It's proxy season, and the shareholders are at the gates

So much for gratitude. In the past financial year, Walt Disney delivered everything you might expect from the owner of a Magic Kingdom: Bumper profits, a well-received acquisition of Lucasfilm, prospects that everyone agrees are better than ever. No ­wonder that shares in the entertainment conglomerate are at an all-time high.

In almost any other year, Bob Iger, Disney's boss, could have looked forward to unstinting gratitude from shareholders at the firm's annual meeting Wednesday. Instead, shareholder activists, grumbling that Disney is in danger of becoming a "tragic kingdom," made a determined though unsuccessful attempt to strip him of one of his titles by voting to split the roles of chairman and chief executive.

Shareholders used to mount such campaigns only at firms that were performing horribly, as happened toward the end of the reign of Michael Eisner, Iger's predecessor. Even then, shareholder activism was rare; most investors simply did the "Wall Street walk," selling their shares if they were unhappy.

But since the financial crisis of 2008, which revealed widespread flaws in corporate governance, shareholders have flexed their muscles more often. Public outrage over high executive pay, regulatory reforms to give shareholders greater power and more scrutiny of how they use that power have created a climate in which even the most profitable companies can be targets of activism if their corporate governance is not up to scratch.

Apple Inc. is another striking example. This year, as its shares fell, Apple capitulated, offering to introduce new voting rules at its annual meeting. In the end, a court blocked this at the behest of another activist investor, Greenlight Capital, which has been campaigning for Apple to return some of its cash hoard to shareholders. The hedge fund feared that Apple's other reforms planned as part of the package would get in the way of this.

This year's proxy season—named for the proxy forms by which shareholders cast their votes — could make cage fighting look tame. Activists are attacking boards of directors, and are themselves being pummeled by critics.

'Paralyze the Company'

Martin Lipton, a Wall Street lawyer, issued a memo entitled "Bite the Apple, Poison the Apple, Paralyze the Company, Wreck the Economy," which accused a "gaggle" of hedge funds of trying to extract short-term profits from companies without regard to the long-term consequences. Lipton has been campaigning to require quicker disclosure of institutional shareholdings and newly acquired block shareholdings.

Activist hedge funds deny that they are only interested in short-term profits. They sound more plausible than their predecessors did in less-transparent times a decade or two ago. Greenlight was an investor in Apple years before its boss, David Einhorn, started agitating for better management of its cash. Similarly, last year's intervention at Yahoo Inc. by Third Point, another hedge fund, seems to have been a genuine attempt to improve a failing firm's long-term prospects.

While Pershing Square's efforts to revive J.C. Penney, a retailer, are faltering, nobody thinks that is due to an excessive focus on short-term profitability.

To the critics, those activist shareholders not motivated by short-term financial gain have other dubious intentions. A recent report by the Proxy Monitor at the Manhattan Institute, a conservative think-tank, found that 36 percent of the shareholder resolutions in 2011-12 were proposed by union pension funds. A further 31 percent were proposed by three wealthy individual corporate gadflies, their relatives and family trusts; 22 percent were self-styled "socially responsible" funds or had an explicit religious or public policy objective.

Whether the motives of the proposer matter is debatable; after all, to succeed a proposal needs to win over a majority of shareholders, most of whom are likely to be institutional investors with no agenda besides improving returns.

Many shareholder proposals are merely advisory. Companies that have been on the wrong end of shareholder votes have reacted quite differently. Chesapeake Energy, one of last year's top targets, introduced sweeping reforms to its corporate governance and persuaded its controversial boss, Aubrey McClendon, to retire.

Citigroup also saw the departure of its boss, Vikram Pandit, although this was not directly caused by shareholders voting against his pay package last year. Still, the bank's new top managers have been on a "charm offensive" to win shareholders' support at this year's meeting for a raft of complex governance and pay reforms.

The next few months will be a crucial test of shareholders' ability to turn discontent into real change. One thing seems certain: the days of guaranteed boredom at annual meetings are gone.