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A couple of weeks ago, on May 25th in Wilmington, Delaware, Home Depot held its annual shareholders meeting.  What happened there has been described by observers as "cowardly", "disgusting", "disgraceful" and "contemptous".  It was all of those things.  But it is also extremely telling as to how so many of our major corporations have become organizations that serve no one well, and how they can be taken back and made responsible.

The situation at the annual meeting was set for controversy, as Home Depot's CEO, Robert L. Nardelli, has become the latest poster child for runaway executive pay.  Mr. Nardelli has been awarded compensation by the Home Depot board of $245 million in the five years he has been CEO of the company, including $37.1 million last year alone.  Over those five years, the stock of Home Depot has fallen by 12%, while the stock of its closest competitor, Lowe's, has risen 173%.  Stockholders, who own the company Mr. Nardelli is getting so richly compensated for ill-serving, were set to withhold votes from the directors who Mr. Nardelli has asked them to approve for the board at the annual meeting.

What happened next was a circus.  Only one of the eleven directors of the company showed up, Mr. Nardelli.  In fact, no chairs were even set up for the other directors.  Mr. Nardelli permitted one question per person, with one minute each to speak (time was kept on a large digital clock).  Questions such as what steps will the board take to address conflicts of interest were given terse, single sentence responses (the answer to that particular question was "This is not the forum in which to address these comments.").  Shareholders who did not stop speaking when their time expired were approached by men described by Joe Nocera of the New York Times as "big, strong men, some wearing Home Depot aprons, who look as if they could be bouncers at a rowdy club."  The vote tallies for the stockholder issues were kept secret.  The entire meeting lasted less than an hour.

Why does this story matter?  What makes it more than another story of how CEOs and corporate directors consider themselves above any responsibility, be it to their country, their employees, or their shareholders (who ostensibly own the company)?  After all, Home Depot has already made concessions, vowing to "return to our traditional format for next year's annual shareholders meeting, which will include a business overview, the presentation of proposals, an opportunity for shareholder questions and with the board of directors in attendance."

We sometimes forget that in a free and democratic society, the notions of freedom and democracy are not only our covenant with our government, but with one another.  What meaning does capitalism have if contracts are unenforcable against the powerful, other than as an excuse for the inequitable distribution of wealth?

The formative idea of the publicly-held corporation is that of voluntary democracy; for the price of a share, you can purchase your stake in a company, to share in the profits and the decision-making that directs the enterprise.  Yet today, we have seen the disappearance of that democracy.  But this is changing.

A movement has begun among investors to retake their role in the choosing of the boards of directors.  Proposals to require the election of directors by a minimum of a majority of shareholders have been raised at 140 companies this year.  More than half of the shareholders voted for these proposals at Bank of America, International Paper, and Verizon.  Right now, the SEC is considering whether or not to allow shareholders in CA, the software company once known as Computer Associates, to hold a vote on two long-term members of the board, over the strong objections of CA.  A special committee of the New York Stock Exchange has recommended that the NYSE abolish a 70 year old rule allowing brokerage firms to vote shares in director elections if their clients do not give them instructions.

Who are the people most robbed by the corporate scandals and mismanagement we have observed in the past decade?  Who loses most when the Enrons and Global Crossings give out hundreds of millions in compensation to incompetent and criminal executives?

The shareholders.  The employees with shares in their 401(k) funds.  The unions with their members' pensions invested in the market.  The parents saving for their childrens' education.

What happened at the Home Depot shareholders' meeting affects us all that way.  The fight to take back companies from their executives to their owners is the most effective means at our disposal to restore both fiscal sanity to our corporations, and to restore power to the people who have paid for their share in it.  This is a fight worth paying attention to.

Originally posted to Jay Elias on Wed Jun 14, 2006 at 04:00 PM PDT.

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