The Times’ Gretchen Morgenson had a wonderful profile this past Sunday of the proxy battle going on over executive compensation at Pfizer. I was especially pleased, as you might imagine, that she saw fit to quote my new book, writing:
But recommendations from proxy advisers, who are paid by institutions for advice on how to vote, are not always heeded â€” a vivid example of a power shift outlined by Mr. Bogle, in his book, “The Battle for the Soul of Capitalism.” Ownership of American companies, he argued, has moved from a diffuse group of individual shareholders into a handful of powerful financial institutions such as mutual funds and banks. These organizations are “reluctant dragons” when it comes to exercising corporate citizenship, Mr. Bogle wrote.
One reason, he said, “is the clear conflict of interest they face in managing the retirement plan assets of the very corporations whose shares they own and collectively control.”
“Even when a governance or proxy issue involves a corporation that is not a client,” he added, “the reluctance to speak out persists, giving credence to this perhaps apocryphal comment by a pension fund manager: ‘There are only two types of clients we don’t want to offend: actual or potential.’ “
And Alan Murray at the Wall Street Journal weighed in today, too, writing:
Defenders of the current system say CEO pay is set by market forces. But I am skeptical. Who else out there is eager to pay Messrs. McKinnell, Seidenberg, Whitacre and Nardelli upward of $10 million a year for lackluster performance? I’m reminded of the New York Stock Exchange directors who justified increasing Dick Grasso’s pay package — which enabled him to amass $200 million, a good portion of it during his eight-year reign as CEO — by citing fears he might leave to become secretary of the Treasury, a job that pays $175,700 a year.
That kind of logic is only used by those spending other people’s money. And that’s why shareholders deserve a greater say.