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Note: Peggy Foran of Pfizer, referenced in the article below, has been serving on the Forum program's Advisory Panel.


Wall Street Journal, July 16, 2007 article


The Wall Street Journal  

July 16, 2007


Firms, Investors Trying
More Talk, Less Acrimony

Annual-Meeting Fights
Are Reduced by Forums
On Hot-Button Issues
July 16, 2007; Page B4

Shareholders and corporate officials are talking more and shouting less.

The spring annual-meeting season passed relatively quietly, with less acrimony than in recent years. Meanwhile, investors and companies are discussing hot-button corporate-governance issues like executive compensation in several forums and working groups.

One group looking at executive pay is planning to meet Thursday. Another group recently agreed to a broad set of governance guidelines. Pfizer Inc. plans a fall meeting of big investors and board members.

"We've never had a season that had so much activity going on in the wings and much less taking place center stage," says Patrick McGurn, special counsel at Institutional Shareholder Services, a unit of RiskMetrics Group Inc.


One key indicator: 24% of shareholder proposals for annual meetings were withdrawn this year, as of July 6. That is the highest rate in at least five years, says ISS. Typically, advocates withdraw proposals because a company agrees to make changes, or at least to talk. Through July 6 last year, 20% of proposals had been withdrawn.

The most commonly withdrawn proposals would have required that directors be elected by a majority of shares, as opposed to a plurality. Of about 140 majority-vote proposals submitted, about 90 were withdrawn as of July 6. This year, at least 70 companies agreed to adopt majority voting without putting it to a shareholder vote, says Ed Durkin, director of corporate affairs at the United Brotherhood of Carpenters.

Mr. McGurn says the shift in how directors are elected is propelling more director involvement in shareholder discussions. Even when directors win re-election, large numbers of withheld votes have proved embarrassing at companies such as Pfizer and Home Depot Inc.

Indeed, governance watchers said the backlash against Home Depot last year also is pushing shareholders and officials together. Outside directors didn't attend the retailer's 2006 annual meeting, and then-Chief Executive Bob Nardelli restricted shareholder comments. Mr. Nardelli left under fire in January.

"Nobody wants to be on the receiving end of the kind of outrage that Nardelli's behavior triggered," says Amy Borrus, deputy director at the Council of Institutional Investors.

New Securities and Exchange Commission disclosure rules for executive pay also spurred more dialogue. Richard Ferlauto, director of corporate governance and pension investment for the American Federation of State, County and Municipal Employees, says the additional disclosures prompted more questions from shareholders, leading to increased discussion.

Two of the working groups are focusing on executive pay. One, which includes Pfizer, Intel Corp., Schering-Plough Corp., AFSCME and the California Public Employees' Retirement System, is discussing whether shareholders should get an advisory vote on executive-compensation packages. About 150 people are expected to attend a roundtable at Pfizer on Thursday.

"Say on pay" proposals were withdrawn at Schering-Plough and Prudential Financial Inc. after those companies agreed to join the working group. Insurer Aflac Inc. has pledged to begin such votes in 2009.

The carpenters' union is co-leading a separate group with the U.S. Chamber of Commerce looking at executive-compensation issues more broadly, says Mr. Durkin. Members include DuPont Co. and Citigroup Inc. That group has met three times since the spring and will meet again July 25, Mr. Durkin says.

In another attempt at building bridges, a group of companies and investors last month agreed to a broad set of corporate-governance guidelines dubbed the Aspen Principles. Subscribers included PepsiCo Inc., Xerox Corp., Office Depot Inc. and Pfizer, as well as the AFL-CIO and TIAA-CREF.

The principles urge more communication between companies and investors. They also call for a greater focus on a company's long-term health and for companies to stop providing quarterly earnings guidance.

Pfizer last month said it would take the unusual step of inviting its biggest institutional shareholders to meet with directors about governance policies, including executive pay. The first meeting is planned for this fall.

Not everyone applauds the idea. In a memo widely circulated among corporate-governance watchers, lawyer Martin Lipton called the planned meeting "another example of corporate governance run amuck." He argued against "revolutionizing corporate law and corporate practices so that shareholders replace directors as the fundamental arbiters of corporate policy."

Pfizer says the forum is a way for directors to hear from investors. Peggy Foran, the drug maker's senior vice president for corporate governance, says, "It's the board's duty to make these decisions, and they're trying to get the best information possible."

Theory & Practice is a weekly look at people and ideas influencing managers. Send comments to theorypractice@wsj.com1. For an archive of past columns, visit

Write to Erin White at erin.white@wsj.com3

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