AOL Time Warner shareholders re-elect the company's board members to another one-year term but continue to demonstrate growing dissatisfaction.
At AOL's annual shareholders meeting in Virginia, the American Federation of State, County and Municipal Employees' Pension Plan reiterated its intention to seek a means to let investors put opposing board candidates on the proxy without launching a costly proxy battle. That's just the latest salvo fired by AOL investors during the course of a tumultuous year.
The voting for the board made it plain that stockholders weren't exactly thrilled by certain names on the slate. Steve Case, America Online's founder, garnered only 78 percent of the votes available to him; while Jim Barksdale, former chief executive of Netscape Communications, captured 79 percent of available votes for him. Ken Novack, a member of the office of the chairman, received 82 percent of votes available; and Miles Gilburne, former AOL senior vice president of corporate development, received a meager 65 percent, the meeting released.
All four directors were America Online board members prior to the mega-merger with Time Warner that was finalized in 2001. In comparison, the remaining directors of the 13-member board, most of whom were former Time Warner directors, received 96 percent or more of the votes available to them.
Earlier this month, the company's largest institutional investor, Capital Research & Management, indicated the fund company would withhold votes for Case, Novack and Gilburne, according to published reports.
Meanwhile, the American Federation's Pension Plan submitted a letter to AOL's board, expressing its displeasure over the company's cold reception to its proposal to make it easier for investors to get their board nominees included in the proxy.
Under the pension fund's proposal, shareholders with stakes of 3 percent or greater could submit board nominees and related information on the candidates for inclusion in the proxy. The proposal was supported by other institutional investors, such as the AFL-CIO.
But AOL contested the inclusion of the proposal and omitted it in the proxy statement for this year. Investors are able to submit proposals regarding corporate governance issues in the proxy, but items relating to election of directors is left up to the discretion of the nominating committee of a company's board.
Hiding behind technicalities?
"Why is AOL hiding behind technical rules?...Why not get ahead of shareholders reform and give shareholders?access to the proxy?" said Edward Feigan, a field representative with the AFL-CIO's investment office, who received applause after asking his question during the shareholders meeting.
AOL CEO Richard Parsons said that AOL was not hiding behind technicalities and that if the company were to alter the nomination process, he would prefer that it be open to all investors, regardless of the size of their holdings.
The American Federation pension currently has a similar proposal with the Securities and Exchange Commission for shareholder access to the proxy to nominate directors. The SEC is expected to propose a rule on the matter July 15, said Richard Ferlauto, director of investment policy for American Federation.
If the SEC decides to make it a rule, it could go into effect as early as mid-October. AOL's bylaws call for any shareholder proposal to be submitted by Dec. 4, Ferlauto said.
Should the SEC decline to make the proposal a rule, the fund has several options it can consider--from launching a proxy fight to install its own slate of directors to filing a lawsuit to get the same access issue on the proxy, Ferlauto noted.
But proxy solicitors say there is a world of difference in shareholders expressing displeasure with the board by withholding re-election votes, compared with voting out an incumbent director.
"It's easy to send a message to the board that you're unhappy by withholding votes. But it's an entirely different issue to put up an opposing slate that could create divisiveness on the board and impact the board's performance," said Larry Dennedy, executive vice president of MacKenzie Partners.
Tom Ball, senior managing director with Morrow & Co., agreed.
"It's a completely different dynamic than a proxy fight," he said. "In a proxy fight, investors have to look at which director they want more, and that's a difficult vote."
He noted, however, that investors who seek to elect several of their own nominees, rather than a controlling slate, stand a better chance at success. And typically the shareholder activist group will pick off those directors who show the weakest support among investors.
In the current climate, in which investors are still reeling from the Enron and WorldCom scandals, it's not uncommon to see investors capture only 75 percent to 80 percent of the votes, Ball said. But Gilburne's 65 percent vote is considered low, even in this environment.