Public outcry against banks during this recovery period especially on the issue of huge salaries and benefits bankers have accrued to themselves has gone a step further as many shareholders are vehemently opposing directors of banks over matters relating to big salaries and rewards against poor performance of stocks. Many shareholders simply want boards to be scrapped. This was revealed in a recent study.
A significant number of directors who were due for re-election were voted down by shareholders – a direct reaction of anger over the financial crisis and the misconduct of bankers over huge payments.
More and more shareholders who hitherto did not bother much are now more proactive in ensuring that the board of directors are responsive and they are quick to use the ballot to get the results they want if they estimate things are not going in the right direction. In fact, majority of the directors who were opposed by shareholders were those who were members on compensation committees.
The banks’ argument that the huge paychecks are needed to motivate workers is seriously flawed by the ridiculous pay levels vis-a-vis the current negative performance of stocks.
This recent development, is now strongly believed will hasten the implementation of the proposed changes by US Congress and Securities Exchange Commission (SEC) on Corporate-governance regulations.
The new corporate-governance rule
The current trend of proactive shareholders will continue. Many shareholders have been awakened by the financial crisis and to abuses within management and will bring more pressure to bear on the boards of directors. Indeed, the pressure will be greater when the proposed new rule on corporate-governance is implemented in 2010.
The rule will prohibit bankers to sell shares without authorization from the shareholders on parameters to sell such shares. Brokers will no longer enjoy discretional powers which they abused or used in the favour of directors in the past.
