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Governance

Florida State Board, Ontario Teachers back Pershing Square in proxy fight with ADP

Florida State Board of Administration and Ontario Teachers' Pension Plan support hedge fund money manager Pershing Square Capital Management in its proxy fight with Automatic Data Processing Inc.

According to their proxy-voting disclosures, the Tallahassee-based FSBA, which oversees the money management of the $158.9 billion Florida Retirement System, and the C$180.5 billion ($140.8 billion) Toronto-based Ontario Teachers support the election of two or more Pershing Square nominees to ADP's board of directors.

Pershing Square's three nominees are Bill Ackman, founder, CEO and portfolio manager at Pershing Square; Veronica M. Hagen, former CEO of Polymer Group Inc. and currently a director at Southern Co., American Water Works Co. Inc. and Newmont Mining Corp.; and V. Paul Unruh, who previously held senior leadership positions at Bechtel Group and is currently a director at Symantec Corp. and Aconex Ltd. According to Pershing Square, Ms. Hagen and Mr. Unruh did not have any previous professional or personal relationships with the firm.

According to its proxy-voting disclosures, the Florida State Board of Administration supports Messrs. Ackman and Unruh's nominations, but it is withholding its vote on Ms. Hagen. Ontario Teacher supports all three nominees.

ADP provides human resources management software and other related services.

In its September proxy statement, Pershing Square argued that its three nominees "would be valuable additions to the board as they bring relevant experience to assist (ADP) in overseeing management in an effort to substantially accelerate growth, enhance the quality of the company's software and service offerings, improve its competitive position, increase its profitability and maximize stockholder value."

"Perhaps most importantly, the election of these three candidates would send a strong signal that stockholders are supportive of transformative, value-creating change at ADP rather than the status quo," Pershing Square added.

ADP disagrees. In an Oct. 27 letter to shareholders, ADP said that its total shareholder returns have consistently outperformed the S&P 500, the company's strategy "is driving consistent revenue growth and ongoing margin expansion" and the board "has the right skills and experience to represent all shareholder interests."

ADP has also argued that while Pershing Square claims to have an 8% stake in ADP, the vast majority of that is held in derivatives and can't be voted at Tuesday's shareholder meeting. According to ADP, the money manager owns only about 2% of the company's common stock.

In an October report, proxy-advisory firm Institutional Shareholder Services recommended that shareholders do not vote the dissident's proxy card, arguing that Pershing Square's plan "carries some degree of risk" and "is not sufficiently compelling to justify replacing three directors who have presided over a period of strong long-term total shareholder returns and shareholder-friendly corporate governance."

ISS also recommended in the report, however, that shareholders withhold their votes for one of ADP's 10 nominated directors — Eric C. Fast — "whose oversight of the audit committee has contributed to the company's less-than-ideal financial disclosure in recent years" and "would provide an opening for dissident nominee Mr. Ackman to be elected, while preventing the replacement of the other two targeted directors, Messrs. Jones and Hubbard." The appointment of Pershing's Square's nominees Ms. Hagen and Mr. Unruh to ADP's board would replace existing directors John P. Jones and R. Glenn Hubbard.

According to ISS, "the election of one dissident candidate — particularly a significantly vested shareholder like nominee Ackman, whose skill set is considered most additive — would appear sufficient to prompt the board to address the valid questions raised over the course of this contest."

According to its proxy-voting disclosures, the $139.7 billion Texas Teacher Retirement System, Austin, supports nine of ADP's nominated directors, and is withholding its vote for Mr. Fast.