Monks, who has written books about his efforts and been quoted on governance issues often in the press, could be a model for those of us eager to use our clout to encourage companies to pay attention to concerns ranging from the environment and social justice to proper accounting policies. However, his is also a cautionary tale: becoming an investor-activist, whether in pursuit of our ideals or simply better returns, can be frustrating, and the personal cost can be enormous.

“I tell people who want to understand me to just imagine that I’m Don Quixote, and there are an awful lot of windmills on the landscape,” he says. There are moments when this endless tilting seems to work, but these can be rare. Monks still relishes the memory of one creative–if costly–coup. While campaigning to make retail giant Sears, Roebuck & Co. more responsive to shareholders, he paid $100,000 to buy a full-page ad in the Wall Street Journal showing the silhouetted profiles of Sears directors, who were labeled “nonperforming assets.” “One of the directors at the time was Don Rumsfeld; he didn’t like it at all,” Monks recalls, chuckling. He failed in his bid to join the board, but his campaign succeeded in forcing Sears to restructure its board, reduce its size and appoint four new independent directors.

Savor these successes, Monks urges, because the campaigns we wage often earn us the enmity of many of our peers. “You had better have all the money you want, and have joined every club you want to join,” Monks notes, “because you are going to be anathema to the establishment once you set out along this path.”

Challenging Times
The corporate and regulatory climate today is uniquely receptive to shareholder activists. The business scandals of the past three years have made corporations truly averse to bad publicity and criticism of corporate governance practices. Whether we feel the companies in which we invest need to tighten up their accounting practices or increase the independence of their boards of directors, we are likely to find many allies. Shareholder resolutions are gaining more support than ever at annual meetings. Last year, a record 172 of the 1,100 shareholder resolutions voted upon at corporate annual meetings were passed, according to Patrick McGurn, senior vice president and special counsel for ISS in Rockville, Md. “That’s a high-water mark,” he adds. While these were virtually all nonbinding resolutions (meaning management may ignore them), a growing number of corporations are adhering to these resolutions in order to avoid bad publicity and shareholder dissent.

In this atmosphere, attempts to challenge entrenched management at large corporations (once a near-impossible task) are beginning to succeed. The recent campaign to unseat Michael Eisner as chairman and CEO at Walt Disney is one example. Roy Disney, the founder’s nephew and a former board member who became unhappy with the company’s strategic direction and lagging share price, challenged Eisner and, at the company’s March 3 annual meeting, he and his allies won the support of investors holding 43.5 percent of Disney’s stock. While the directors reaffirmed their support for Eisner after the meeting, he did step down as chairman; former U.S. Senator George Mitchell, an independent board member, took his place.

Not all shareholder activists focus solely on performance. Responsible Wealth (RW) is a Boston-based nonprofit whose members are drawn from the wealthiest 5 percent of Americans. RW leverages its members’ shareholdings to draw attention at corporate annual meetings to social justice and related governance issues, and to push for change. “My experience is that even the most affluent of our members do not recognize that they have this kind of power, and are pretty excited when they first find out,” says Scott Klinger, codirector of Responsible Wealth.

TOP VIEW Emboldened and appalled by the myriad corporate scandals to unfold in recent years, many of us have considered leveraging our power as shareholders to lobby the companies in which we invest to adopt better governance policies. Experts caution, however, that shareholder activism can be a frustrating and costly pursuit.

When Jennifer Ladd joined RW in 1997, she was relieved to find a mechanism that allowed her to use her wealth in pursuit of her values. Now 51, the Standard Oil heiress was raised by “thoughtful, progressive” parents in Cambridge, Mass. She began to think about the obligations that accompany her wealth while in college. “No matter how nice a person I was as an individual, I had to accept that my money gave me privileges that others didn’t have,” she explains today. “That meant that somehow I had to find a way to level the playing the field.” She became a teacher, earned her doctorate in education and became philanthropically active, but, she adds, “I remained very conflicted about my wealth. Then, by my 40s, I was tired of hiding that part of my life as if I were ashamed of it.” She joined RW and began to attend the annual meetings of corporations in which she invested to lobby for change.

In any given year, shareholders lobby corporations to pass initiatives on a range of topics. Initiatives by veteran corporate gadflies like Monks or large institutional investors have traditionally attracted the most attention. However, affluent investors like Ladd are increasingly joining the corporate governance fray, McGurn says. “It’s a fallacy that a majority of proposals made by shareholders at annual meetings come from institutions,” he notes. “This is a relatively straightforward form of [individual] activism.”

Of Responsible Wealth’s 700 members, several dozen are actively campaigning for changes to boardroom structure or compensation policies, Klinger says. Each year, Responsible Wealth focuses on a few crucial issues, he adds, and works to get them on the agendas of corporations, shareholders and the institutional investors whose muscle gets resolutions passed. After pinpointing the issues, Klinger identifies a handful of large companies whose policies fall short of what he and other governance gurus see as best practices. Finally, he polls Responsible Wealth members to see whose investment portfolios include shares in those companies, holdings that give the member a platform to raise the issue at the annual meeting.

“By speaking out as a shareholder, I’m able to stand up and give permission to the company to look beyond the financial bottom line,” Ladd explains. “Companies feel an obligation to make as much money for their shareholders as possible, but that shouldn’t come at the expense of good governance, of the people who work for the company, of the community or the environment.”

Not for Dilettantes
Shareholder activism can prove demanding of our time, energy and resources. Investors need only to have owned $2,000 worth of stock in the company for one year before filing a shareholder resolution. The real test, Klinger says, comes when the company challenges the resolution before it goes on the ballot. “When individuals, however sophisticated they are in their own business, suddenly get a registered letter telling them that a big firm of Wall Street lawyers is contesting the proposal, it’s nerve-racking,” he explains. “That’s when they have to decide whether or not to put their own legal team on it, and whether they care enough to pay those big bills.” (RW’s staff undertakes these tasks on behalf of its members.)

Our pet resolution—say, to force a company to stop buying raw materials from countries with poor human-rights records—must also pass muster with the Securities and Exchange Commission. The SEC bars shareholders from trying to amend a corporation’s charter or pursuing self-interest. It also prohibits resolutions that involve issues deemed “the responsibility of the corporation. “You have to word the resolutions very, very carefully,” McGurn warns.

“Deciding you’re going to be a shareholder activist is not a rational thing for a wealthy individual shareholder to do,” Monks admits. “You spend the money to get a resolution on the ballot and spend the time lobbying to get it passed. Then, even if you win, you only get a fraction of any benefit. That’s a hell of a crummy deal.”

However, some governance gurus believe that the success of Monks and other mavericks may encourage more of us. “There’s at least the potential for this community of well-to-do people to become a critical group of players in corporate governance, in the same way we talk about soccer moms and NASCAR dads in politics now,” says McGurn. “They can become, first of all, swing votes in supporting these proposals, and maybe eventually provide the time and energy in targeting more companies, ones that may not be on the radar screens of the big institutions.” 

Taking Action
Tips from successful shareholder activists:
1.  Subscribe to a publication such as the Corporate Governance Fund Report newsletter (www.corpgov.net). Although typically these publications are written for institutional investors, individual investors can use them to follow the progress of activists.

2.  Read all the proxy statements you receive; research the issues being decided at annual meetings—and remember to vote.

3.  Join an activist organization, such as Responsible Wealth, that supports your goals, or invest in an activist fund like Ralph Whitworth’s Relational Investors. Alternatively, invest in companies targeted by corporate governance activists, and support their efforts.