What Five Powerful Shareholders Want From Oracle (And Why They Probably Won't Get It)

The age of the activist investor is upon us and Oracle is once more being targeted.

As we previously reported, a group of five powerful institutional shareholders want to make changes to how Oracle elects its board members and ultimately change how it pays its top executives.

"We equate the recent announcement on changes to Oracle's leadership structure as simply a rearrangement of the deck chairs which serves to further empower executive management," the shareholders said in an open letter to other investors.

They want something called "proxy access," which lets a group of shareholders nominate their own board members and have those alternatives listed on the company's annual proxy ballet mailed to shareholders.

The shareholders behind this proposal are California State Teachers' Retirement System (CSTRS); The Nathan Cummings Foundation (the charitable foundation formed by Sara Lee founder Nathan Cummings); PGGM Investments, a Dutch pension fund service provider that manages EUR 178 billion; the RPMI Railpen Investments, a UK pension fund service provider; and the retirement fund for U.S. autoworkers, UAW Retiree Medical Benefits Trust.

We asked CSTRS why it was pursuing this, when Oracle has already made changes to its executive compensation. CSTRS owns 10.4 million shares of Oracle. A spokesperson told us:

CalSTRS believes the case for shareholder access to the proxy ballot is particularly compelling at Oracle Corporation, where insufficient board accountability and poorly designed compensation programs create significant risk to shareholders.

While the company has made some positive moves as of late, the needed structural changes to executive compensation programs and access to board nominations remain unaddressed. Given the existing board's long-running lack of responsiveness to shareholders, proxy access remains an unresolved central issue for us.

These shareholders want to be able to nominate someone who has had a 3% stake for at least three years. That 3% for three years follows a rule for proxy access set by the US Securities and Exchange Commission that was struck down by a court in 2011. Now the only way to get it is through a shareholder proposal that amends that company's bylaws.

In May, Verizon's board said yes to a similar shareholder proxy access proposal, and it passed.

But companies generally don't like this way of nominating board members, fearing that such board members are really working for the shareholders who nominated them, and not the company at large, reports David Katz on the Harvard Law blog.

Oracle points out that owning 3% of Oracle stock equates to about $5.7 billion worth of stock, and a person with those resources can afford to "bear the expense" of mailing out his/her own proxy ballets. The board also says that such a person can come forward and ask to be part of the board through the existing methods.

Odds are, this shareholder proposal won't pass. It's not supported by Oracle's board and it's almost unheard of that a shareholder proposal opposed by the board gets passed.

But sometimes just making waves is enough to make a board start listening.

For instance, the last time activist shareholders complained about how much stock the company was offering to its top executives as stock options, the board responded and halved that amount. Plus it created a new incentive: stock contingent on performance. Even so, Oracle's top three executives remain among the most highly paid in corporate America.

Oracle declined further comment.