|AZA Executive Employment Lawyer Joseph "Joe" Ahmad quoted in Law360 article |
Say-On-Pay Gets A Lift As Citigroup CEO Steps Down
|October 16, 2012 11:51 pm|
Law360, New York (October 16, 2012, 9:07 PM ET) -- A dramatic vote by Citigroup Inc. shareholders to reject CEO Vikram Pandit's pay in April set off a wave of say-on-pay suits that have largely failed, but experts said Pandit's abrupt resignation Tuesday suggests the votes remain a powerful tool outside of court.
Citigroup said its board had voted to accept the resignation and immediately replace Pandit with Michael Corbat, formerly CEO of the bank's operations in Europe, the Middle East and Africa. The surprise move capped a nearly five-year tenure in which Pandit struggled to guide the bank through the 2008 financial crisis and faced the shareholder rebuke over his pay in April.
That nonbinding referendum marked the most dramatic of the say-on-pay votes authorized by the 2010 Dodd-Frank Act. Since the reform law went into effect, negative votes at public companies have sparked multiple lawsuits, including an ongoing class action in New York federal court against Pandit and other Citi leaders. But the suits have had a dismal success rate thus far, raising concerns that say-on-pay gives shareholders more bark than bite.
The April say-on-pay vote almost certainly played a role in both the dispute and Pandit's ultimate resignation, according to Joseph Y. Ahmad of Ahmad Zavitsanos Anaipakos Alavi & Mensing PC. That reflects a broader trend of corporate boards taking the nonbinding polls more seriously, he said.
"Even though it's symbolic, you get a feel for how the shareholders view management," he said. "The board gets that loud and clear."
Taken together, the abrupt resignations leave Citigroup in a precarious situation, according to Ahmad. The bank would have preferred a more orderly transition in which Pandit temporarily stayed in his role as CEO until the new chief, Corbat, was ready to take the reins, he said.
Uncertainty surrounding the transition was reflected in Citigroup's stock price Tuesday, which fell sharply before rising in afternoon trading. But the bigger takeaway is the growing power of say-on-pay votes since Citi shareholders took their bold step in April, Ahmad said.
"The shareholders voiced their concerns, and that may have prompted the board to be a little more aggressive in their management of Pandit," he said. "They didn't have a choice because they knew how their shareholders felt."
© Copyright 2012, Portfolio Media, Inc.
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