BREAKINGVIEWS-Madcap board clash stresses why every vote counts

By Jeffrey Goldfarb

NEW YORK, July 3 (Reuters Breakingviews) - Although retail investors can vote with their feet, their power at the corporate ballot box often goes under-appreciated. A board clash at vaccine developer Sinovac Biotech SVA.O, centered on the fate of its $10 billion cash hoard, offers a stark reminder to directors and dissidents alike to put a higher value on average Joe shareholders.

A wild 2018 election threw Sinovac into turmoil. Incumbent board members challenged the victory of a rival slate, with the fight only resolved by a court earlier this year. The legal brawl has rendered the company’s shares untradeable since February 2019, setting the stage for a showdown on July 9 between dueling sets of directors to determine what happens to the company’s Covid-jab windfall.

Coalitions behind the two competing camps collectively own about 80% of the company, and they are split almost evenly based on a Breakingviews analysis, leaving proxy solicitors and investors scrambling to woo the few votes up for grabs. They are held by only about 3,000 investors, meaning that the cost to win each one from building campaign websites and advertising on social media services Reddit and X is steep. Yahoo and WeChat message boards are fired up. Because Sinovac shares have been frozen so long, it will be a pricey slog to track down investors from Houston to Hong Kong.

Getting them to weigh in would be tough under the best circumstances. Although retail stockholders own a slowly growing slice of the U.S. market, only 30% of their shares turn up for corporate ballots, according to investment plumbing outfit Broadridge Financial Solutions. It doesn’t help that they’re largely overlooked until the stakes are especially high, as when Procter & Gamble PG.N squared off with pushy billionaire Nelson Peltz in 2017 and Hewlett-Packard struggled to buy rival PC maker Compaq almost a quarter of a century ago.

The U.S. system is also archaic, often reliant on snail-mail and phone calls. To be counted, competing color-coded voting cards must include a unique identifying number, adding confusion. Such plebiscites are also typically English-only affairs, further complicating the situation at China-based Sinovac.

Individuals were once held in higher regard. Alexander Hamilton, the first U.S. Treasury secretary, championed “prudent mean,” which capped the number of votes any one shareholder could cast to limit the power of concentrated ownership, according to economic historian Robert Wright. More recently, money-managing Goliath BlackRock BLK.N started letting ETF and index clients have their say on ballot measures at the underlying companies being tracked. The more accessible voting becomes, the more clout mom and pop will wield and the harder they'll be to ignore.

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CONTEXT NEWS

Sinovac Biotech has scheduled a special shareholder meeting on July 9, at which investors will vote on dueling board nominees.

The sitting directors were recently installed following the conclusion of a seven-year legal battle, which began when the previous incumbents refused to accept the victory of a last-minute dissident slate in February 2018. Nasdaq halted trading in the company’s shares in February 2019.

SAIF Partners, an investment firm that owns a 15% stake in Sinovac, has proposed a rival 10-person slate that includes some directors on the existing board.

Proxy advisory firm Glass Lewis on July 1 recommended that shareholders back the existing board.