HP Investors to Vote on Proxy Access on March 14
Submitted by: Ted Allen, Director of Publications
On March 14, investors will finally have a chance to vote on proxy access.
On the ballot at Hewlett-Packard's annual meeting is a proposed bylaw offered by the American Federation of State, County, and Municipal Employees (AFSCME) and the state pension funds from New York, Connecticut, and North Carolina.
The proposed bylaw would require the firm's proxy statement to include director nominations from shareholders who hold more than 3 percent of the company's outstanding stock for at least two years. The California-based computer maker opposes the measure, arguing in its proxy statement that the bylaw could lead to the election of "special interest directors" and "could turn every director election into a proxy contest."
CEO Mark Hurd reiterated the company's opposition to the access proposal in a letter to large shareholders. "While HP has faced a number of serious and very public challenges over the past year, the HP board already has acted decisively to address those challenges," Hurd wrote in the letter, which was released March 7.
Meanwhile, the two largest U.S. state pension funds, the California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System, sent letters to HP shareholders last month, urging them to support the proposal.
"This reform is needed so investors have a meaningful way to hold accountable dysfunctional, entrenched boards that harm a company's ability to generate long-term value," Russell Read, the chief investment officer of CalPERS, said in a March 2 statement.
The investors' proposal is not likely to pass, but a strong showing at HP could prod other investors and companies to support proxy access. HP asserts that the proposed bylaw would require approval by two-thirds of the firm's outstanding shares, a difficult hurdle for any measure that is not supported by management.
The investors targeted HP after the company disclosed a boardroom-leak probe that sought the phone records of journalists and board members. Patricia Dunn stepped down as HP's board chair in September and has pleaded not guilty to state conspiracy and fraud charges over her role in the leak probe. In December, the company agreed to a $14.5 million settlement with California's attorney general.
(In other news, a federal judge dismissed a shareholder lawsuit against HP directors over a severance package for former CEO Carly Fiorina.)
The vote at HP is the first on the issue since a federal appeals court ruling in September revived the ability of shareholders to pursue access resolutions. In that decision, the U.S. Court of Appeals for the Second Circuit ruled that the Securities and Exchange Commission failed to adequately support its decision to allow American International Group (AIG) to omit an AFSCME access proposal from its 2005 proxy. That proposal was modeled after a 2003 draft SEC rule that the agency later abandoned amid corporate opposition.
Since that court ruling, the agency's commissioners have failed to reach a consensus on whether to allow investors to propose access bylaws at individual firms or to propose a broader access rule.
SEC Looks to Europe for Guidance
In late January, Chairman Christopher Cox said the agency would address proxy access before the 2008 proxy season. In preparation for these deliberations, Cox has commissioned a staff report on shareholder voting rights in Europe and other markets, according to the Financial Times.
Commissioner Roel Campos, who supported the 2003 draft rule, has suggested the SEC draft a rule that provides "some moderate measure of shareholder access to the proxy ballot." He proposed that the agency allow a shareholder who owns at least a 5 percent stake for one year to propose a minority slate of nominees to appear on the company's ballot. Campos noted that the United Kingdom has a more permissive rule, allowing 5 percent investor groups to nominate a full slate, but he said that mechanism is never used because "good discussions with shareholders make it unnecessary."
"I believe that companies will ultimately benefit from such provisions in that shareholders will find shares of such companies more valuable," Campos said in a Feb. 8 speech in Madrid. For instance, Campos said Norges and British Telecom have indicated that they would increase their American investments if the U.S. adopted proxy access.
Campos said he would oppose any attempt to overrule the AIG ruling and bar shareholders from bringing access proposals. "If we can't agree on a specific course of action, then I think it would be wise not to do anything this proxy season and let the Second Circuit's interpretation stand. Then, after we see what really happens during proxy season, we can act or not act as we see fit, with the benefit of real-world information," he said.
On March 5, Commissioner Paul Atkins, who opposed the 2003 draft rule, said the SEC might hold public meetings on the topic. Atkins previously has warned that proxy access could increase the influence of hedge funds, the FT reported.
"We'll probably be having roundtables," Atkins told reporters in Washington, according to Bloomberg News. "We should first figure out what the problem is" and whether a new rule could solve it.
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