Monday, June 22, 2009

No Accountability in The Boardroom

Activists typically target companies for various reasons. There is the natural underperforming company. Numerous companies have fallen within this realm and have subsequently become the target of a hedge fund or a shareholder activist.

Historically, activists have created pressure on companies to effect change. Sometimes the activist has controlled a majority interest within the company. However, occassionally the activist has controlled a minority interest. It is more difficult to lead an activist campaign through controlling a minority interest. It is more difficult but not imposssible. Ironfire Capital through owning less then 100 shares forced change at Yahoo.

Microsoft recently aanounced that a shareholder with 25% of the company shares can call a special meeting. Refer to:

The article makes reference to a comment by John Sethoof, the Deputy Counsel for Microsoft. In the article he states that "the ability for shareholders to call special meetings is important" and "proposing this new policy is our commitment to maintaining strong corporate governance practices".

No offense Mr. Sethoof, but, with the ability to sling crap like that comment you should consider a career in politics.

Lets briefly analyze these comments. The ability for shareholders to call a meeting is important. If it was truly important would the bar be set at 25% of the company?

This naturally leads to the next comment. Setting the New Policy or Standard at 25% of the shares is considered a commitment to maintaining strong corporate governance?

What this new policy is stating is simply this "Here at Microsoft we don't believe in accountability or TRUE Corporate Governance".

Currently, Mr Gates owns less then 25%. Mr. Ballmer owns less then 25%. According to information Mr. Gates owns 8% and Mr. Ballmer owns 4%. Refer to:

The largest institutions such as Capital Research or Fidelity also own less then 25%. According to the above article the largest institutional investor only owns 4%. Therefore, it would require Barclays, Fidelity, Vanguard and numerous other shareholders to call a meeting.

Microsoft shares have displayed a modest increase in value. They are currently trading at approximately $23 per share. This gives Microsoft a market cap of approximately $200 billion. Therefore, what Microsoft is stating is "if as a shareholder you own $50 billion worth of shares then our strong commitment to corporate governance is important".

Now, even if Microsoft drops to former levels of the mid to high teens, the company would still have a market cap of atleast $100 billion. Subsequently, this strong and important commitment requires a shareholder to own atleast $25 billion worth of stock.

To quote Charles Elson of the University of Delaware "It would be impossible to hit that number and that's exactly why they picked it".

Regardless of the fact that Mr. Sethoof states "Its important to the company". Regardless of the fact that "its the company strong commitment to governance". Regardless of the fact that Mr. Sethoof states "its attainable". The reality is that 25% demonstrates that Microsoft set a standard that will never enable a shareholder to hold The SLT or the Board accountable for its decisions.

Once again this demonstrates Mr. Ballmers TRUE attitude towards shareholders. To set a standard at 5% would be realistic and attainable. A 5% stake in Microsoft would still constitute as one of the largest shareholders. Based on the 25% standard this means no mutual fund or hedge fund will ever have the capacity to utilize this "important and strong commitment to corporate governance".

We suggest that all shareholders vote against this provision and demand a more attainable number that would actually place accountability on Ballmer and The Board.

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Anonymous said...

"It would be impossible to hit that number and that's exactly why they picked it".

MS is all about looking shareholder friendly as opposed to being shareholder friendly. But they aren't fooling most investors. Which is why this stock has been, is, and will forever be dead money.

Anonymous said...

Microsoft used to be a good company but got complacent. Companies that change and innovate deserve to succeed. If MS continues with the status quo, which it seems intent on doing, then it deserves to fail. When HTC can deliver more UI innovation than WinMo and the entire Windows organizations combined, you have to question where $9 billion of annual R&D is really going.