Another Vote on Proxy Access
Submitted by: Ted Allen, Director of Publications
A proxy access proposal filed by the California Public Employees' Retirement System will be on the ballot May 29 at UnitedHealth Group after the pension fund agreed to make it a non-binding resolution.
The vote would be the second this season on whether shareholders should have the ability to nominate directors to appear on company proxy statements. In March, a bylaw proposal filed by four pension funds received 43 percent of the "for" and "against" votes cast at Hewlett-Packard.
"We wanted to get this issue before shareholders," Clark McKinley, a CalPERS spokesman, told Governance Weekly. After the vote at Hewlett-Packard, "we think this issue has momentum, and we want to build on that," he said.
The proposal asks UnitedHealth to amend its bylaws to establish a proxy access process. The resolution urges the company to include on its proxy statement the names of up to two nominees from investor groups that own at least 3 percent of the company's outstanding shares for two years.
CalPERS, the largest U.S. state pension fund, originally filed a binding bylaw proposal at UnitedHealth, which was criticized by investors last year over its stock option practices and the compensation received by then-CEO William McGuire.
In January, UnitedHealth asked the Securities and Exchange Commission for permission to exclude the measure on the grounds that CalPERS hadn’t met the legal requirements of Minnesota (where the health insurance firm is incorporated) to propose a bylaw change. According to lawyers for the company, state law requires shareholders to hold at least 3 percent of the company’s voting power to propose bylaw amendments. When it filed the proposal, the pension fund owned 6.6 million shares, or a 0.5 percent stake.
In response, CalPERS asked the SEC staff in a March 1 letter for permission to revise the proposal to make it non-binding. On March 23, UnitedHealth lawyers notified the agency that the company would drop its opposition to the resolution.
UnitedHealth fell under investor and regulatory scrutiny after The Wall Street Journal in March 2006 raised questions about the timing of the company's past option grants. The next month, the company disclosed that McGuire held $1.6 billion in unexercised stock options and received options dated when company shares were at their quarterly lows.
At the company's May 2006 annual meeting, two compensation committee members received 28 percent opposition after CalPERS and Minnesota’s Board of Investment urged investors to withhold their support. CalPERS also is serving as a lead plaintiff in a securities class-action lawsuit against UnitedHealth.
Since then, the company has unveiled various governance reforms and pledged to fill five board seats with independent directors. The board agreed to establish annual director elections and to rescind supermajority voting requirements. The company also adopted new stock ownership guidelines, dropped certain executive perks, and limited the number of boards on which directors may serve.
In the supporting statement for its proposal, CalPERS cited the company's "inadequate" internal controls, the "improper repricing" and backdating of options, and the lack of disclosure of financial ties between McGuire and the chair of the compensation committee. "For these reasons, CalPERS is sponsoring this proposal that will allow shareholders a meaningful voice in the election of the board of directors who set the compensation of the company’s officers," the pension fund wrote.
SEC to Hold Meetings on Proxy Access
SEC Chairman Christopher Cox said this week the agency will begin holding meetings in the next month as the SEC seeks to adopt an access rule before the 2008 proxy season.
"We are committed to a sturdy schedule for making a recommendation of a final rule" this year, Cox said April 18, according to Bloomberg News.
The SEC previously delayed three scheduled discussions on the topic, as the agency's five commissioners have struggled to reach a consensus on whether to allow investors to propose access bylaws at individual firms or to propose a broader access rule. While some U.S. companies encourage shareholders to suggest board candidates, investors have no ability to propose nominees opposed by management without undertaking a costly proxy fight. The SEC was forced to revisit the issue after a federal appeals court ruled in September that the agency staff had improperly allowed the exclusion of a 2005 investor proposal at American International Group.
Commissioner Roel Campos, the most vocal supporter of proxy access on the commission, has urged European investors to write letters to U.S. companies and regulators to urge them to support the idea. "We're at a real critical point in the U.S. for proxy access, and you can make a real difference," he said in a speech in London in late March.
However, corporate advocates, who helped derail a 2003 access rule drafted by the SEC, are voicing their opposition. Thomas Donahue, president of the U.S. Chamber of Commerce, warns that labor pension funds would use proxy access "to achieve what they could not win at the bargaining table--pro-union policies." “We will fight any effort to give some shareholders more power than others," he said in a March 14 speech, according to Bloomberg News.
Another notable investor recently joined the debate. On April 12, hedge fund manager T. Boone Pickens outlined a plan to allow investors to nominate directors. "I'm an advocate for change, and this would be a meaningful change," he told Bloomberg News.
Under Pickens' plan, the right to nominate would be restricted to those investors who own a certain minimum stake (e.g., more than the average number of shares held by the directors.) An independent consultant would screen the nominees to make sure they had the requisite education and background to serve, Bloomberg News reported.
*This article originally ran in this week's edition of Governance Weekly.
| Permalink | Print Article | Back To Top |
TrackBack
TrackBack URL for this entry:
http://blog.riskmetrics.com/cgi-bin/mt-tb.cgi/860