that shareholder activism is a good thing and would like to see more of it. It would be great to see it become a source of concern for so many of these boards that are out of control, like Safeway’s is one that quickly comes to mind. Board members and CEO’s should have respect for shareholders’ issues and far too many don’t, in my opinion.
I agree with David that unless you own a sizable number of shares, it is very difficult, if not impossible, to have your voice heard. Most shareholder meetings are feared by the CEO’s and board, and they want them over as quickly and quietly as possible. They try to muffle as many questions and comments as possible and gloss over the ones that they can’t.
Neutral is neutral. That means either all parties are supported equally or none are supported at all. I have always been opposed to companies making political contributions to any particular party. There is no way that that can represent the views of all shareholders therefore executive decisions will be politically biased and unacceptable. While it is important that “federal, state and local governments have an understanding of how their actions impact the company, its employees and customers”, this does not necessarily have to be demonstrated in cash form to ensure that selected candidates are elected.
Shareholder views on severance pay should definitely be accepted. There may be some (perhaps many) companies where this is calculated in a fair manner but there are many where it isn’t. Too many companies are guilty of networking and nepotism for boards to be seen as sufficiently objective. If shareholders feel strongly enough to express their opinion, then it should be noted.
I hope that there is more shareholder activism in future. It comes back to a discussion of personal responsibility. If you want to share in the profits of a business and allow that business to use your money to achieve those profits then you should also have/take some responsibility for the ways in which they do it.
Shareholders are simply looking out for their own financial interests when they call upon HD to declare political neutrality. Regardless of any shareholder’s own political views, whenever a publicly-owned retailer takes a political stand that goes beyond supporting the city council or mayor that supported the re-zoning for the new store, that retailer risks lost sales. Many liberals are aware of Nardelli’s and Home Depot’s support of candidate Bush, and many have made, or will make, decisions to shop elsewhere. Neutrality is best for any retail business.
Activists are becoming more activist. As to the proposals themselves, you’d first have to know if Home Depot also donated to Democratic candidates. If they did, then it’s a case of business as usual. If they didn’t, then the shareholders might have a point.