Monday, May 23, 2005
"Schwab Responds to Activist Shareholders"
Bob Hirschfeld writes for Financial-Planning.com:
On May 19, shareholders voted to change how the board of directors will be elected at discount broker Charles Schwab. And CEO Charles Schwab clarified the company’s stand on the privatization of Social Security, which the company appeared to be advocating.
The discount broker had come under fire from at least one investor/client, Harrington Investments, for its corporate governance, which is currently “classified,” for its lagging share price, and for its avowed support of Social Security privatization. Harrington Investments is a socially conscious registered advisory firm based in Napa, California.
In an open letter issued prior to Schwab’s May 19 shareholder meeting, Harrington called on fellow shareholders to vote “yes” on a proposal by the New York City Pension Funds to “declassify” the board of directors. Currently, only some of the 10 board members come up for election on an annual basis. Declassifying the board would mean each of the 10 would be elected each year.
“The current situation keeps board control out of the hands of shareholders,” says Peri Payne, Harrington’s social research advocate. The assumption is that declassified boards are more democratic.
At Thursday’s meeting, 57% of those shareholders voting approved the proposal for annual elections. A Schwab representative said the company was evaluating the results of the vote.
“In 1996, close to 75% of our stockholders approved the current system of electing directors,” says Schwab spokesperson Glen Mathison. “The reason people voted in favor is that it increases the chances that there will be directors with prior experience on the board.”
Harrington, which is a custodial client of Schwab’s as well as an investor in Schwab shares, also criticized CEO Charles Schwab for his membership and support of a single-issue group, the Alliance for Worker Retirement Security, which is dedicated to promoting private accounts in Social Security.
Claimed Harrington, “Where is board accountability when the CEO appears to be on an ideological mission?”
“The thing that’s disconcerting is that Schwab has stated they are remaining neutral when it’s a known fact they are supporting a one-issue organization,” adds Payne. “That’s an obvious disconnect.”
During the question-and-answer section of the May 19 meeting, CEO Charles Schwab responded by noting that the company had taken no position on the issue and regretting that his personal position and the company’s position tend to get merged. “We are not a political company,” said Schwab.
As to Harrington’s third plaint, which concerns Schwab’s share price, spokesperson Mathison was more agreeable. “We’re not happy about the stock price, either, but it’s going in the right direction,” he said. “It is up since Chuck Schwab took over the company last summer.”
“The client attrition he [Harrington] is referring to is decreasing in the wake of our price cuts. Client accounts are one measure, but the point is we bring in more new client money than any other firm reporting that number and our total client assets are at a record level,” says Mathison. “We got $16 billion in new client assets in the first quarter. In the past year we have been steadily removing costs. We feel we have the company headed in the right direction.”
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