Risk & Governance Weekly

In Brief

Citigroup Board Receives Significant Opposition

At least one Citigroup director received about 33 percent opposition, shareholder activists say, while directors at Wachovia were re-elected with more than 92 percent support this week. The two firms are among the six U.S. financial firms that have faced greater investor scrutiny this year after reporting significant losses from mortgage investments.

Citigroup directors were re-elected with “at least two-thirds” shareholder approval, company officials announced at the April 22 meeting. Richard Ferlauto, director of pension and benefit policy for the American Federation of State, County, and Municipal Employees (AFSCME), attended the meeting and reported the director election results to Risk & Governance Weekly. Citigroup has not released specific director vote totals.

The 33 percent withhold vote, if confirmed by final vote results, would be the highest opposition received by a director at the financial services company in at least five years, according to regulatory filings. No Citigroup director has been opposed by more than 6.9 percent of shares voted since 2003.  

The vote at Citi was noteworthy, given that there was no active “vote no” campaign against the board. The AFL-CIO and the CtW Investment Group considered opposing certain Citigroup directors, but the labor investors decided prior to the meeting not to ask shareholders to vote against the re-election of any board member.

A resolution asking the company for an annual advisory vote on executive pay--“say on pay”--sponsored by AFSCME, won 38 percent support, Ferlauto said.

The votes against the directors stemmed in part from the large subprime mortgage losses experienced by Citigroup. The firm reported a $5.1 billion net loss for the first quarter of this year, following a $9.83 billion loss in the fourth quarter of 2007. Investors also had executive pay concerns. Compensation committee members may have received the most opposition, because of the exit package given to former CEO Charles Prince. Prince left the company with approximately $40 million and is slated to receive perks like a car and driver for five years after his retirement. Lavish CEO exit pay after subprime losses was the subject of a March 7 Congressional hearing, during which lawmakers questioned Prince and Citigroup’s pay committee chair.

At Wachovia's April 21 annual meeting, directors received between 92 percent and 97 percent support, according to preliminary tallies released by the company. Wachovia reported a net loss of $350 million in the first quarter of this year due to subprime mortgage-related investments, and an $818 million loss in the final quarter of last year.

CtW—the investment arm of the Change to Win labor federation--threatened a “vote no” campaign against four members of the board’s risk committee if Wachovia failed to provide a “compelling explanation” as to why it took on mortgage-related risks.

Wachovia also reported that an AFSCME “say on pay” resolution won 30.6 percent support. A proposal submitted by the AFL-CIO asking for a report on political contributions won 22.6 percent support, the company reported.

At Bank of America on April 23, all management nominees were elected, company officials said, though they declined to announce specific director vote tallies. The company was another potential target for a “vote no” campaign by CtW. The bank posted a $3.31 billion credit-related loss in the final quarter of 2007, and an additional $6.01 billion in the first quarter of this year.

Bank of America shareholders also gave 44 percent support to a pay vote proposal from shareholder Kenneth Steiner, officials said during a webcast of the meeting. Other proposals receiving significant support included a cumulative voting resolution from the Rossi family (36 percent), an independent board chair proposal from the Service Employees’ International Union (37 percent), and a request that shareholders be able to call special meetings from investor Ray Chevedden (44 percent).

A fourth financial firm, Merrill Lynch, held its annual meeting on April 24, but preliminary vote results were not immediately available. Merrill Lynch also suffered losses related to subprime investments, with a $9.8 billion fourth-quarter loss in 2007 and a $1.96 billion first-quarter loss this year.

On April 15, three Washington Mutual directors received more than 40 percent opposition amid a “vote no” campaign by CtW and AFSCME. CtW also opposed directors at Morgan Stanley, but they all were re-elected with at least 90 percent support at the company's April 8 meeting.

So far, it appears that investors are expressing far greater dissent at those financial firms (Washington Mutual and Citigroup) where compensation practices also were criticized. Washington Mutual sparked shareholder outrage when it announced that 2008 executive bonuses would be shielded from the firm's subprime-related losses. –L. Reed Walton

CalPERS Opposes Two Standard Pacific Directors, Urges Declassification

The California Public Employees’ Retirement System (CalPERS) is asking shareholders to vote against the re-election of two directors at homebuilder Standard Pacific.

CalPERS, which owns approximately $2 million in Standard Pacific shares, claims Larry D. McNabb and Douglas C. Jacobs served on a board that has presided over severe stock underperformance. Standard Pacific’s stock price has fallen from just over $20 a share in May 2007 to about $5.50 in late April.

Jacobs and McNabb are the only directors up for re-election at the company’s May 14 annual meeting because it has a staggered board, a governance provision that CalPERS is also trying to change this year. The pension fund is urging investors to vote for its proposal asking each director to stand for election annually.

“Directors who face shareowners in annual elections are more accountable to them for the company’s performance than they are now on classified boards," Russell Read, CalPERS’ chief investment officer, said in a press release.

Irvine, Calif.-based Standard Pacific did not return calls for comment. –L. Reed Walton

Pay Vote Proposal Gets Majority Support at Lexmark

A proposal seeking an annual shareholder vote on executive pay won majority support at Lexmark International, according to the proponent, the Amalgamated Bank’s LongView fund.

Cornish Hitchcock, a lawyer for the labor-affiliated bank, said company officials announced that the proposal “passed” at the printer maker’s April 24 annual meeting in Lexington, Kentucky, but they did not release specific vote results.

“There has been a discrepancy between pay and performance at Lexmark,” Hitchcock told R&GW. “We’re pleased that shareholders have asked for more oversight.”

The LongView proposal, which seeks a non-binding vote on the company’s past compensation practices, is the second “say on pay” resolution this year to receive majority support from investors. An AFL-CIO proposal at computer maker Apple won majority support in early March.

So far, seven U.S. companies, including bond insurer MBIA, have announced plans to hold shareholder pay votes, according to news reports. Insurer Aflac will hold the first advisory vote by a U.S. issuer on May 5.  In addition, Littlefield, an Austin, Texas-based gaming firm, will ask shareholders at its May 21 meeting to vote on two pay advisory proposals. The management resolutions ask investors to indicate whether the total compensation received by the CEO, president, and directors in 2007 “is within 20 percent of an acceptable amount.” --Ted Allen