Microsoft shareholders reject proposal to put employee on board with less than 5% of votes

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Microsoft CEO Satya Nadella. (GeekWire Photo / Kevin Lisota

Microsoft shareholders roundly defeated a proposal to put a rank-and-file employee on the company’s board of directors.

Speaking during the company’s first-ever virtual annual shareholders meeting on Wednesday, Microsoft general counsel Dev Stahlkopf said that the proposal was turned down with less than 5 percent of votes. The board recommended voting against the proposal, claiming it was unnecessary and could force the company to lower its criteria when selecting directors.

“We believe that all candidates for the board of directors should be evaluated by the same standards and criteria, whether or not they are a company employee, and the board is already deeply engaged on providing oversight of workplace culture and the employee experience, including receiving direct feedback from employees through anonymous polls,” Stahlkopf said.

The shareholder resolution was submitted by NorthStar Asset Management, an activist investment firm that oversees more than 75,000 Microsoft shares. Mari Schwartzer, director of shareholder activism for NorthStar, said the resolution stemmed from Microsoft’s perceived unresponsiveness to employee concerns over issues like government contracts and sexual harassment.

NorthStar Asset Management’s Mari Schwartzer. (NorthStar Photo)

“As longtime investors in Microsoft, we fear that our company has not responded sufficiently to these concerns from employees, crucial stakeholders in our company,” she said during the meeting Wednesday. “Continually ignoring employee concerns is a longterm risk to our company and shareholder value.”

NorthStar submitted proposals to Microsoft and FedEx calling for employee representation on their boards this year. The Boston-based asset management firm has been submitting shareholder resolutions on behalf of clients since 2000. NorthStar plans to submit similar resolutions to additional companies in 2020. In an interview with GeekWire this week, Schwartzer said NorthStar will likely file the resolution with Microsoft again.

“We want to take this opportunity to have a conversation with other shareholders,” she said. “Proposals go to a vote often … frequently we’re able to re-file them and, in many cases, the proposal will get a higher vote after its second or third time out.”

Inspiration for the shareholder resolution came from Sen. Elizabeth Warren. As part of her campaign for president in 2020, Warren has proposed the Accountable Capitalism Act, which would, among other things, require 40 percent of board directors to be selected by employees at large U.S. companies. It’s a novel idea in the U.S. but employee representation in corporate governance has gained some popularity in Europe.

Microsoft and other technology companies are under mounting pressure to take action on a range of political and workplace issues from employees and shareholders.

The company has come under fire for its work with U.S. Immigrations and Customs Enforcement and the military, as well as internal issues like sexual harassment. Women at Microsoft shared stories of sexual harassment in the story in more than 90 pages of emails leaked earlier this year. Microsoft CEO Satya Nadella pledged to take action in response to the stories. But Microsoft is resolved not to cancel government contracts, as some of its tech industry peers have.

In other business the annual meeting, Microsoft shareholders rejected a separate proposal that would have required the company to prepare a report on its global median gender pay gap.

In addition to the proposals, Microsoft took questions from shareholders for approximately 20 minutes. The questions focused on a range of topics, including investments in cloud computing, the ethics of developing artificial intelligence tools, Microsoft’s audit of an Israeli partner company’s use of facial recognition software, climate change, and more.

One question focused on Nadella’s pay as CEO, where he makes 249 times the compensation of the median employee. Though several executives brushed aside the importance of Microsoft’s rising market capitalization, which today sits at $1.14 trillion, Chair John Thompson said Nadella’s compensation is tied to the company’s value. Microsoft’s changing culture and its emphasis on cloud computing are important hallmarks of the Nadella era.

“The notion of a cultural change at this company would not have happened were it not for Satya,” Thompson said. “And strong execution of his vision around an intelligent cloud has been the driver of growth at this company.”

GeekWire reporter Nat Levy contributed to this story.

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