Moving S&P 500 Companies Toward Board Declassification: Post-Proxy Season Update from the ACGI

Editor’s Note: Lucian Bebchuk and Scott Hirst are Professor of Law, Economics and Finance and Lecturer on Law, respectively, at Harvard Law School. Their earlier post about the work of the ACGI is available here.

This post provides an updated overview of the outcomes resulting from the work by the American Corporate Governance Institute (ACGI) during the 2011 proxy season to contribute to moving S&P 500 companies toward board declassification. During the 2011 proxy season the ACGI represented and advised two institutional investors, the Florida State Board of Administration (SBA) and the Nathan Cummings Foundation (NCF), in connection with the submission of shareholder declassification proposals. In addition to the results described in an earlier post, we were pleased by subsequent developments in two companies:

  • Thermo Fisher Scientific Inc. (TMO): Following a vote at the 2011 annual meeting in which 87% of the shareholder votes cast were in favor of the SBA’s declassification proposal, the board of directors amended the company’s bylaws to declassify the board. Starting at the 2012 annual meeting, directors will be elected for one year terms, with the entire board serving one-year terms from the 2014 annual meeting.
  • eBay Inc. (EBAY): Following the submission of a proposal by the NCF, negotiations between eBay (represented by Wachtell Lipton) and the NCF (represented by the ACGI) produced an agreement pursuant to which the company committed to complete a full review of declassifying the board of directors and moving to annual elections of all directors. Following the completion of the review, the company announced that it will bring a management proposal to declassify the board for a vote at the 2012 annual meeting.

With these developments, the ACGI’s work during the single 2011 proxy season has contributed to (i) eight companies which have already declassified, (ii) seven companies which have already committed to bring a management declassification proposal at their 2012 meeting, and (iii) eight companies which have yet to respond to the substantial shareholder majority votes in support of declassification at their 2011 annual meetings, as described below.

  • EIGHT companies have already declassified: In addition to Thermo Fisher, seven companies passed declassification proposals at the 2011 annual meeting following declassification proposals from the Florida SBA and the NCF. As a result, the ACGI’s work has contributed to annual elections in eight companies that have already declassified their boards of directors: Biogen Idec Inc. (BIIB), Eaton Corporation (ETN), Life Technologies Corporation (LIFE), National Oilwell Varco, Inc. (NOV), NVIDIA Corporation (NVDA), Ross Stores, Inc. (ROST), Thermo Fisher Scientific Inc. (TMO), and Watson Pharmaceuticals, Inc. (WPI)
  • SEVEN companies have already committed to bring a management declassification proposal at their 2012 meeting: In addition to eBay, six S&P 500 companies have committed to bring a management declassification proposal in 2012 following the submission of declassification proposals by the NCF and the SBA. As a result, the ACGI’s work has contributed to the expected management declassification proposals of seven companies altogether: CME Group Inc. (CME), Dean Foods Company (DF), Dr Pepper Snapple Group, Inc. (DPS), eBay Inc (EBAY), E*TRADE Financial Corporation (ETFC), Fiserv, Inc. (FISV), and Hospira, Inc. (HSP).
  • EIGHT companies have yet to respond to the substantial shareholder majority votes in support of declassification at their 2011 annual meetings: Thermo Fisher has already responded decisively following the large shareholder vote in favor of declassification at its 2011 annual meeting (87% of votes cast), and we expect that others companies will also act to respond to shareholders’ preferences when preparing for their 2012 annual meetings. In particular, declassification proposals submitted by the SBA and the NCF with the representation and advice of the ACGI were approved by large margins at the following eight companies (percentage of votes in support in parenthesis): C.H. Robinson Worldwide, Inc. (CHRW) (71.6%), CF Industries Holdings, Inc. (CF) (89.5%), Hudson City Bancorp, Inc. (HCBK) (77.3%), McDonald’s Corporation (MCD) (77.5%), Pioneer Natural Resources Company (PXD) (90.6%), salesforce.com, inc. (CRM) (79.4%), The Western Union Company (WU) (87.3%), and Wyndham Worldwide Corporation (WYN) (79.6%).

    We hope that a significant proportion of these eight companies will heed the strongly expressed preferences of their shareholders and bring management proposals to declassify to a vote at the 2012 annual meeting. The passage of such proposals would further expand the set of S&P 500 companies moving to annual elections as a result of the ACGI’s work during the 2011 proxy season.

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