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Morgenson discovers the power of workers

by Robert Teitelman | Published April 23, 2012 at 1:09 PM

Credit Gretchen Morgenson: She's never afraid to risk losing her audience in The New York Times on Sunday by beating a subject into submission. This Sunday, she was back declaring victory on say-on-pay, declaring, "shareholders are rising up" on the issue of high executive compensation. Her peg: Citigroup's Vikram Pandit saw his $15 million pay package rejected by over half the bank's shareholders. That's enough for Morgenson to toss up a handful of other cases where shareholders rebelled, some relatively ancient. She's still dealing, however, with anecdotes -- is anyone surprised Citi's battered shareholders would be angry? -- and there are no statistics on either the depth of this "revolution," or, in fact, whether it's making a difference in the seemingly steady rise of executive compensation. Moreover, Morgenson makes no attempt to logically link up pay levels to performance. In fact, she seems to care not about governance issues at all, except as they impinge on what looms as her version of the corporation's original sin, high pay.

In her eagerness to gather up any sign that a broad-based rebellion against pay is finally occurring -- she's been predicting this for years -- she stumbles across that lost tribe in the governance wars: employees. Again, without any statistical evidence as to their clout or their influence, Morgenson offers up the hope that workers (at least those that own shares in their companies, which, one hopes, is not concentrated, á la Enron) have been activated to fight high pay. (She does not mention workers at her own company, of course, which on a variety of fronts might have reason to vote with their proxies.) Her major evidence here seems to be "a small group of workers" -- four to be exact -- at Wal-Mart, getting a proposal in the proxy on pay. As shareholders they were annoyed by the lack of share performance and sought guidance from a union official on writing the proposal. Now they're holding "proxy parties" to generate enthusiasm, though Morgenson offers no sense of how large a share position rank-and-file workers at Wal-Mart have. Given the Times' giant exposé on Sunday on Wal-Mart's bribery problems in Mexico, the company has a lot bigger problem than proxy parties.

She also discusses activism among Verizon Communications' retirees, who a) do not really qualify as workers anymore and b) have "rattled the company's cage over pay" for 16 years now. Sixteen years! The group originally aimed at concerns about benefit cutbacks. Morgenson doesn't really say if they got satisfaction on that front, mostly because she only really cares about pay. Two of eight proposals did pass with a majority vote of shareholders, and "in other cases, Verizon agreed to make accommodations to retirees," whatever that means. But she offers no indication as to whether Verizon pay has been significantly suppressed. Instead, she ends with a quote from Stephen Davis, the executive director of the Millstein Center for Corporate Governance and Performance at Yale, who argues that, yes, social media is "making it easier for workers to gain a role in their companies' governance processes." With that au courant touchstone, Morgenson can declare victory and move on.

Now maybe I'm beating a dead horse here as well; I have a much tinier audience to lose. But there is one fascinating twist to Morgenson's discovery of employees. The modern corporate governance model really emerged in the '70s and the '80s with the shareholder as the sole owner of the corporation. That shareholder model swept away the stakeholder system that had prevailed at least back to the '30s -- that is, a sort of balancing out of multiple interests, from workers, to local citizens, to customers, to shareholders. To this day in conservative circles, the role of unions as worker representatives is viewed, at best, as inefficient, at worst, as bordering on illegal. In the governance world, post '80s, the gravest charge against the stakeholder model was that it fostered entrenchment by management (the famous Berle and Means "separation of ownership and control"), which could play off one interest against the next, leading to self-dealing on matters like compensation and producing generally lousy management. (I tackled the inconvenient if complicated reality that pay was much less an issue in the stakeholder world in a post a week ago.) Now, eager to find any sign of a shareholder rebellion against high pay, Morgenson threatens to hustle back in a version of the dreaded stakeholder model, like a Trojan horse trundling in the gates. In her fixation on pay, Morgenson seems to have no problem ignoring other issues of corporate efficiency and performance that ultimately rest on governance. Pay means everything. And so, shareholder governance, to her, is a mere tool for controlling pay.

The truth is, there's no real signs of an Arab Spring-meets-social-media-revolution among shareholders. (The Manhattan Institute catalogs shareholder proposals through ProxyMonitor.org and has a forecast for 2012 on the Harvard Corporate Governance blog.) The number of employee/shareholders willing to effectively agitate still appears to be vanishingly small (and with defined benefits fading, an entire retiree interest group faces eventually extinction). The reality of the situation persists: Shareholders will not complain unless they believe they are not receiving their due (although it's clear that the very presence of major shareholders alters the way companies operate). Even if they can be stirred up, it's unlikely they can be "activated" over long periods of time. It may be time not to declare victory of shareholders over high pay -- that does not seem to be the case -- but to ask whether the orthodoxies of shareholder governance are most conducive to corporate performance (or not) and whether high pay is a consequence of the shift to that model a half century ago (not the means to dampen it). These are difficult questions, I grant you. You're unlikely to see any of them pursued in a Morgenson Sunday column any time soon. - Robert Teitelman

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