Lifting the Lid-US activists target boards amid mortgage fallout

By Martha Graybow

NEW YORK, March 14 (Reuters) - U.S. activist shareholders angry over the mortgage market meltdown are deploying what may be one of the strongest weapons in their arsenal: opposing corporate directors up for re-election.

The annual spring stockholder meetings will give investors at banks, lenders and home builders hit by the turmoil a chance to air their frustrations. Chief among them are complaints that boards should have seen the housing problems coming and did not do enough to manage risks.

Shareholders at only a few companies will get to vote on ballot proposals spurred by the mortgage crisis this year. Companies have been largely successful in blocking proposals put forth by union-backed pension funds and other investors from going to a vote, arguing to regulators that the proposals can be excluded under federal securities laws.

That leaves the so-called "vote no" campaigns targeting board members as the main rallying cry for unhappy investors.

"There is an appetite about this in the institutional investor community to hold directors accountable," said Michael Garland, director of value strategies at the coalition Change to Win Investment Group, which advises union pension funds. "At the end of the day, governance comes down to the board, and individual director performance matters."

While it's almost unheard of for a board member to lose a re-election bid, activists say they don't need to get a majority of "withhold" votes to send a message. A significant lack of support for one or all directors can embarrass a company and spur internal changes, they say.

MORGAN STANLEY TARGET

Change to Win has urged Morgan Stanley (MS.N: Quote, Profile, Research) stockholders to vote against the re-electon of two audit committee members, blaming them for $9.4 billion in subprime-related write-downs last last year. The group also opposes the re-election of CEO John Mack as board chairman, saying an independent chair is needed to prevent a repeat of recent failures.