They sometimes bring spectacle and showmanship, like the time colorful Evelyn Y. Davis arrived at the 1971 annual meeting of Communications Satellite Corp. in hot pants and knee socks. Another time, John J. Gilbert sported a clown nose at a Mattel annual meeting in the 1970s.
Theatrics aside, activist shareholders known as “corporate gadflies” have been responsible for significant improvements in corporate governance, explains Nell Minow of Washington, D.C., a long-time expert in governance matters.
“The gadfly gets the animal to move,” Minow says, referring to the flies that bite livestock and is a name sometimes applied to provocative people, including Socrates.
Gilbert, and his brother Lewis, pioneered the field after the 1929 stock market crash, she explains. The brothers’ corporate accountability crusade led to many of the shareholder rights now taken for granted, such as the right to ask questions at annual meetings.
When John Gilbert showed up at the 1939 DuPont annual meeting he was the only shareholder there, he told Chemical Week in 1997. The well-off Gilberts stood alone for decades, Minow notes, until they were joined in the late 1940s by public relations professional turned shareholder champion Wilma Porter Soss; then followed by Davis a decade later. Davis became the bane of many CEOs’ and boards’ existences.
A 2002 Vanity Fair profile of Davis proclaimed:
Crusader or crackpot, 72-year-old shareholder activist Evelyn Y. Davis is an unstoppable force. CEOs from Ted Turner to Jack Welch have endured her wrath, and even complications from her third face-lift haven’t retired America’s noisiest corporate gadfly.
CEOs got a break from Davis beginning in 2012 after she slowed down her activism at age 82, Reuters reported.
So are gadflies crusaders or cranks?
“I think they’re a useful part of the dialogue we need to have about corporate governance and pay practices,” says David Larcker, director of the Corporate Governance Research Initiative at Stanford Graduate School of Business.
Critics, however, say the huge number of gadfly proposals filed annually waste corporate money and time, Larcker wrote in 2016. Few proposals get majority support, he wrote.
“Corporate America is being held hostage by three people you have probably never heard of,” wrote Steven Davidoff Solomon in a 2014 DealBook column in The New York Times, referring to the three gadflies who have filed the most proposals in recent years — John Chevedden, William Steiner and James McRitchie.
Chevedden rejects the term gadfly. “I submit proposals on serious topics only. A gadfly would take on frivolous topics,” he maintains, adding that he’s been part of the movement for everything from executive pay to shareholder proxy access.
A handful of individual investors dominate the scene today, sponsoring 29% of all shareholder proposals from 2006 to 2015, according to Manhattan Institute’s Proxy Monitor report.
In 2017, James McRitchie was among the small group of shareholders who have sponsored more than one-third of all shareholder proposals, according to Proxy Monitor’s spring report.
McRitchie talks about his corporate activism.
Directors & Boards: Do you mind being labeled a “corporate gadfly”?
James McRitchie: I prefer to be known as a shareholder advocate. However, I suppose being labeled a gadfly puts me in company with Socrates in “Plato’s Apology.”
D&B: What would you say is your main motivation for shareholder activism?
JM: My mission is to help shareholders enhance the production of wealth by acting as long-term shareowners. Engaged owners invest not just money, but ideas and actions.
My primary objective is to achieve practical improvements in company policy or behavior. Specific concrete objectives offer a more solid base for action than broad immeasurable objectives.
D&B: Do you think companies view shareholder activists as annoyances?
JM: Yes, I suppose some company representatives see us as an annoyance. Otherwise, they wouldn’t oppose our resolutions -- thus, their frequent comparisons to Socrates’ gadfly.
D&B: What has been your personal experience in dealing with corporate executives?
JM: I have had very mixed reactions from corporate executives, ranging from mostly failed attempts to take me to court to embracing my proposal and asking my advice on other corporate governance reforms needed, which were then immediately adopted by the board.
D&B: Is there one resolution you filed that you are particularly proud of?
JM: As a category, I am most proud of my work on proxy access. According to the Council of Institutional Investors (CII), my 2002 petition to the SEC “re-energized” the debate over proxy access to nominate directors.
However, I am very disappointed with the 20-member group limit adopted by most companies. (Proxy access bylaws at some companies put a ceiling on the number of shareholders allowed to aggregate stock in order to meet the ownership threshold for nominating directors.) Such bylaws give the appearance of proxy access without an implementable right. Even CII’s members, who hold $3 trillion in assets, cannot meet that threshold. I will continue to work to make proxy access meaningful.
D&B: How many annual meetings do you attend yearly and is it a financial drain?
JM: I don’t keep track of the number or the expenses involved. Yes, meetings are a drain financially and in terms of time. However, they can also be very rewarding in terms of insights into both positive and negative developments. Contacts made with boards and staff at such events frequently leads to easier resolution of issues in the future, without the need for a proposal to appear on the proxy. Meeting other shareholders can also be valuable, especially at mid- and small-cap companies where governance issues abound and institutional investors are less involved.
D&B: What do you see as the virtues of physical meetings?
JM: I learn a lot more at in-person meetings and am better able to establish working relationships with directors, staff and shareholders. Many virtual meetings might just as well be prerecorded broadcasts, given the amount of interaction they facilitate.
Virtual-only meetings will lead to further alienation and further reliance on burdensome government regulations to “protect” shareholders as consumers of corporate stock, instead of as partners in economic enterprises.
D&B: What has been your experience at meetings?
JM: My experience at most companies is cordial. I am happy to report I have never experienced open hostility and disrespect from company officials at an annual meeting, although they sometimes attempt to obfuscate the truth.
D&B: What are your top two issues?
JM: Achieving genuine proxy access that can actually be implemented is my top priority, since this will better ensure directors can be held accountable to shareholders.
Number two would be to increase engagement by retail shareholders and institutional investors through mechanisms such as predisclosing votes prior to the annual meeting and coordinating through the Internet. I would like to get to the point where shareholders put as much effort into governing companies as they do to stock picking.
D&B: What would be your elevator speech to corporate directors about why they should pay attention to individual activist shareholders?
JM: Just as companies shouldn’t ignore their customers or their employees, input from shareholders is also of critical importance. The three ‘gadflies’ identified as pariahs by the Manhattan Institute, Business Roundtable and U.S. Chamber of Commerce have been central to the spread of many important governance reforms including independent directors, declassified boards, the right to hold special meetings, election of directors by majority vote and proxy access.
I would choose to enhance the ability of shareholders to influence directors, rather than rely increasingly on government to protect investors as consumers of corporate stock.
Maureen Milford is a Delaware business writer focused on corporate law and corporate governance matters.