GM shareholders initiate some changes; and an important issue comes to light

Today was the GM shareholder meeting in which shareholders voted on various resolutions.

Three of the four resolutions strongly backed by ISS(Institutional Shareholder Services, one of the big proponents of good governance)were passed. These proposals are:
- A proposal asking the company to separate the chairman and chief executive positions;
- a proposal requiring a majority vote for election of directors; and
- a proposal asking the company to provide for cumulative voting.

A fourth proposal strongly backed by ISS was not passed. This was a proposal to recoup executive compensation that may not have been correctly earned in the light of financial restatements. The proposal argues that due to financial restatements in the 2000 through 2004 period, executive compensation based on financial performance was flawed and overpaid.

This is an important issue that has been largely ignored, and also crops up in other contexts. When companies overstate their financials, and this is subsequently corrected, the company often has to pay a penalty for their poor reporting. But rarely are executive bonuses paid on the basis of the misreported high financials reimbursed.
This issue may also arise in two other situations, both when the SEC investigates improper reporting and imposes fines upon the company; and when civil litigation penalizes a company for improper litigation. In both cases, the company/shareholders pay the penalty, but executives get to keep their undue gains.

More on this issue in the next post.