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©2007 Foley & Lardner LLP
MAJORITY VOTING UPDATE, SHAREHOLDER DEMOCRACY 11:15 AM AND HOW BOARDS SHOULD RESPOND TO HEDGE FUNDS AND ACTIVIST SHAREHOLDERS
Jeff Brown, Motorola, Inc.
Jim Duffy, NYSE
Justin Friesen, UBS Securities LLC
Richard Grubaugh, D. F. King & Co., Inc.
Pat McGurn, Institutional Shareholder Services
Patrick Quick, Foley & Lardner LLP
©2007 Foley & Lardner LLP
JEFFREY BROWN SENIOR CORPORATE COUNSEL MOTOROLA, INC.
Jeffrey A. Brown is Senior Corporate Counsel for Motorola, Inc., a global leader in providing wireless and broadband communications headquartered in Schaumburg, Illinois. Mr. Brown provides counsel to Motorola's senior management and Board of Directors and handles a broad range of matters relating to securities laws and corporate governance. In particular, Mr. Brown's practice focuses on disclosure issues, the issuance of public securities, structuring of strategic investments and Board of Directors matters. He has also served as a member of Motorola's 6-person Disclosure Committee throughout the Committee's existence.
Prior to joining Motorola in 1997, Mr. Brown was associated with Winston & Strawn in Chicago, Illinois, where his practice was focused in the areas of securities, mergers & acquisitions and corporate finance. He also has professional experience in industrial engineering and mathematical modeling. Mr. Brown received his J.D. with Honors from The Law School at The University of Chicago, where he was a member of the Order of the Coif. He also graduated with honors from Northwestern University, where he received a B.A. in Economics and a B.S. in Industrial Engineering/Management Sciences. Mr. Brown is a frequent speaker and author on a variety of corporate governance-related topics, including the practical impact of the Sarbanes-Oxley Act, effective compliance programs, the majority vote movement and shareholder activism.
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JAMES DUFFY EXECUTIVE VICE-PRESIDENT &
GENERAL COUNSEL NYSE
James F. Duffy is an Executive Vice President and the General Counsel of NYSE Regulation, Inc. Since joining the New York Stock Exchange in 1999, Jim has been extensively involved in both domestic and international listings matters, market regulation and market structure issues. Jim was centrally involved in the formulation of the Exchange's expanded corporate governance listing standards, and in the changes to the Exchange’s own governance structure as well.
Previously, Jim served for ten years as General Counsel of the American Stock Exchange. Earlier he practiced corporate and securities law on the legal staff of GTE Corporation, and with the firm of Lord, Day & Lord in New York.
©2007 Foley & Lardner LLP 2
JUSTIN FRIESEN EXECUTIVE DIRECTOR, MERGERS & ACQUISITIONS UBS SECURITIES LLC
Justin Webb Friesen is an Executive Director, Mergers & Acquisitions in the Investment Banking Department of UBS and is based in Chicago. Mr. Friesen has been involved in a wide variety of strategic and capital raising transactions in the diversified industrials, consumer / retail and business services sectors. Mr. Friesen’s transaction experience includes hostile M&A defense, corporate acquisitions, mergers and divestitures along with high-yield, equity and private placement capital raising for Fortune 500 and middle-market companies. His most recent transactions include ADESA’s leveraged buy-out sale to a private equity consortium led by Kelso, Banta’s white knight hostile defense and sale to R.R. Donnelley & Sons, JLG Industries’ sale to Oshkosh Truck, Pentair Inc.’s acquisition of APW Limited’s thermal enclosure assets and The Shaw Group’s acquisition of 20% of Westinghouse Electric.
Prior to joining UBS in May 2004, Mr. Friesen was a Vice President at Credit Suisse First Boston where he participated in significant M&A assignments including: Cooper Industries’ successful defense of Danaher Corporation’s hostile raid; S.C. Johnson’s acquisition of Bayer AG’s global household insecticide business; Pentair’s acquisition of Everpure from Veolia Environnement; sale of Collegis, Inc. to Sungard Data Systems and Whitman Corporation’s asset realignment with PepsiCo and subsequent acquisition of PepsiAmericas. Mr. Friesen began his investment banking career in 1994 as an analyst at Dean Witter Reynolds Inc.
Mr. Friesen received his M.B.A. from The Wharton School at the University of Pennsylvania where he graduated with highest honors and was recognized as a Palmer Scholar. He graduated with distinction from the Indiana University School of Business earning a B.S. in Accounting.
©2007 Foley & Lardner LLP
RICHARD GRUBAUGH SENIOR VICE-PRESIDENT D. F. KING & CO., INC.
Richard H. Grubaugh is a Senior Vice President of D.F. King & Co., Inc. and co-manager of the firm’s Extraordinary Events Group. Primarily advises corporations involved in complex shareholder transactions specializing in corporate control situations such as proxy contests, mergers and hostile tender offers. Formulates and recommends shareholder communications strategies for public companies in crisis situations. Prior speaking engagements include programs sponsored by the Practising Law Institute, the American Society of Corporate Secretaries and Governance Professionals and at Georgetown University on corporate governance issues.
©2007 Foley & Lardner LLP
PATRICK MCGURN EXECUTIVE VICE-PRESIDENT &
SPECIAL COUNSEL INSTITUTIONAL SHAREHOLDER
SERVICES
Patrick S. McGurn is Executive Vice President & Special Counsel at Institutional Shareholder Services, a RiskMetrics Group company. ISS is the world's leading provider of proxy voting services and corporate governance research. ISS serves more than 1,700 institutional investor clients. Founded in 1985, ISS recommends votes on ballot issues for more than 35,000 shareholder meetings across 115 markets around the globe. ISS's Corporate Governance Quotient is the global, industry-standard benchmark for ranking governance practices at more than 7,500 public companies.
Prior to joining ISS in April 1996, Pat was director of the Corporate Governance Service at the Investor Responsibility Research Center (IRRC), a not-for-profit firm that provided governance research to investors. He also served as a private attorney, a congressional staff member and a department head at the Republican National Committee. He is a graduate of Duke University and the Georgetown University Law Center. He is a member of the bar in California, the District of Columbia, Maryland and the U.S. Virgin Islands. Pat serves on the Advisory Board of the National Association of Corporate Directors and was a member of the NACD's 2001 Blue Ribbon Commission on Board Evaluations.
Pat is frequently cited by business publications such as The Wall Street Journal and Fortune. He has appeared on ABC World News Tonight, Bloomberg Radio and TV, BBC Radio, CBS Evening News, CNBC, CNN, Marketplace, NBC Nightly News, Nightly Business Report, National Public Radio, Tech TV and ABC's This Week. He is a frequent presenter at conferences.
©2007 Foley & Lardner LLP
PATRICK G. QUICK PARTNER FOLEY & LARDNER LLP
Patrick G. Quick is a partner with Foley & Lardner and a member of the firm’s Transactional & Securities Practice and Sports Industry Team. Mr. Quick practices corporate law, with an emphasis in securities law compliance, acquisitions, and takeover defense. He regularly counsels public companies concerning compliance and governance matters and has participated in initial and other public offerings for Wisconsin corporations. Mr. Quick also has participated in many acquisition transactions representing buying and selling parties in a variety of industries. He has been involved in the representation of clients doing advance takeover preparedness planning and has counseled clients who have received unsolicited takeover proposals or similar overtures.
Mr. Quick was among 114 attorneys nationwide who made The BTI Consulting Group’s Client Services All Star Team for 2005. This honor is bestowed upon attorneys who deliver outstanding client service according to corporate counsel interviewed at Fortune 1000 companies. This is the second consecutive year he has received this honor. In addition, Mr. Quick is listed in Chambers USA: America's Leading Lawyers for Business (2005-06), and he has been selected by his peers for inclusion in The Best Lawyers in America 2007 ®.
Mr. Quick has served for many years on the board of directors of the Child Abuse Prevention (CAP) Fund and also has been involved in the United Way, the Children's Miracle Network Telethon for Children's Hospital of Wisconsin, and the Marquette University Business Administration Alumni Association.
Mr. Quick graduated, magna cum laude, from the University of Michigan Law School in 1984, where he served as an editor of the Michigan Law Review and was elected to the Order of the Coif. He received his B.S., magna cum laude, from Marquette University.
THE SIXTH ANNUAL NATIONAL DIRECTORS INSTITUTE
©2007 Foley & Lardner LLP
2006 Proxy Season Overview &
2007 Preview
D.F. King & Co., Inc. March 2007
Majority Voting in Director Elections
Prominent Shareholder Proposals and Trends
Proxy Access
NYSE Rule 452
E-Delivery
Topics and Industry Issues
Majority Voting to Elect Directors
Source: IRRC and D.F. King* Voting results data based on 91 proposals as of December 2006
Noteworthy Vote Results
Plurality Voting - No Action• Marathon Oil – 67.7%• SprintNextel – 67.0%• Kohl’s – 61.6%
Director Resignation Policy• Johnson & Johnson – 39.0%• General Dynamics – 37.9%• MeadWestvaco – 34.3%
49 Proposals Withdrawn,Omitted, or not includedin Proxy• Director Resignation Policy• Majority Vote Implemented
Majority Voting To Elect Directors
0 0 0
12
62
94*
0%
20%
40%
60%
80%
100%
2001 2002 2003 2004 2005 2006
Number of Proposals Average Support
11.8%43.9% 47.7%
Source: IRRC and D.F. King* Voting results data based on 91 proposals as of December 2006
0%
10%
20%
30%
40%
50%
60%
4249
55.7%
Number of ProposalsAverage Support
Majority Voting To Elect Directors
42.4%
Plurality Voting–No Action Director Resignation Policy
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Prominent Shareholder Proposals in 2006Lucian Bebchuk binding by-law proposals
Disclosure of compensation at Home Depot – 44% supportPoison Pill proposal at CA – 41% support
Advisory Vote on Compensation Committee ReportsSupport levels – avg 39.9%
– Countrywide Financial (43%)– Home Depot (40%)– US Bancorp (40%), – Merrill Lynch (35%)
Shareholder approval of extraordinary retirement benefits –averaging in excess of 41% support
Link pay to performance – 32% support
Award performance-based stock options - in excess of 40% support
Carpenter’s proposal – “pay for superior performance” – 35% average support
Key Shareholder Proposal Trends
Adopt Cumulative Voting
24*24 19 19 20 22 18
39.8%
28.3% 30.3% 33.1% 34.1% 35.7% 36.5%
0%
20%
40%
60%
80%
2000 2001 2002 2003 2004 2005 2006Number of Proposals Average Support
Source: IRRC and D.F. King* Voting results data based on 23 proposals as of December 2006
YTD
Separate Chairman & CEO
28
36
302
55*
30.1%31.9%28.2%
26.1%
40.4%
0%
20%
40%
60%
80%
100%
2002 2003 2004 2005 2006
Number of Proposals Average SupportSource: IRRC and D.F. King* Voting results data based on 54 proposals as of December 2006
YTD
Source: IRRC and D.F. King* Voting results data based on 16 proposals as of December 2006
Restrict Golden Parachutes
18*19 18 26 19
34.9%
56.9% 51.7% 53.0% 51.2%
0%
20%
40%
60%
80%
100%
2002 2003 2004 2005 2006Number of Proposals Average Support
Source: IRRC and D.F. King* Voting results data based on 17 proposals as of December 2006
Redeem or Vote on the Poison Pill
23
52
84
50
19*
53.0%59.8%61.5%
60.0%60.2%
0%
20%
40%
60%
80%
100%
2002 2003 2004 2005 2006Number of Proposals Average Support YTD
YTD
Key Shareholder Proposal Trends (Cont’d)
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24*
7712 10 9
13
60.6%
54.6% 57.8% 61.5% 60.5%73.3%
65.6%
0%
20%
40%
60%
80%
100%
2000 2001 2002 2003 2004 2005 2006Number of Proposals Average Support
Source: IRRC and D.F. King* Voting results data based on 23 proposals as of December 2006
YTD
Shareholder Proposals to Eliminate Supermajority Voting
Source: IRRC and D.F. King* Voting results data based on 16 proposals as of December 2006
16*
63 5 26
15
78.5%74.2% 80.6%
67.7% 73.7% 73.7%82.0%
0%
20%
40%
60%
80%
100%
2000 2001 2002 2003 2004 2005 2006Number of Proposals Average Support
Management Proposals to Eliminate Supermajority Voting
YTD
Key Shareholder Proposal Trends (Cont’d)
Key Shareholder Proposal Trends (Cont’d)
Shareholder Proposals to De-Stagger Board
48384842
63*
66.8%63.8%70.6%
63.3%61.5%
0%
20%
40%
60%
80%
100%
2002 2003 2004 2005 2006Number of Proposals Average Support
Source: IRRC and D.F. King* Voting results data based on 51 proposals as of December 2006
YTD
Management Proposals to De-Stagger Board
29*5 2246 45
61.8%
85.5% 80.6% 85.2% 85.9%
0%
20%
40%
60%
80%
100%
2002 2003 2004 2005 2006
Number of Proposals Average SupportSource: IRRC and D.F. King* Voting results data based on 29 proposals as of December 2006
YTD
Restrict Executive Compensation
68
28
81411
82
36*15.3%11.7%
13.0%18.9%9.8%7.8% 22.8%
0%
20%
40%
60%
80%
100%
2000 2001 2002 2003 2004 2005 2006Number of Proposals Average Support
Source: IRRC and D.F. King* Voting results data based on 34 proposals as of December 2006
YTD
2006 Executive Compensation Proposals
Restrict/Reform Executive Comp.
Link Pay to Performance
Abolish Stock Options
Recoup Performance Aw ards if restatement
Recoup Unearned Mgt. Bonuses
Key Shareholder Proposal Trends (Cont’d)
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Proxy Access
AFSCME proposal on AIG
Court of Appeals for the Second Circuit Ruling
Back on the SEC AgendaOctober 2003 proposed rule changesTwo-step process over two yearsSEC Rule 14a-8(i)(8) – Exclusion of proposal that “relates to directors”It appears that any rule changes may be too late 2007 proxy season
NYSE – Proposed Change to Rule 452
NYSE Proposal released in June 2006Proxy Working Group recommends NYSE amend rule 452 to make election of directors a “non-routine” matterRecommends further education of investors about the proxy voting systemSupports efforts to improve the ability of issuers to communicate with beneficial ownersRecommends SEC study the role of groups making voting decisions over shares not ownedEffect of rule change on ability to achieve a quorum
NYSE Postpones Ruling Aims to implement reform by 2008 proxy seasonNeeds to study related issuesEstablishes three subcommittees to address related issues
Investor educationCompanies’ inability to communicate directly with beneficial holdersCosts associated with the distribution of proxy materials
0%10%20%30%40%50%60%70%80%90%
Large Cap Mid Cap Small Cap
Impact of Routine Vote On Director Elections
% Cast with Broker Vote % Cast Without Broker Vote
Elimination of Routine Vote in Director Elections
88%75%
86%74%
89%
54%
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E-Delivery
A Company may, but is not required to, furnish proxy materials to shareholders through a “notice and access”.
A company choosing to follow the model must post its proxy materials on an Internet Web site and send a Notice of Internet Availability of Proxy Materials to shareholders at least 40 days before the meeting date.
The new alternative model for furnishing proxy materials seeks to substantially decrease the expense incurred by issuers to comply with the proxy rules and provide persons other than the company with a more cost-effective means to undertake their own proxy solicitations.
When a company or soliciting party chooses to rely on the notice and access model, brokers, banks and similar intermediaries must prepare and send their own Notices designed for beneficial shareholders. A beneficial shareholder desiring a paper or e-mail copy of the proxy materials must request one from the intermediary.
The compliance date for the amendments is July 1, 2007. No person may comply with the notice and access model before that date.