Shareholders at the gates

Print EditionThe Economist, March 9th 2013

SO MUCH for gratitude. In the past financial year, Walt Disney delivered everything you might expect from the owner of a Magic Kingdom. Bumper profits, a well received acquisition of Lucasfilm, prospects that everyone agrees are better than ever. No wonder that shares in the entertainment conglomerate are at an all-time high. In almost any other year, Bob Iger, Disney’s boss, could have looked forward to unstinting gratitude from shareholders at the firm’s annual meeting on March 6th. Instead, shareholder activists, grumbling that Disney is in danger of becoming a “tragic kingdom”, made a determined though unsuccessful attempt to strip him of one of his titles by voting to split the roles of chairman and chief executive.

Shareholders used to mount such campaigns only at firms that were performing horribly, as happened towards the end of the reign of Michael Eisner, Mr Iger’s predecessor. (This led Disney to split the roles of chairman and chief executive, only to reverse this later, to the fury of some shareholders.) Even then, shareholder activism was rare; most investors simply did the “Wall Street walk”, selling their shares if they were unhappy. But since the financial crisis of 2008, which revealed widespread flaws in corporate governance, shareholders have flexed their muscles more often. Public outrage over high executive pay, regulatory reforms to give shareholders greater power and more scrutiny of how they use that power have created a climate in which even the most profitable companies can be targets of activism if their corporate governance is not up to scratch.

Apple is another striking example. In the past two years, as the consumer-electronics firm’s shares soared, shareholders still backed resolutions asking it to introduce majority voting in its election of directors. This year, as its shares fell, Apple capitulated, offering to introduce new voting rules at its annual meeting. In the end, a court blocked this at the behest of another activist investor, Greenlight Capital, which has been campaigning for Apple to return some of its cash hoard to shareholders. The hedge fund feared that Apple’s other reforms planned as part of the package would get in the way of this…Continue reading


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