Dell shareholders re-elected company CEO and Chairman Michael Dell to the board of directors, but a large segment of investors are questioning the company's leadership, observers said on Wednesday.
Shareholders with 378 million of around 1.5 billion total votes -- about 25.2 percent -- withheld support for Michael Dell's election to the company's board, the company said in a filing on Tuesday with the U.S. Securities and Exchange Commission (SEC).
The vote, held Thursday, is a sign of mounting investor frustration around a sagging share price and management practices that have included misleading financial reporting, observers and shareholders said.
Dell wields too much influence over the board and company as the CEO and chairman, said Brandon Rees, deputy director of AFL-CIO's office of investment, which holds Dell stock. A letter sent by the AFL-CIO and American Federation of State, County, and Municipal Employees (AFSCME) on Aug. 3 encouraged shareholders to withdraw their support for Dell as chairman.
A Dell spokesman, David Frink, said in an e-mail that Michael Dell has the support of its shareholders and board.
"The Dell Board of Directors recently expressed its unanimous confidence in Michael Dell's leadership of the company. A majority of shareholders agreed and last week reelected Mr. Dell to the board," Frink said.
But the large number of shareholder votes against Dell represents growing discontent about the company's performance under Dell's leadership, Rees said.
"It's rare for a chairman and CEO who founded a company to receive a significant no," Rees said.
"Shareholders could send a message that independent leadership is needed ... to improve accountability," Rees said, adding that the trade union will continue to encourage the board to establish changes in leadership.
Shareholders have lost tremendous share value under Dell's leadership as chairman, Rees said. The company's share price has fallen 66 percent in the past decade with Dell as the company's chairman, Rees noted.
Through the vote-withholding campaign, the AFL-CIO also hoped shareholders would hold Dell accountable for the SEC's allegations against the company for improper disclosure of the company's relationship with Intel and misleading financial practices.
The SEC, in a complaint filed last month, said that Dell did not disclose exclusive payments the company received from Intel to boycott CPUs manufactured by AMD, Intel's main rival.
The SEC also alleged that Dell executives manipulated earnings by keeping "cookie jar" reserves, which were used to cover shortfalls in operating results from fiscal 2002 to fiscal 2005. It cost the company US$100 million and Michael Dell $4 million to settle those allegations. As part of the settlement, neither the company nor Dell admitted to wrongdoing.
However, there has also been frustration among investors wondering why the company's stock isn't performing, said Charles King, principal analyst at Pund-IT.
The company was in trouble earlier in the decade when the direct-sales PC business model almost drove the company to a dead end, King said. Michael Dell recognized that radical business changes were needed, and he revamped the company's operations after reinstating himself as CEO in 2007.