Lessons in Shareholder Power from Succession

Spoiler alert: Wayster Royco's travails are barely fictional

Marissa Monson 26 November, 2021 | 12:15AM
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actors from Succession

HBO has found a way to make even proxy voting dramatic.

In the current season of its hit show "Succession," executives from the family-run fictional conglomerate Waystar Royco vow to shareholders that they’ll turn the scandal-plagued company around. The moment of truth – whether shareholders believe the family and accept its plans – was to take place at the company's AGM.

But viewers know the real decisions are being made behind the scenes, before the annual meeting takes place. And before that meeting, the Roy family has been bartering with influential shareholders to retain power, even as smaller shareholders with minority stakes waited patiently to cast their votes on the future of the company’s leadership.

The show is fiction, but these scenarios regularly play out at annual shareholder meetings. And in recent months, we’ve seen shareholders increasingly call for stronger protections for smaller investors and access to the proxy voting process to address governance concerns.

For instance, there was the growing shareholder revolt around Tesla’s (TSLA) management practice and its board of directors at an October company meeting. CEO Elon Musk’s sizable stake in Tesla stock blocked four of the five shareholder resolutions. A similar story can be told about Facebook (FB) (now Meta). The way the company’s shares are structured, chief executive Mark Zuckerberg essentially has complete veto power over shareholders’ votes.

This outsize power can lead to unaccountable management, excessive pay and rewards, along with a heavy hand in selecting the governing board for the company, all pitfalls for the fictional Waystar Royco.

So, What is Proxy Voting?

When you buy stock in a company, you become an owner of a small piece of that company. You’re a shareholder now. Proxy voting allows shareholders like you to influence decisions; it’s the primary way to have a say in how the company is governed.

Most voters don’t attend the actual shareholder meeting anymore, so they vote by mail or online: That's where the word “proxy” comes in. Just like voting in elections, the act itself isn’t particularly interesting or glamorous, but the outcomes can have impact.

Typically, shareholders are voting on resolutions such as how much executives should get paid, who should sit on the company’s board, and targets and strategy around climate change. These matters can shape a company’s course, like with the oil giant Exxon Mobil (XOM).

Proxy Voting and the Battle for Boards 

Exxon’s corporate proxy elections made front page news in late May when three dissident director candidates were elected by shareholders to fill board seats against the wishes of the company’s incumbent board and management. This push was motivated by a greater focus on renewable energy and led by Engine No. 1, a newly formed activist hedge fund with a relatively small stake in Exxon, according to Jackie Cook, Morningstar’s director of investment stewardship.

“Historically, investors – especially big institutional shareholders – have deferred to company management and rubber-stamped their recommendations,“ Cook said. “That’s especially the case when it comes to board candidates.” But as investors look for ways to step up pressure on companies to decarbonise and to embrace diversity and social purpose, they’re looking at votes on directors and pay practices as strategically important points of influence. Over the past several proxy seasons, we’ve seen large institutions increasingly supporting proxy ballot measures tabled by shareholders. 

And though this process might feel like “inside baseball”, Cook says, proxy voting gives investors a voice in how the companies in which they own stock are run.

A company’s board is often responsible for what happens to a CEO. This can include how much they make, what happens when they leave, and executing the succession plan for who takes over next. Succession planning is one of the most important functions of corporate boards, especially public company boards that are supposed to be protecting the interests of all investors, including smaller shareholders like you and your fund.

All too often, there is a complete disconnect between executive pay and value created for shareholders, especially if board members and CEOs have close relationships, according to Morningstar research.

So where a board supports resolutions that benefit shareholders, it can effect major change, including aligning executive pay with performance metrics that really matter to shareholders. In the case of the Roy family at Waystar Royco, that could mean more than just the loss of their private jets.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Marissa Monson  Editorial experience director for Morningstar