Corporate Control

Gretchen Morgenson on corporate control at Pfizer:

Investors vs. Pfizer: Guess Who Has the Guns? - New York Times: IF outsized executive pay has indeed become a source of outrage to American shareholders, then the contest this week between Pfizer Inc.'s investors and its board could prove the most compelling of the year. The battle lines have been drawn between Pfizer's owners and managers, who will assemble on Thursday at the annual shareholder meeting in Lincoln, Neb., at the Cornhusker Marriott hotel.

On one side stands Hank McKinnell, Pfizer's chief executive and chairman, recipient of $65 million in pay since he took the top job at the company in January 2001 and beneficiary of an $83 million pension when he retires. On the other are Pfizer shareholders, angry over the 46 percent decline in market value since Mr. McKinnell took the reins. Some shareholders are threatening to withhold votes for several Pfizer directors over Mr. McKinnell's pay. Pfizer, meanwhile, is fighting back in the proxy contest, working overtime to convince shareholders that its directors deserve support. Adding drama to this battle is the effect that withheld votes may have on Pfizer directors. Such acts of shareholder defiance are strictly symbolic; at most companies directors can win a seat if they receive one "yes" vote in an election. Last year, though, Pfizer changed its guidelines so that any director who received more "withhold" votes than "for" votes will have to resign. If the board rejects the resignation offer, it will publicly state why. Like many other companies, Pfizer has a mighty arsenal, backed by shrewd alliances and relationships with institutional shareholders. The Pfizer battle, governance experts say, illustrates an imbalance of power between company owners and managers that is prevalent today.

"The management has these unlimited resources to fight back, and the shareholders are pretty much powerless," said John C. Bogle, founder of the Vanguard Group. "The thing has gotten so out of hand that words almost fail me. The shareholders should not tolerate it." Institutional shareholders, who vote the stock on behalf of their individual investors, are supposed to act in the best interests of those who own the stock, and the institutions questioned said they were careful to avoid conflicts in proxy votes. But shaking up the status quo may not always be in their own interest....

Frederick E. Rowe Jr., chairman of Greenbrier Partners, a money management firm in Dallas, and head of the Texas Pension Review Board, is the point man for the grass-roots organization aiming at Pfizer. "It's not 80/20 or 90/10," Mr. Rowe said. "One hundred percent of the people we've talked to on the phone and on the Web are outraged at what has happened in executive compensation in general and at Pfizer in particular. I know Pfizer has long-term relationships with institutional holders and they have lots of business to pass around, but I am hopeful that the institutions will vote the way 100 percent of the true owners of Pfizer would want them to vote."... Gary Lutin, an investment banker at Lutin & Company in New York and an adviser in corporate control contests, said: "The Pfizer case shows that even prominent, good corporate citizens need to be monitored. All the best governance theories won't make any difference if investors don't bother to watch the people who are supposed to be guarding their property."