Investor groups angered by plunging stock prices vow to hold executives and corporate board members accountable at annual shareholder meetings...
NEW YORK — Investor groups angered by plunging stock prices vow to hold executives and corporate board members accountable at annual shareholder meetings this spring, turning up the pressure on companies already reeling from the credit crunch.
Activist investors are targeting financial-services companies, including Citigroup, Merrill Lynch and Seattle-based Washington Mutual.
Shareholder proposals demand that major banks better disclose mortgage-related risks, that Wall Street investment firms provide more transparency on their executive-succession plans, and that credit-rating agencies address potential conflicts of interest that arise from what critics say is an all-too-cozy relationship with companies that pay them to rate securities.
Meanwhile, a network of shareholder groups, furious over multimillion-dollar payouts to financial executives during some of the worst corporate performance ever, has upped its efforts to rein in executive compensation.
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“We have a singular focus on the residential homebuilding crisis, the credit crisis,” said Jennifer O’Dell, assistant director of corporate affairs at the Washington, D.C.-based Laborers’ International Union of North America, which has filed shareholder proposals at 28 companies it sees playing a role in the turmoil.
“Shareholders are so angry, the public is so angry. … The worlds have aligned. The crisis is so severe that we do have more leverage now,” O’Dell said.
The credit crisis stems from the housing market’s decline and ensuing losses in securities related to subprime mortgages.
During the five-year housing boom that peaked in mid-2005, mortgage lenders approved billions of dollars of loans to homebuyers with risky credit.
Those mortgages were bought by Wall Street investment banks, which pooled the loans before slicing them into complex securities. These were given ultra-safe, AAA ratings by credit-rating agencies and sold to investors around the world.
As homebuyers started defaulting and investors grew increasingly risk-averse, the value of the securities plunged.
Management experts likened the current environment of shareholder activism to the period after the Enron scandal, which motivated shareholders to challenge corporate boards.
But this time, the losses are larger and more widespread, with toxic subprime mortgages showing up in the investment portfolios of Wall Street banks, large institutional money managers, pension plans and even small towns overseas.
The Laborers’ union said two affiliates withdrew a proposal seeking better disclosure of mortgage-related risks at Ryland Group after the homebuilder, which has a mortgage-lending unit, agreed to regularly report what types of home loans it makes and who purchases the mortgages in the secondary market.
A Ryland spokeswoman said the company could not comment on the specifics but expects to address the group’s concerns in its annual report.
Lehman Brothers, Bear Stearns, Washington Mutual and Beazer Homes, which received similar proposals, have sought approval of the Securities and Exchange Commission to keep them from coming to votes.
The SEC granted the requests of Bear Stearns, Lehman and WaMu, but denied Beazer’s.
Bear Stearns and Lehman declined to comment. WaMu and Beazer did not return phone calls. Beazer, however, announced this month it would stop writing mortgages.