Earlier this year
(MSFT - Get Report) took some progressive steps in corporate governance, making groundbreaking decisions to expense stock compensation and eliminate options.
And the company framed its subsequent decision to name two new independent directors as another advance.
But some critics say a handful of items on the company's proxy statement for the Nov. 11 shareholders' meeting represent a corporate governance stumble by the software behemoth. They point to the following:
The re-election of two of the company's board of directors. Critics are objecting because one serves on eight boards and the other sits on the board's audit committee but still has ties to Microsoft.
Pay raises for nonemployee directors to more than $300,000 a year, based on Microsoft's current stock price.
A plan by Microsoft that allows employees to sell out-of-the-money stock options to J.P. Morgan should be on the proxy but isn't, one organization says.
At least one institutional shareholder is acting on the criticisms. "My plan would be to withhold votes on these kinds of issues," says Cynthia Richson, corporate governance officer for Ohio Public Employees Retirement System, which holds 21.7 million shares of Microsoft stock. (Because there is no competing slate, Microsoft shareholders can only voice opposition to a director by withholding a vote rather than voting against a director.)
In particular, Richson said she opposes the re-election of directors Ann Korologos, a former U.S. secretary of labor, and Director Jon A. Shirley, former president and COO of Microsoft. The problem with Korologos is that she serves on the board of seven other companies, including
, its subsidiary American Airlines,
Shirley, meanwhile, sits on the Microsoft board's audit committee but is not a fully independent director as defined by proxy advisers, because he is a former Microsoft executive and his son works for the company.
Richson said the number of board seats held by Korologos is "way on the high side of excessive." The Council of Corporate Investors has a set policy, followed by OPERS, that directors should not sit on more than five boards.
Glass, Lewis & Co., a research firm that advises institutional investors on proxies and corporate governance issues, sets a limit of five board seats for company CEOs and seven for non-CEOs. A director should spend about 200 hours a year on board duties, which for Korologos would mean a whopping 1,600 hours a year, said Glass, Lewis CEO Greg Taxin.