2009 will be an interesting year. On the negative side, the financial markets will continue to melt down, political crises around the world will continue to explode and Mother Nature will undoubtedly deliver us some interesting surprises. On the positive side, we get a new president in a few weeks with a myriad of positive changes.

For the couch potatoes out there, surveying these changes will be a spectator sport on par with the World Series. For those of you more inclined to action, there is an opportunity to jump into the melee and start swinging. No, not a bar fight, I mean …

VOTE!

What? You thought you voted for president in November. Yes, the presidential elections are behind us but that doesn’t mean that we can’t still vote for something or somebody that’s as directly relevant in our lives.

That opportunity will present itself to America’s individual shareholders this spring during the time known as Proxy Season.

Before you fall off to sleep dear reader, consider this as you toss out the blue plastic envelopes containing your proxy materials: In less time than it takes to scan the stock tables in the newspaper to see how much your investments plunged TODAY, consider checking off a few boxes on your proxy ballot, sticking the ballot in a postage paid envelope and dropping it in the mail.   You get your ballots electronically you say? Even better. Click through to the ballot screen, check off the boxes and voila! You are done.

Since most of you can’t get off your petards and do what’s right, why change now?

Because if you don’t do something now, your investments will continue to plunge and your taxes will be handed over to incompetent managers who will continue to line their pockets. You’re fine with that? No problem, here’s a link to a terrific blog about kittens. Enjoy.

However, if you want to change things, it’s time for you to get up and vote.

My Voting Recommendations for 2009

Here is what I think investors should do in 2009:

• Vote out boards of directors. If a company performed badly this year (in relative terms since in absolute terms this covers just about every public company), vote against all of the directors.
• Vote against all pay packages. Enough said on this issue, just do it.
• Get rid of the outside auditors. These clowns wouldn’t know risk if it were an elephant in their bathrooms.

These are bold moves for shareholders. I know this sounds too simple given all of the complicated data presented to you when you get your proxy. But if you begin to pay attention to the issues, your ham fisted voting approach my become a but more refined.

Am I the Only Idiot Who Does Not Vote?

No, I’m afraid not – you are not as “special” as you might have thought. The short yellow school bus is full of folks just like you.

In a survey of 92 firms that held their annual meetings in 2008, the average participation among “retail” shareholders – individuals, as opposed to institutions – dropped more than 75 percent from the previous year, according to the New York Times. Only 4.5 percent of individual investors voted at firms that used the electronic proxy in late 2007 and early 2008, down from 19.2 percent participation in late 2006 and early 2007.

Moreover, this is not a small, disaffected group of investors. According to an annual study published by the Securities Industry and Financial Markets Association, 54.5 million households participated in the financial markets through equity or bond ownership in early 2008. This represents 47 percent of U.S. households.

Okay, so you are not alone in your investor lethargy.  That said, if you are an angry investor, perhaps now is the time to dig through your trashcan and pick out that proxy you just tossed.

So what do you do?

Here is your one opportunity to offer your own views on the management of the companies you own in your stock portfolios.

• Pissed off that the CEO got millions in compensation while the share value plunged? Vote AGAINST the board of directors. After all, they approved the CEO’s pay package.
• Irate with the fact that that pesky business strategy somehow eluded the bean counters at the company? Vote AGAINST approving the outside auditors at the company.
• Incredulous that the company management would consider granting ANY stock options for its executives? Try voting NO against all pay plans.

Here is my point. If you are really upset with the companies you own, simply vote against all proposals recommended by management. I realize this grossly oversimplifies the complexities involved in the voting decision. But remember, the proxy voting process was designed to make it overly complex for investors to sort out the voting decision process. In the arcane proxy voting process, a ballot not received means that a company’s management has one less shareholder to worry about and be accountable to at its annual meeting.

The time to start voting your proxies is now. The financial crisis presents a unique opportunity for all investors to take action and make change.

Do you have specific questions about the nuts and bolts of specific issues at specific companies? Let me know what those questions are. Either post a comment to this article or email me at jrichardson@jmr-financial.com and I will try to respond. I look forward to hearing from you.

Popularity: 5% [?]

On December 1st, the international Brotherhood of Teamsters filed a shareholder proposal at Chevron Corporation. The proposal asks Chevron shareholders to demand that the company disclose the risk factors it considers when doing business in foreign countries. This resolution, though obscure in its intentions, addresses a major problem facing Chevron and other companies in the oil and mining industries, namely political risk. [click to continue...]

Popularity: 6% [?]

Progressives all over the country are waking up from the nightmare of the Bush presidency and are asking themselves, “What did I eat before I went to bed eight years ago?” In point of fact, we have suffered from collective indigestion going back more than 30 years. [click to continue...]

Popularity: 3% [?]

The Wall Street bailout legislation, formally known as the Emergency Economic Stabilization Act of 2008, includes limits on compensation for executives of companies receiving taxpayer support.  So what does this mean for taxpayers who are footing the bill?

Not much.

Unfortunately, as drafted the provisions are practically meaningless and will do little to limit the gross payouts already available for these executives. Section 111 of the Act only restricts compensation paid to the top five executives at these companies. In addition, it provides for the recovery, or “claw back,” of ill gotten compensation, that is, performance pay received based upon materially inaccurate financial information.

The “big” provision that has both Republicans and Democrats squealing to their constituents is the provision in the Act that bans payments of “golden parachutes.” These are executive severance agreements that usually pay executives when there is some sort of change in control in the company or, as is often the case, when the executive is fired.  This later provision only applies as long as the federal government holds an equity or debt position in the company.

As noted in last week’s Wall Street Journal, the stakes are significant. The paper reported that executives of financial institutions receiving federal assistance are owed more than $40 billion for past years’ pay and pensions.  Deferred compensation coming due includes $11.8 billion at Goldman Sachs Group Inc., $8.5 billion at J.P. Morgan Chase & Co., and $10 billion at Morgan Stanley.

Since most of these firms haven’t set aside the cash required, they are a drag on current earnings and will be paid out of the corporate coffers.

The liabilities are an essentially a hidden obligation. Even when the debts to their executives total in the billions, most companies lump them into “other liabilities” and only a few of the companies identify amounts attributable to deferred pay.

In today’s Financial Times, it was noted that these Wall Street firms have promised not to use public support to pay these executives’ bonuses.  Bank of America, Bank of New York, Citigroup, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, State Street and Wells Fargo all promised to pay salaries and bonuses from existing cash resources.

So lets walk through this scenario and look at the situation at Morgan Stanley.

The company received a capital infusion of $10 billion from the federal government. They stick their newfound money in their corporate pocket (this is a really big pocket by the way) along with their other cash reserves. Let’s say that tomorrow is “bonus day” at the company.  Colm Kelleher, Morgan Stanley’s Chief Financial Officer reaches deep into the company “pocket” and pulls out $21,015,689, which he intends to use to pay himself (this is the total compensation that Mr. Kelleher received in 2007 according to company filings).

“Ooops! That looks like “government” money. Back in it goes,” he muses. Digging around for “loose change,” he eventually finds some “corporate” money and marches off to his bank in the Hamptons where he can console himself over the terrible financial crisis facing America.  This shell game would be laughable if it weren’t our money!

Meanwhile, our leaders in Congress are calling on the government to tighten restrictions on executive pay for these institutions receiving our money. House Speaker Nancy Pelosi and Senate Leader Harry Reid are wringing their hands with concern.  If their last attempt at reining in executive compensation is any measure, we shouldn’t expect real reform anytime soon.

The task of holding corporations responsible for grossly excessive executive pay falls squarely on shareholders. The only problem is that, in years past, the Securities and Exchange Commission has prevented shareholders from raising compensation issues in the form of shareholder resolutions, arguing that such matters constitute “ordinary business” that is exempt from proper shareholder consideration. Let’s hope that, given the massive public policy issues raised by using public funds for executive compensation, the SEC will reconsider its policy in regard to this important matter.

Stay tuned.

Popularity: 6% [?]