Fourteen companies in the US S&P 500 have agreed to repeal their classified board status thanks to the joint engagement efforts of The State Board of Administration of Florida (the “SBA”), the investment manager of the Florida Retirement System, the American Corporate Governance Institute (the “ACGI”) and the Nathan Cummings Foundation.

According to Lucien Bebchuk, President of ACGI, and Harvard Law professor, the drive towards annual elections for all directors is underpinned by academic evidence that annual elections are likely to result in greater director accountability and consequently should improve firm performance and value.

During the 2010-11 proxy season, the SBA has worked with the ACGI to submit shareholder proposals looking to repeal the classified boards of a number of companies at their 2011 annual meetings. After follow-up, SBA and ACGI managed to reach agreements with seven companies who have each agreed to propose a management resolution to declassify its board of directors. The companies and expected meetings where the resolution is expected are:

• Biogen Idec Inc. (NASDAQ: BIIB) (2011 annual meeting);
• Dean Foods Company (NYSE: DF) (2012 annual meeting);
• E*TRADE Financial Corporation (NASDAQ: ETFC) (2012 annual meeting);
• Fiserv, Inc. (NASDAQ: FISV) (2012 annual meeting);
• National Oilwell Varco, Inc. (NYSE: NOV) (2011 annual meeting);
• NVIDIA Corporation (NASDAQ: NVDA) (2011 annual meeting); and
• Ross Stores, Inc. (NASDAQ: ROST) (2011 annual meeting).

The State Board of Administration of Florida is an agency of Florida state government that provides a variety of investment services to various governmental entities. As at the end of 2010 their total assets under management were approximately $158.9 billion. Commenting on the results, Michael McCauley, Senior Officer with the SBA said: “These seven companies have been willing to engage in a dialogue with the SBA and the ACGI, and have demonstrated responsiveness to shareowners’ concerns about classified boards” The American Corporate Governance Institute is a research and advisory organization focussed on governance and accountability in publicly traded companies. Notable governance leaders involved with ACGI include Dan Summerfield of the UK’s Universities Superannuation Scheme and Anne Sheehan of CalSTRS. “We are pleased that our work on behalf of the SBA has contributed to board declassification in these S&P 500 companies,” said Lucian Bebchuk, President of the ACGI. “Empirical studies suggest that classified boards could be associated with lower firm valuation and poor corporate decision-making.”

The Nathan Cummings Foundation has also achieved notable success on the same issue with a further seven companies committing to change:

• Baxter International Inc. (NYSE: BAX) (2011 annual meeting);
• CME Group Inc. (NASDAQ: CME) (2012 annual meeting);
• Eaton Corporation (NYSE: ETN) (2011 annual meeting);
• Dr Pepper Snapple Group, Inc. (NYSE: DPS) (2012 annual meeting);
• Hospira, Inc. (NYSE: HSP) (2012 annual meeting);
• Life Technologies Corporation (NASDAQ: LIFE) (2011 annual meeting); and
• Watson Pharmaceuticals, Inc. (NYSE: WPI) (2011 annual meeting).The SBA/ACGI campaign amounts to a 5% reduction in the number of S&P 500 companies with a classified board.

The ACGI/SBA/Cummings campaign amounts to an estimated 10% reduction in the number of S&P 500 companies with a classified board (currently 139).

Last Updated: 10 May 2011