Financial History Issue 127 (Fall 2018) | Page 17

The Populist Quest for Shareholder Democracy From 1940 to 1979, as individuals steadily came to own more and more corporate equity, the annual meeting grew increas- ingly engaging. While only a small per- centage of shareholders attended, and a minority of those spoke up, they helped forge a shareholder-centric orientation across corporate America. The Gilbert brothers and fellow advo- cates put proposals on the meeting agenda for a vote, posed pointed questions to senior managers during the proceedings and then publicized their progress widely. All were media savvy, spreading their mis- sion in articles and books, on radio and television, and through public lectures and Congressional testimony. The Gilberts were known as the deans of the professional shareholders. Through- out this period, the brothers personally attended as many as 300 annual meet- ings yearly and covered another 50 with a small staff of associates. Legatees of an estate whose assets included small stakes in some 600 public companies, the two lived in a fashionable apartment building on Manhattan’s Upper East Side. The Gilberts’ persistence and logic won them many governance reforms over five decades, ranging from confidentiality in shareholder voting to the rise of outside directors. As early as 1947, they gained a tactical advantage after pushing share- holder proposals at Transamerica to have shareholders choose the auditors and for a post-meeting transcript. In ordering the company to comply, an influential court opinion famously explained, “A corpora- tion is run for the benefit of its stockhold- ers, not for that of its managers.” Annually from 1940 to 1979, the Gil- berts published a book-length account of the major annual meetings and related issues of the day. Entitled “Annual Reports on Stockholder Activities at Corporation Meetings,” the Gilbert volumes were pub- lished in limited quantities—print runs of 8,500 in earlier years and 6,000 in later ones—and are today collectors’ items. 1 The reports were astonishingly consistent, opening with 20 pages of photographs from the year’s meetings; a brief useful glossary; a consciously-compact average of about 265 pages of narrative text; an index of compa- nies; and, most impressively, a substantially identical table of contents (see Figure 1). Figure 1: The standard table of contents appearing in the Gilbert brothers’ annual report on shareholder meetings. The books and meeting attendance had one overriding purpose: to promote “peo- ple’s capitalism.” By 1954, they had already made substantial progress. As put by a dis- tinguished contemporary establishment figure, Covington Hardee, who served as general counsel of Union Pacific Railroad and later CEO of Lincoln Savings Bank, the Gilberts were waging a “remarkable campaign” for “shareholder democracy.” Hardee credits the Gilberts with making the annual meeting a meaningful forum to present shareholder opinion and influence managerial action. They made it a priority to have meetings held in rational loca- tions—locales with a high concentration of shareholders, major urban settings with good local transportation, near company facilities and, for some companies, rotat- ing across a series of cities. They advocated for adequate seating, including overflow rooms, and closed-circuit TVs, and for meeting transcripts to be circulated after- wards, including identification of those posing questions from the floor to facili- tate shareholder coordination. The Gilberts argued for cumulative vot- ing, preemptive rights and annual finan- cial audits, and against staggered boards. They scrutinized executive pay and urged periodic shareholder approval of incen- tive bonus plans. They were vociferous critics of stock options for managers and opposed employee stock ownership plans (ESOPs) overseen by managerial trust- ees. Hardee rightly described the Gilbert reports as “absorbing reading” and, while containing “a certain brashness of tone, such a gadfly for management is useful.” Discussion explores dozens of specific meetings to animate the prevailing atti- tude of managers and shareholders. Strik- ing is how similar debates rage today, including: the pros and cons of staggered boards (continuity versus accountabil- ity); age limits for directors (the Gilberts favored mandatory retirement at age 72); separating or combining the chairman and CEO roles (the Gilberts urged sepa- rating); “over-boarding” (directors not sitting on too many boards); and proxy voting (from shareholder nominations of directors to the possibility of shareholders voting no for specific directors). The Gilberts—and fellow gadflies— rated companies on many aspects of shareholder democracy. As to the con- duct of meetings, they graded chairmen on the degree of conformity to Robert’s Rules of Order, the bible of parliamentary procedures, though it is not required by law. Among the era’s leading experts on Robert’s Rules was the Gilberts’ friend and fellow activist Wilma Soss, who in 1947 founded the Federation of Women Shareholders of American Business and for many decades hosted a popular NBC radio show called “Pocketbook News.” At shareholder meetings, when chair- men would silence Soss for being “out of order,” she would cite specific passages from Robert’s Rules to explain that it was not she who was out of order. If the Gilberts veered urbane and diplomatic, Soss had a reputation for antics and impu- dence. Soss made her point about share- holder voice a dramatic one, by bringing megaphones to meetings, and a literal one, by demanding that microphones be placed throughout meeting halls. A 1951 profile of Soss in The New Yorker criticized her incendiary behavior, but for a woman of that era and in that context, her tactics were far more effective than would have been following the Gilbert  |  Fall 2018  |  FINANCIAL HISTORY  15