Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Almost 90 percent of the way through the U.S. proxy season, one thing's become clear: When it comes to forcing change, disgruntled shareholders can't do it on their own. Activists, take note.

Unhappy investors attempting to oust management or board members by simply voting at annual general meetings aren't getting their desired results. Specifically, removing the executives performing the dual roles of chairman and CEO has proved impossible, in part because although the groups of shareholders are sizable, they aren't a majority. The largest such example? A decision by 37.7 percent of shareholders to withhold their vote for insurer Old Republic International Corp.'s CEO and chairman Aldo Zucaro, who has held both roles since 1993. 

Zucaro and most of the other top 15 dual CEO-chairmen with the paltriest investor support share this in common: A recommendation from proxy advisory firm Institutional Shareholder Services to either vote against or withhold support from them, mainly because they've facilitated shareholder-unfriendly corporate governance. This includes everything from the failure to establish a board with an independent majority to renewing a poison pill provision without putting it to shareholder vote.

Growing Unrest?
Executives holding the dual role of chairman and CEO at these companies won approval despite receiving the most pushback from shareholders.
Source: ISS Analytics
*Withhold recommendations are made when a company has a plurality vote standard; Against recommendations apply when a company has a majority vote standard

For activists, these situations could represent a starting point for launching a broader campaign for change, especially at a time when its getting harder to make a unique bet. After all, if there's already a broadly sympathetic shareholder base, that should help increase their chances of a mounting a successful proxy fight and reaping the stock gains that could result from a victory.

Not all companies with large groups of disgruntled shareholders will translate as activist bait. For instance, a situation like Netflix Inc. -- which has long ignored shareholder democracy -- isn't a logical target because its stock is already richly valued. Activists also would be disinclined to get involved in situations where the action of simply replacing key management or directors won't necessarily improve a company's outlook -- for example, if there are no dramatic operational improvements that can be made or if strategic actions like breakups or takeovers aren't realistic. But given that negative investor sentiment is often a symptom of deeper problems, it's something to watch.

In this year's list of companies with the least-loved-yet-still-approved CEOs, one case stands out: Cornerstone OnDemand Inc., a $2.1 billion provider of cloud-based software for human resources functions. Its chairman and CEO Adam Miller managed to earn "withhold" votes from 27 percent of the company's shareholder base even though he was endorsed by ISS with a "for" recommendation.  

That's an unusual occurrence, so it may come as no surprise that in this case shareholders with the potential to agitate are already there. Praesidium Investment Management and Eminence Capital each hold stakes and at least one has already made its presence felt: Praesidium was among shareholders that sought to push management to set up a formal process for considering strategic alternatives. Cornerstone has yet to do so, despite having reportedly received approaches from potential buyers.

Off Pace
Although its revenue growth is slowing, Cornerstone OnDemand is finally expected to turn a profit in 2017
Source: Bloomberg

I expect Praesidium and Eminence -- alone or together -- will formalize campaigns by publicly pushing for change, a move that may include nominating a new slate of directors and could result in the formal appointment of an adviser to field takeover interest. Such interest isn't guaranteed but the company's shrunken valuation at 3.8 times blended forward sales makes it cheaper than rivals that are trading at a multiple of roughly 4.6, according to data compiled by Bloomberg.

While Cornerstone's market share has dwindled as corporate clients pivot to software providers like Workday Inc., rivals like SAP SE, Oracle Corp. or International Business Machines Corp. could snap it up and add it to their own suite of software products. The same goes for private equity firms that have been big buyers of various software companies and in some cases, bundled them up. 

Cornerstone's situation is still in flux. But should a successful activist campaign result in an sale, it'll help prove the case that where shareholders are unhappy, there's opportunity. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Lead director Mark Baker also received "withhold" votes totaling 27 percent. 

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Gillian Tan in New York at

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Beth Williams at