Harvard Law School group coordinates call for annual director elections

Seven major pension funds and a foundation are targeting 74 S&P 500 and other U.S. large-cap companies to move to annual elections of all their corporate directors, according to a statement of the Harvard Law School's Shareholder Rights Project, which is coordinating the effort.

The funds filed shareholder proposals, calling for annual elections of directors and an end to classified boards, at companies including NCR, Lincoln National, Cigna, United States Steel, FMC, Apache, Ashland and Airgas.

In all:

Each fund worked with the Shareholder Rights Project independently of the other funds and targeted different companies, Michael P. McCauley, senior officer, investment programs and governance, at the $156 billion Florida SBA, said in an interview.

Shareholder Rights Project's works collaboratively with all the funds on a pro bono basis, said Mr. McCauley, who is a member of the project advisory board.

Among the funds, Florida SBA has been in discussion with three of the companies it targeted and seeks to engage in talks with the other three companies in hopes of reaching an agreement with them to adopt annual elections, Mr. McCauley said.

“We will withdraw the proposal if companies agree to annual elections,” Mr. McCauley said.

Florida SBA used performance “as a filter to target companies that were underperforming,” Mr. McCauley said. The focus was on one-, three- and five-year total shareholder return as well as performance on a relative basis compared to the S&P 500 and Russell 1000 stock indexes and peer companies, Mr. McCauley said.

All six companies targeted by Florida SBA underperformed for at least two of the periods and some for all three periods, Mr. McCauley said.

The funds decided to focus on annual election of directors for shareholder proposals because it “provides for the greatest amount of accountability,” Mr. McCauley said. “It has evolved into a global best practice.”

“Beyond that, there are some fairly clear empirical evidence” from academic research indicating classified boards coupled with other anti-takeover devices can impede the market for control of a company and puts a barrier in place for making changes at companies and impact shareholder value, Mr. McCauley added.

Lucian Arye Bebchuk, professor of law, economics and finance at Harvard Law School, is director of the Shareholder Rights Project. He is also director of the school's Program on Corporate Governance.