Protests broke out last week at the first annual shareholders’ meeting of Canadian energy company, Emera. The company is publicly traded, but one of its wholly-owned subsidiaries, Nova Scotia Power, is the government regulated company that supplies Nova Scotia with virtually all of its electricity.
The protest concerned the fact that several Emera and Nova Scotia Power executives had received substantial raises, despite the fact that Nova Scotia Power recently went before the province’s Utility and Review Board to get approval for an electricity price hike. According to the utility, the increase was needed to add new renewable energy capacity to Nova Scotia’s grid. But protestors wondered if the extra cash wasn’t going straight into the pockets of wealthy executives.
To observers of corporate governance this is actually a “good news” story. Few people think anyone is doing executive compensation particularly well. Sure, most boards have Compensation Committees now, and many big companies engage compensation consultants to do the relevant benchmarking and to make recommendations. But not many are particularly confident in either the process or the results. Despite these facts, corporate boards still face relatively little pushback from shareholders, and are seldom held to account in this regard. There are of course exceptions (including a number of failed “say on pay” votes), but those exceptions prove the rule. And that’s unfortunate. In any ostensibly democratic system, it is a good thing when the voters take the time to show up and ask hard questions. Even if no one is sure such participation improves outcomes, it is an invaluable part of the process.
The other point worth making is that there are two very different kinds of stakeholders concerned in a case like this, but in this instance they happen to overlap substantially. On one hand, there are Emera’s shareholders. They have an interest in making sure the company’s Comp Committee does its job, and sets executive compensation in a way that attracts, retains, and motivates top talent in order to produce good results. On the other hand, there are customers of Nova Scotia Power, ratepayers who want a cheap, stable supply of electricity. As it happens, many of the vocal protestors at Emera’s annual meeting are members of both groups: they are shareholders in Emera and customers of Nova Scotia Power. But it is critical to recognize that these are two separate groups, with very different sets of concerns. When this story is portrayed as a story about angry shareholders, this crucial distinction gets blurred. Namely, what’s good for shareholders per se is obviously not the same as what is good for paying customers. And, importantly, a company’s board of directors aren’t accountable to customers in the same way that they are to shareholders.