Gretchen Morgenson's busy day

It's Sunday, so it must be time for another Gretchen Morgenson screed. She's still gnawing on Pfizer. I've already reported on her previous work on this issue (see my Gretchen Morgenson archive). This time Morgenson has decided to use Pfizer as an occasion to unleash Eliot Spitzer, federalize corporate governance and bring back Glass-Steagall, among other things. 

To recap the state of play: Pfizer had a shareholders' meeting in which shareholders, under Pfizer's bylaws, could register their dissatisfaction by withholding votes from Pfizer directors for paying CEO Hank McKinnell a lot of money while Pfizer was losing money. Despite Morgenson's repeatedly harping on this issue to her millions of readers in a succession of increasingly alarmist columns, and despite the highly public efforts of shareholder activist Frederick Rowe quoted at length in Morgenson's columns, only about 20% of the votes were withheld, far short of the majority necessary to justify even a recommendation to remove the targeted directors.

Dale Oesterle describes this as "a big, disastrous, embarrassing loss."  Morgenson, apparently a glass-half-full sort of person, says "shareholders interested in holding their directors accountable should be pleased with the Pfizer results."

Morgenson's got some equally perceptive reflections on the implications of the vote. She says shareholders "have only themselves to blame if things go awry." I doubt she's recommending that investors always withhold their votes on the chance managers will do something wrong. So how do the shareholders know when to do it? Well, of course they could just do it in companies Morgenson decides pick on.  Fortunately for corporate America Morgenson only writes one column a week. So many companies, so little time.

Perhaps sharehholders could just listen to shareholder advocate Rowe. Why? Because as Morgenson has repeatedly said, he's "grassroots." What does that mean? She doesn't say here, but based on prior columns she seems to like the fact that they, unlike the shareholders, have no money invested in Pfizer. Some recommendation.

Morgenson continues to lash out at what she sees as the conflict of interest inherent in mutual fund companies voting fund shares in Pfizer while they get fees for managing Pfizer retirement funds. We don't know how these "handome fees" compare with the funds' other income, so we can't assess the extent of the conflict. Anyway, as Morgenson notes, the fund shareholders "can sell their shares." Morgenson suggests they'll do so if they find out the funds voted for Pfizer management. It seems more likely they'll sell if they don't like the returns.  This gives the funds a stake in Pfizer's success – certainly a bigger one than Rowe and company have.

Before we can scratch our heads about whether the funds have done anything wrong, Morgenson has Rowe asserting that, if the funds voted for management, they "have failed their most basic duty as fiduciaries; to vote shares in their clients' best interests." Then, according to Morgenson, all hell should break loose. For example, "legislative or regulatory actions to split the business of the financial intermediaries so they can serve one customer or the other, but not both." This doesn't just mean forbidding the funds from voting stocks of companies they're also working for. Morgenson talks about "breaking up financial giants" and asks darkly whether "anybody else noticed how many scandals based on conflicts of interest at big financial firms have surfaced since Glass-Steagall's demise." And, of course, Eliot Spitzer should go back to suing mutual funds. 

Finally, Morgenson drags out the topic of her column from four weeks ago – the shareholder proposal by LongView funds to allow CA shareholders to remove directors D'Amato and Ranieri at CA Inc for letting the Kumar scandal happen. Morgenson quotes LongView's outside counsel as observing that Delaware law allows director removal by shareholder vote. So, he says, "the S.E.C. should step back and let shareholders decide these issues."

But this isn't a matter of the SEC stepping back – it would be throwing itself into a corporate governance matter. Unlike Pfizer, CA does not have the voting rule LongView wants. LongView is seeking the sort of SEC interference in internal corporate governance that Donaldson foundered on in connection with the SEC's failed shareholder nomination rule.

So, it's been a busy day for Morgenson: excessive compensation, whipping up the next big scandal at the mutual funds, bringing back Glass-Steagall, and a federal takeover of corporate governance. All over a matter that Morgenson hasn't yet been able to get Pfizer's shareholders very interested in after weeks of pounding. Morgenson better get somebody arrested soon, or she's going to have to find some other company to write about.

Update:  A reader tells me that Amalgamated Bank, which owns LongView, is a bank for labor unions.  Indeed, its website describes it as a "partner to the labor movement."  Possibly the shareholders should take that into account when they're deciding how to vote. 

Comments

[Robert Schwartz]

Gretchen's compalint as near as I can tell is that "Especially intriguing will be the votes by institutions managing money for Pfizer in its pension and 401(k) plans, firms that receive handsome fees from Pfizer for the services."

Now, those fees go to the investment management arms of the respective enterprises. So, how would breaking up Financial conglomerates relieve that conflict?

"Mr. Rowe said his organization has plans to force institutions to vote their shares in their clients' best interests. "If they're not prepared to take a leadership role," he said, "then we are going to seek legislative or regulatory actions to split the business of the financial intermediaries so they can serve one customer or the other, but not both. If they have betrayed the interests of their individual investors in order to serve their corporate interests then some sort of civil action might be considered, too."

"The idea of breaking up financial giants is a quaint one these days. Glass-Steagall, the Depression-era law that broke up financial conglomerates after they were found to have put their own interests ahead of their customers', drew its last breath in the late 1990's. Then again, has anybody else noticed how many scandals based on conflicts of interest at big financial firms have surfaced since Glass-Steagall's demise?"

And no, I have not noticed any Glass-Stegal related conflict of interest scandals.