Contributing to the Declassification of 21 S&P 500 Companies: Final Tally of the Results of the ACGI’s 2011 Work

Posted by Lucian Bebchuk and Scott Hirst, Harvard Law School, on Tuesday October 23, 2012 at 9:16 am
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Editor’s Note: Lucian Bebchuk is Professor of Law, Economics and Finance at Harvard Law School, and Scott Hirst is a Lecturer on Law at Harvard Law School; both were affiliated with the American Corporate Governance Institute (ACGI) during the period discussed in this post. Their earlier posts about the work of the ACGI are available here. Subsequent work in connection with declassification proposals was undertaken in 2012 by the Shareholder Rights Project (SRP), and has been discussed in posts available here.

This post provides a final tally of the results from the work of the American Corporate Governance Institute (ACGI) during 2011. As described in more detail below, this final tally shows that the 2011 work of the ACGI and ACGI-represented investors contributed to board declassification at 21 S&P 500 companies – about 15% of the S&P 500 companies that had a staggered board as of the beginning of 2011. [1]

During the 2011 proxy season, the ACGI worked on behalf of 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 for presentation at the 2011 annual meetings of certain S&P 500 companies. The ACGI assisted the SBA and the NCF with selecting companies for proposal submission, designing proposals, engaging with companies, negotiating and executing agreements by companies to bring management declassification proposals, and presenting proposals at annual meetings.

Of the 25 S&P 500 companies where declassification proposals by ACGI-represented investors became operational, [2] 21 S&P 500 companies (84%) have declassified:

  • 14 S&P 500 companies declassified following management declassification proposals brought at their annual meetings pursuant to agreements that the companies entered into with ACGI-represented investors during 2011; and
  • 7 S&P 500 companies declassified following the passage of precatory declassification proposals brought by ACGI-represented investors at their 2011 annual meetings.

S&P 500 Companies declassified following 2011 Agreements with ACGI-represented investors:

Following active engagement with the ACGI and ACGI-represented investors, 14 S&P 500 companies entered into agreements during 2011 regarding declassification. 13 of the agreements called for the companies to put forward agreed-upon management proposals for approval at the companies’ annual meetings, either in 2011 or in 2012. All the agreed-upon management proposals have now been brought to a vote at the companies’ annual meetings, and all passed, resulting in the declassification of 13 S&P 500 companies. The 14th company (eBay Inc. (EBAY)) entered into agreement to complete a full review of declassifying its board of directors within four months; following this review, the company brought a management proposal to declassify the board, which passed at the company’s 2012 annual meeting.

The 14 S&P 500 companies that declassified following 2011 agreements with ACGI-represented investors are set out below.

Declassifications Following Negotiated Agreements

Companies Declassified in 2011 Proponent
Biogen Idec Inc. (BIIB) SBA
Eaton Corporation (ETN) NCF
Life Technologies Corporation (LIFE) NCF
National Oilwell Varco, Inc. (NOV) SBA
NVIDIA Corporation (NVDA) SBA
Ross Stores, Inc. (ROST) SBA
Watson Pharmaceuticals, Inc. (WPI) NCF
Companies Declassified in 2012  
CME Group Inc. (CME) NCF
Dean Foods Company (DF) SBA
Dr Pepper Snapple Group, Inc. (DPS) NCF
E*TRADE Financial Corporation (ETFC) SBA
eBay Inc (EBAY) NCF
Fiserv, Inc. (FISV) SBA
Hospira, Inc. (HSP) NCF

S&P 500 Companies Declassified Following Successful Precatory Proposals

7 S&P 500 companies declassified their boards after precatory proposals submitted by ACGI-represented investors won majority support at the companies’ 2011 annual meetings. 6 of these companies brought management proposals to declassify for a vote at their 2012 annual meetings and each proposal passed. In these cases, in addition to the successful precatory proposals brought by ACGI-represented investors in 2011, engagement efforts during 2012 (undertaken by the Shareholder Rights Project (SRP) on behalf of SRP-represented investors) also contributed to the companies’ agreements to put forward management proposals. The 7th company (Thermo Fisher Scientific Inc. (TMO)) approved amendments to its by-laws to eliminate the company’s classified board following a successful precatory proposal.

The 7 S&P 500 companies that declassified following successful precatory proposals are set out below.

Declassifications Following Successful Precatory Proposals

Company Proponent
C.H. Robinson Worldwide, Inc.  (CHRW) NCF
Hudson City Bancorp, Inc.  (HCBK) NCF
McDonald’s Corporation  (MCD) SBA
Pioneer Natural Resources Company  (PXD) SBA
Thermo Fisher Scientific Inc. (TMO) SBA
The Western Union Company (WU) NCF
Wyndham Worldwide Corporation  (WYN) NCF

Overall Impact

Overall, the work of the ACGI and ACGI-represented investors during the 2011 proxy season contributed to the declassification of 21 S&P 500 companies, representing about 15% of the S&P 500 companies that had classified boards at the beginning of 2011. The work thereby moved a meaningful number of S&P 500 companies towards annual elections, which are widely supported by institutional investors as corporate governance best practice.

Endnotes

[1] According to FactSet Research Systems Inc., there were 146 S&P 500 companies with a staggered board as of the beginning of 2011.
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[2] Three additional proposals did not become operational due to technical issues with the submission of the proposal, because of an earlier submission by another proponent, or because the company had previously agreed to bring a management proposal at the upcoming annual meeting.
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