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Note: Pfizer has been represented on the Forum Advisory Panel that proposed principles for cooperative communications concerning shared management and shareholder interests in performance objectives; Dr. Davis, referred to in the article below as the Program Director of Yale's Millstein Center for Corporate Governance and Performance, has been preparing research papers in association with the Forum's project addressing advisory voting as well as its support of investor communication.


Wall Street Journal, January 14, 2008


The Wall Street Journal  

January 14, 2008


Talk Therapy

As shareholders become more vocal, directors are looking for ways to make sure they feel heard
January 14, 2008; Page R5


Seeking to improve frayed relations with shareholders, a growing number of companies and boards are trying a simple but new approach: They're giving investors more opportunities to be heard.


[See the full report]1

Forget the audit committee or compensation committee2. The new hot seat on boards is on the nominating committee. Plus, companies are tapping outside CEOs3 to run their boards. It makes sense -- but it could also be a recipe for conflict.

 See the complete Corporate Governance4 report.

Pfizer Inc. directors met with institutional investors in New York in October, the first in a series of planned meetings with big shareholders to discuss corporate-governance policies. In July, the drug maker helped organize a roundtable discussion on executive pay that brought together investors, executives from other companies and governance specialists.

Health-insurance giant UnitedHealth Group Inc., meanwhile, has created an advisory committee to allow shareholders to suggest new directors. And PepsiCo Inc., the AFL-CIO and TIAA-CREF are among a group of companies, labor organizations and institutional investors that since June have signed on to a broad set of corporate-governance guidelines known as the Aspen Principles. The agreement urges more communication between companies and their shareholders.

"Everybody's trying to figure out the best way to do all this," says Kenneth Daly, president and chief executive officer of the National Association of Corporate Directors, a nonprofit Washington group that provides governance information, research, education and guidance to boards. "We believe from talking to our members that there are, in fact, a lot more meetings happening -- face-to-face meetings, telephone discussions" and other types of dialogue.

Several factors are driving the effort to improve communication. Recent Securities and Exchange Commission rules requiring more-detailed disclosure on executive pay have prompted shareholders to become more vocal. More companies are adopting policies requiring directors to be elected by a majority instead of a plurality, which, governance observers say, makes directors more open to dialogue because they don't want to be embarrassed by not being re-elected. Directors and executives also want to avoid becoming the target of shareholder outrage.

Hye-Won Choi, head of corporate governance at TIAA-CREF, a financial-services firm serving educational and other nonprofit employees, says meetings between directors and shareholders should be routine. "Boards should want to hear directly from the shareholders who elect them, rather than secondhand through management," says Ms. Choi. One of her colleagues attended the Pfizer meeting in October.

'Say on Pay'

At the July roundtable that New York-based Pfizer helped organize, attendees discussed the merits and mechanics of giving investors a nonbinding advisory vote on executive pay. Such a vote, dubbed "say on pay," already exists in the United Kingdom and other countries. At least two U.S. public companies, insurer Aflac Inc. and telecommunications provider Verizon Communications Inc., have agreed to give their shareholders a nonbinding vote -- Aflac starting this year and Verizon starting in 2009.

Much of the discussion at the roundtable concerned the mechanics of implementing a say-on-pay vote. What exactly would such a vote mean? What would the language say in the proxy? How would directors interpret the vote results?

The approximately 130 attendees -- who were invited by Pfizer and the event's other organizers, Walden Asset Management, an investment firm known for advocating good governance, and the American Federation of State, County and Municipal Employees -- also talked more generally about how to improve communication between shareholders and companies. "There was a great deal of interest in the room about how to do that better," says Timothy Smith, director of socially responsive investing for Walden Asset Management.

One attendee, Stephen Davis, project director at Yale University's Millstein Center for Corporate Governance and Performance, agreed to spearhead a research project outlining the best ways for shareholders and boards to communicate. He says he plans to examine practices at companies in the U.S. and later abroad, particularly in the U.K., and plans to present his draft findings on U.S. practices at a conference next month.

Soliciting Input

UnitedHealth, based in Minnetonka, Minn., created its director-nomination advisory committee in 2006 in the wake of fallout from a stock-options backdating scandal. As part of a broad effort to improve governance and win back shareholder trust, the company said it would add at least five independent directors over the next three years. The company created an advisory committee for investor input on director selection.

"We wanted to include the voice of our shareholders at a very important juncture in our corporate history," says Thomas Strickland, UnitedHealth's chief legal officer.

The five-person committee includes four representatives from large investor groups and one member of the medical community. They meet with Mr. Strickland and the UnitedHealth director who heads the nominating committee, Douglas Leatherdale. UnitedHealth isn't disclosing the names of the investors or medical representative because it says they have requested anonymity. The committee has met three times so far.

UnitedHealth asked the investors what characteristics they would seek in a director. The investors discussed hypothetical profiles of types of people they would like on the board and also suggested specific candidates. "We want to use them as a sounding board," Mr. Strickland says. "We're listening more, and we want to be attuned to what our shareholders have in mind."

Since the committee's inception, UnitedHealth has added two directors and plans to add a third by May. Robert Darretta, a former chief financial officer of Johnson & Johnson, was the first director selected. Mr. Strickland says Mr. Darretta was on a list of suggested candidates submitted by investors on the advisory committee. As it happened, he was also on the board's list as well.

"He had the stature and knowledge and background and reputation with one of the premier players in the health-care space in the country," says Mr. Strickland. "It was very fortunate to get him."

--Ms. White is a staff reporter in The Wall Street Journal's New York bureau.

Write to Erin White at erin.white@wsj.com5

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