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Influence Ebbs for Proxy Advisers

JP Morgan

Influence is waning from firms whose mission, in part, is to recommend how investors should vote in corporate elections, The Wall Street Journal reported last week.  In one striking example, the roles of chairman and chief executive officer remained as one at J.P. Morgan Chase after a widely publicized contest, even though the two largest proxy advisers were in favor of splitting it.
 
Institutional Shareholder Services Inc. and Glass Lewis & Co. have long been key influencers when it comes to recommending votes, but with nearly 30 percent more proxy contests in May than last year, issuers have become a lot savvier about engaging investors before entering proxy season.
 
And rightly so.
 
The WSJ citing ISS said investors were able to secure board seats 73 percent of the time this season, compared with 56 percent last year. Nevertheless, issuers that are showing their muscle are starting to win, as was the case with J.P. Morgan.
 
It’s always easy to come up with a “should-a, could-a” list following proxy season.  But one prevailing concept should stick with issuers year round:  a well-devised investor communications and engagement plan helps ensure that management’s side of the story gets heard.  And if such a plan is implemented long enough in advance, investors will take the time to listen and come to their own conclusions long before the ballots are cast.

 

— Evan Pondel, epondel@pondel.com
 
 
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Resisting Temptation to “Like This”

No hoods

No Hoodies (source)

As I mulled this post while prying my seven-year-old out of bed this morning, I also wrestled with all of the brouhaha surrounding the pending Facebook IPO.  Something just did not sit right.  Then it hit me.  I have seen this show before.
 
Facebook’s global adulation is understandable, and well earned.  One in eight people on the
planet use it.  That’s an unfathomable audience that is now interconnected. But as the reports during the IPO process reach their crescendo, two large questions loom:  1) Does Facebook’s advertising really work; and 2) Should the company be valued at $100 billion?
 
Don’t get me wrong, I want to see the company succeed, badly.  I am dying for some good news.  But the more our collective anticipation builds, the more I worry.  Is there a clear rationale for this target valuation or is it hubris?  Are we more enamored of simply breaking an IPO record, or are investors using sane judgment?  And should California really be thinking it can potentially narrow its budget deficit with increased taxes from the many new resident millionaires that will materialize from this transaction?  I get the feeling we are putting too much value on this event, and we might be in for some disappointment.
 
As my son and I had our breakfast, an opinion piece in today’s Wall Street Journal titled “Jenkins:
The Zuckerberg Challenge
” sustained my anxiety.  The author too postulated that apart from enviable 2011 ad sale revenues totaling $3.2 billion, a chasm exists between this and Facebook’s estimated target valuation.  He also provides heaps of praise for the seemingly endless possibilities that lay before the company, which I can’t deny.
 
But as a newly public company, Facebook’s iconic leader Mark Zuckerberg will need to be more transparent with the company’s operations and growth strategies than ever before.  Demonstrating that its ad engine provides real value to its customers and a putting a keen focus on generating profits will be paramount. He now has to answer to many more people that own his baby, and should the stock price fall below the IPO level, the barbarians surely will arrive at the gate.  Which makes me wonder why the company is aiming for such an immediate high valuation in the first place.  “Under promise and over deliver” has been a mantra that has served many CEOs well.
 
As I make my final inspection of my son’s school clothes it also occurs to me that Mr. Zuckerberg might want to leave his signature hoodie at home and don a suit now and then. Growing up is hard, but if you want a $100 billion valuation, you need to play the part.

 

— PondelWilkinson, investor@pondel.com