The following insights are excerpted from "Best Practices in Global Communications: The Global Imperative," a report prepared by The Public Affairs Group/Best Practices in
Corporate Communications in Washington, DC.
The emergence of digital democracy has been a catalyst for activists to get their voice heard. The Web is the most revolutionary
tool ever invented for like-minded people to find each other, and it allows individuals the free right to express their gripes inexpensively and to reach a worldwide audience.
Not surprisingly, the Internet has spurred a movement to make corporations more transparent. And increased access to corporate knowledge has created increased expectations of
corporate accountability. It also has enabled watchdog groups to monitor a corporation's practices more closely.
Most people associate the term "activist" with groups such as human rights proponents, embittered ex-employees and environmentalists. So it may come as a surprise to know that
investors rank among the most vigilant activist groups today.
The institutional shareholder activism movement of the 1990s has been accompanied by relaxed regulatory oversight of corporate governance activities by shareholders. If you
look at trends in unfavorable proxy proposals (shareholder resolutions that management doesn't favor), there were already more unfavorable proxy proposals by mid-1999 than in all
of 1998.
This surge is directly attributed to the Internet. Disgruntled shareholders (who are upset about executive compensation, human rights, soft money, etc.) are finding each other
online. And they are amassing their individual shares to form coalitions behind various proposals. As such, CEOs and corporate communicators are being faced with a more powerful
form of shareholder activism: organized cyber-campaigns.
Ever since the rise of the Net, chat rooms have overflowed with anonymous criticism of corporate officers and boards of directors. But the level of discourse and the power of
some participants are rising. "The Web will change the face of activism in the future," predicts Patrick S. McGurn, of Institutional Shareholder Services Inc., a proxy advisory
firm. "It promises to increase activism and to perhaps radicalize smaller investors."
Activist investors, from Greenway Partners LP to Lens Inc., now use the Net to prod underperforming managers and boards. And the AFL-CIO's pension funds attempt to stir up
debate on CEO pay by using the Web to publicize the issue at the top 500 public companies.
Breaking Down Barriers
For shareholder activists and gadflies, the Web makes it easier and cheaper to contact and organize other investors. "Think about the cost of doing a mailing to all of a
company's shareholders," says Damon A. Silvers, associate general counsel of the AFL-CIO. "On a Web site, you can gain access to everybody."
In the past, management's ability to evade accountability rested on the information barrier separating the company from its shareholders. But today, chat rooms are offering
small investors the means to communicate cheaply with one another and to effect changes in corporate governance. A comparison of shareholders who vote over the Web vs. those who
vote by phone shows that Internet users are less supportive of management and much more likely to read and to respond to all the proxies they receive.
Web Unites Dissidents
Chat rooms have brought the mom-and-pop sector into the fray by facilitating low-cost solicitation. A recent example is the Texas-based energy company Coho. At the end of
September, Coho retail shareholders united on a Yahoo! Finance message board and attempted, by proxy solicitation, to oust the CEO.
Coho is an example of the "no money down takeover." Dissidents appear on the message boards with a platform of change, arguing that they can't do any worse than the incumbents.
Another activist tactic is the "just vote no" campaign, which seeks to withhold voting authority for board members up for election. In a recent case involving Gensym Corp.,
dissidents urged shareholders not to vote at all in an attempt to deny the company a quorum vote.
Although the campaign ultimately failed - and although many Yahoo! chat room members were fairly critical of the methodology - the dissidents in this case were nonetheless
successful. Their pressure convinced the company to initiate a search for a new CEO. And this was their aim from the outset.
In yet another recent incident, a sole investor (who remained incognito by using a Internet nom de plume) initiated a campaign against Infinity, Inc. in a Yahoo! chat room. The
investor allegedly maligned Infinity with slanderous and inflammatory comments, and the company sued him. The lawsuit was eventually dropped, but Infinity agreed to name
independent directors to its board while the investor agreed to retract his statements.
Overall, the challengers this past year won more than they lost. Even though, at the end of the day, two-thirds of the incumbents were reinstated, activists' proposals, in many
cases, were accepted.
Proxy Voting Moves To Web
As investment firms attempt to harness the Internet for their advantage, Internet proxy voting has become more widespread. More investors are voting online, and an estimated
500 firms in 1999 contracted with one of the Internet voting services. About 7% of returns came over the web in 1999, doubling 1998's levels.
Moreover, the total number of individual voters who chose to use Internet voting increased from an average of 2.1% in 1998 to 6.2% in 1999, and the number of name voters
increased from 640,000 in 1998 to 2.3 million in 1999. That's a remarkable increase of almost 400%.
Many corporate communicators are working with their I/R teams to counteract these measures. The Kansas City Star reports that Microsoft, for example, is encouraging
shareholder activism - but not the sort that invites more scrutiny of the company's affairs. Rather, the network/software giant is encouraging shareholders to take a more active
role in protecting company interests in the government arena.
To wit: Microsoft sent a letter to its stockholders urging support against government meddling that "could choke off innovation and threaten the continued vitality of our
industry as a whole." The letter invited corporate investors to join the "Freedom to Innovate Network," whose members are encouraged to write Congress and speak out in their
communities concerning Information Age issues.
It's estimated that some 50,000 people have joined the Freedom to Innovate Network, and Microsoft says its Web site has gotten "hundreds of thousands of hits," as a result.
With the rise of worker capitalism as more individuals become involved in the stock market, Microsoft could be creating a model that will revolutionize economic policy-making.
Investors Go Global
The Internet is making it easier for collective groups of shareholders to leverage their fiscal weight against corporate boards - and it's making it possible for them to do so
from every corner of the planet. Trading hours are now 24/7. More statistics from Best Practices in Corporate Communications:
- The final three months of 1999 marked the most impassioned global equity rally in history. Trading in overseas securities by U.S. investors increased by 35% from 1998 to
1999. - The recent flurry of M&A activity has turned many U.S. corporations into global entities. Today, only 29% of the Fortune Global 500 are U.S.-based companies - down from
34% in 1998. - U.S. investment in overseas equities has surpassed the $500 billion mark. European investors now hold nearly $325 billion in international equities.
The complete version of this 300-page report also covers global communication issues surrounding business models, budgets, staffing, leadership, tech tools, media relations,
cultural diversity, branding/reputation, public affairs and trade issues. To order a complete copy, visit our online store at http://www.PRandMarketing.com or call Best Practices in Corporate Communications at 800/476-7044.