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At the Washington Mutual annual meeting today, the score on three key shareholder issues was activists three, bank zero. The nation’s largest thrift, which reported a $1.1 billion loss for the first quarter and has been among the hardest hit by the subprime mortgage crisis, has come under heavy fire in recent months. And under even more at today’s shareholder meeting: “It’s no longer a WaMu board,” said Scott Adams, a representative from the American Federation of State, County and Municipal Employees (AFSCME), who was interrupted by applause. “It’s more like a Wa-Me board, short for what’s in it for me. The mutual is gone.”
Shareholders managed to win big on three fronts. One of two shareholder proposals on the proxy ballot, a separation of the Chairman and CEO posts currently both held by Kerry Killinger, won 51% of the vote, a rare majority win for shareholders. Earlier today, director and finance committee chair Mary Pugh, who was responsible for monitoring the bank’s risk management, resigned under pressure. Several shareholder groups and proxy watchers, including Proxy Governance, ISS and Change to Win (CtW) had all called for shareholders to withhold votes for her reelection.
And perhaps most notable: WaMu reversed a much-criticized decision to leave out the company’s mortgage-related losses when calculating profits that determine executive bonuses for the year ahead. The move effectively shielded executives from further fallout in the housing crisis, and was widely scoffed at by pay consultants. Shareholders were incensed. “It doesn’t make any sense to exclude some of the most significant lines of business they’re in,” says Richard Clayton, research director at CtW. As recently as a few weeks ago, the company was defending the move. “WaMu’s executive compensation program is designed to align compensation with the company’s current and long-term business strategy and goals,” wrote one spokesperson in an email on March 25. “As a result, management is held accountable for total company performance.”
Is today’s WaMu meeting a tipping point for shareholder success? It’s too early to tell, and WaMu’s case is extreme. But the bank’s succumbing to executive pay criticism, the departure of Mary Pugh, and the high vote on the CEO-Chairman role is one more indication of a new era of shareholders’ weight in the often arcane world of corporate governance. Just don’t expect them to rest on these wins. CtW is already calling on the company to release full election results and believes preliminary results may point to other directors failing to win a majority. “It’s disappointing that it took the concerted action of shareholders to correct the failure of the compensation committee,” said CtW executive director William Patterson in a statement. “To avoid a repeat failure by the compensation committee, we have called on Washington Mutual’s board to immediately request the resignation of [compensation] Committee Chairman James Stever.”
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