Corporation, the utility company whose power lines were the
first to fail in the blackout, seems to have ignored regulators'
warnings that its antiquated grid could falter.
The company, based in Akron, Ohio, has also ignored shareholder
demands that its executives improve the company's governance
practices . While greater attention to corporate governance may not
have prevented FirstEnergy's woes, the company's persistent
dismissal of shareholders' concerns about its entrenched board is a
troubling sign of complacency at a company whose every move is under
Seven times since 1999, a majority of shareholders voted for
changes in corporate governance, and in each case FirstEnergy did
not respond. This year, more than half of its voting shareholders
favored rescinding the poison pill that prevents an unfriendly
takeover at FirstEnergy and changing the company's staggered board
FirstEnergy directors serve for three years; just one-third of
the board is elected each year. A majority of shareholders have
voted four times to put the company's directors to annual
FirstEnergy said that its board structure is better because it
increases the "likelihood of continuity and stability in the board's
business strategies and policies." But many shareholders seem to
think that too much board continuity has made it too chummy. Ten of
FirstEnergy's 16 directors have been either on its board or one of
its units for 10 years or more.
John Chevedden a shareholder advocate in Redondo Beach, Calif.,
says the company has also tried to keep shareholder proposals out of
its proxy materials.
"Given their response, it is not surprising that they've had
other oversight lapses," Mr. Chevedden said, referring to recent
problems at the company's energy operations. "I think that when a
company doesn't respond to shareholder votes, that's all the more
reason to investigate it more thoroughly and demand more
accountability and give greater scrutiny to what the company
The company's bylaws state that its board structure cannot be
changed unless 80 percent of the shareholders vote to do so. None of
the recent votes on the staggered board have met that hurdle. But
given that 65 percent of those voting last May favored the proposal,
the company could certainly be more responsive.
After the shareholder vote last May, the company did not say how
it planned to respond, if at all. On Friday, Kristen Baird, a
spokeswoman at FirstEnergy, said the recent shareholder votes on
both the board structure and the poison pill were being examined by
Ms. Baird said the company is committed to good governance. She
disputed the view that it battles shareholder proposals.
FirstEnergy is not alone in ignoring shareholders' proposals,
even ones that win. Such proposals are nonbinding; many companies
shrug them off.
But the Securities and Exchange Commission is weighing new rules
that would give shareholders more power in the selection of
directors. One idea is to identify events that will prompt enhanced
shareholder access — like a company's refusal to act on
shareholders' proposals that win majorities.
"I think this is a company that still has a chance to be
responsive to its shareholder vote in its latest year, but the
evidence from its past conduct is not very encouraging," said
Gregory P. Taxin, at Glass, Lewis & Company, an independent
research firm in San Francisco focusing on corporate integrity.
"This is a board which has been in place for a long time with
provisions that have entrenched it there. It is a great example of
why we need the nomination reforms that the S.E.C. is