Tuesday September 2, 2014

Bebchuk Group Gains Board Changes

The Shareholder Rights Project, led by Director Lucian Bebchuk, prompted 40 percent of the 124 S&P 500 companies with staggered board structures to bring up declassification proposals.

Forty-eight boards agreed to bring declassification proposals to management, including McDonald’s, Newell Rubbermaid and Western Union, following engagement from Harvard Law School’s Shareholder Rights Project (SRP) spearheaded by its director, Lucian Bebchuk.

Lucian BebchukOf these 48 companies, which account for almost 40 percent of the 124 S&P 500 companies with staggered board structures at the start of 2012, 33 proposals have already gone to a vote, with 27 passing resolutions to institute annual director elections. At least 15 more companies are expected to bring declassification proposals to management in the near future. Thirty-eight companies submitted and passed precatory proposals from SRP-represented investors, “and it is expected that declassifications will take place in many of these companies,” said Bebchuk, who is also director of the Program on Corporate Governance at Harvard Law School.

“There is a significant body of empirical evidence documenting an association between staggered boards and lower firm valuation. Furthermore, there is widespread support for board declassification among institutional investors,” said Bebchuk in an interview with NACD Directorship. Bebchuk has conducted a large amount of research on the effects of staggered board structures and is the co-author of “The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence and Policy.”

The six proposals that did not pass were posed to companies with 80 percent supermajority requirements (Alcoa, CIGNA, Eli Lilly, PPG Industries, St. Jude Medical and Teradata). The 27 companies that implemented measures garnered an average of 99.2 percent of votes cast, and 80.7 percent of votes outstanding.

Of the 90 total shareholder proposals submitted by the SRP, 80 have moved, or may move, the companies to adopt annual election policies.

The 2012 proxy season marked the first year the SRP has partnered with institutional investors to effect boardroom changes. The 2011-2012 advisory board is comprised of Chairman Richard Breeden and Members Jesse Fried, Jeffrey Gordon, Reinier Kraakman, Michael McCauley and Peter Mixon.

The SRP represented and advised six institutional investors in submitting proposals: the Illinois State Board of Investment, the Los Angeles County Employees Retirement Association, the Massachusetts Pension Reserves Investment Management Board, the Nathan Cummings Foundation, the North Carolina State Treasurer and the Ohio Public Employees Retirement System.

“Many of the companies approached have displayed responsiveness to shareholder concerns,” Bebchuk said. “The large-scale declassification to which the work of the SRP and SRP-represented investors has contributed can be expected to benefit shareholders and the economy.”

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