Proxy Access Gets 43% at HP
Submitted by: Ted Allen, Director of Publications
At Hewlett-Packard this week, a proxy access proposal won 43 percent support from investors in the first vote on the issue this year.
Access supporters hailed the "landmark vote" and the "outstanding result" for the new bylaw proposal, which was opposed by the computer company's management. (Meanwhile, two other shareholder resolutions--calling for linking long-term equity incentives to corporate performance and requiring an investor vote on "poison pills" takeover defenses--won majority support.)
"HP should heed the voice of shareholders and sit down with us to discuss qualified candidates who can help rebuild the board," said Richard Ferlauto, director of pension investment policy at the American Federation of State, County, and Municipal Employees (AFSCME), which filed the access proposal with the state pension funds for New York, Connecticut, and North Carolina.
The proponents targeted HP after the California-based company was embroiled in a high-profile boardroom leak scandal that led to the resignation of two directors and board chair Patricia Dunn. Also this week, a California court dismissed criminal charges against Dunn over her role in the company's leak probe.
According to AFSCME, the proposal received support from 800.8 million shares, while 1.061 billion shares opposed the measure at HP's March 14 meeting. The proposed bylaw won 43 percent of the total votes cast "for" and "against." (This figure does not include abstentions, which the company and some news organizations included in their tallies when reporting that the proposal received 39 percent support.)
The 43 percent vote for proxy access surpassed the average support earned by other popular shareholder initiatives during their first year on the ballot. For instance, resolutions calling for an advisory vote on executive pay averaged 40 percent support in 2006, while proposals seeking majority voting in board elections averaged 12 percent in 2004, according to ISS data.
While the proxy access proposal failed to win the two-thirds of HP's outstanding shares necessary to take effect, the strong showing likely will encourage other investors to support the issue and file their own resolution at other companies. Ferlauto said AFSCME may submit proposals at companies that have disclosed that they improperly dated executive stock-option grants.
"We are looking at filing at other companies that may be deserving of proxy access, focusing on option backdaters and springloaders with meetings late in the year," Ferlauto told Governance Weekly.
The proposed bylaw would have required HP'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 company argued 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."
After the vote, HP said it "is pleased that this proposal was not approved by the supermajority vote required." In the statement, the company reiterated the board's view that "this proposal was not in the best interests of HP stockholders."
"Landmark Vote"
The California Public Employees' Retirement System (CalPERS), which had urged HP investors to back the proposal, predicted the proxy access vote would resonate beyond the company.
"This landmark vote will have a material impact well beyond HP, and will likely establish a new core principle in American business--that shareowners need the basic right to nominate directors particularly in extreme circumstances such as those we sadly experienced at HP," CalPERS said in a press release. "We urge HP to not ignore the guidance of those thousands who voted and who own over $32 billion worth of HP stock."
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 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. In late January, SEC Chairman Christopher Cox said the agency would address proxy access before the 2008 proxy season.
Ferlauto expressed optimism that the vote at HP will encourage the SEC to act and allow shareholders to press for the right to nominate board candidates at other companies. "The vote sends a clear message to the SEC that shareholders will be discriminating in the use of access, and that the commission needs to put in place a timeline and process for creating a standardized proxy access procedure before the fall," Ferlauto said.
Following the Second Circuit's decision, investors have taken a cautious approach to filing access proposals this year. In addition to HP, access proposals have been filed at just two other companies, Reliant Energy and UnitedHealth, this season. The proposal at Reliant was withdrawn by the proponent, while UnitedHealth has asked the SEC for permission to exclude an access proposal filed by CalPERS.
Other Proposals Win Majority Support
Also at HP's meeting, a second proposed bylaw to require a shareholder vote on future poison pills won more than 72 percent of votes cast, according to proponents. Nick Rossi, an investor from Boonville, Calif., filed this proposal.
Another proposal that calls for linking long-term equity incentives for senior executives to company performance received 53 percent support, proponents said. That resolution was submitted by investor William Steiner of Piermont, New York. A third proposal seeking separation of the firm's CEO and chairman positions did not obtain majority support, according to news reports.
*This article appeared in this week's edition of Governance Weekly.
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Comments
I don't think there is much doubt that 39% was a strong showing, considering it was the first time out for such a measure...at least for many many years. Yes there was the spy scandal that introduced "the word 'pretexting' into the American lexicon," as AFSCME representative Scott Adams noted. However, just before the meeting state charges were dismissed against former HP chairwoman Patricia Dunn and three other defendants who faced four felony counts of conspiracy and identity theft offered no contest pleas to a misdemeanor charge.
Although several federal probes of the investigation continue, HP's shares have nearly doubled in value since Mark Hurd took over as CEO in 2004. That fact alone made a majority vote, let alone a super-majority vote unlikely. There will be more troubled targets for the measure in the future with scandals and lower earnings. The issue certainly hasn't gone away and I believe the vote at HP added fuel to the fire.
Posted by: James McRitchie, Publisher Corpgov.net | March 16, 2007 11:45 AM
It is worthy to identify who voted against this reasonable measure and why. Anyone have any ideas??
Posted by: Andrew Shapiro | March 22, 2007 12:00 PM