What if a company had an annual meeting and no directors showed up?
That's almost what happened to The Gillette Co. May 15. Only one director - James M. Kilts, chairman and chief executive officer - attended Gillette's annual meeting in Wilmington, Del. None of the other 11 directors, including Edward F. DeGraan, president and chief operating officer, bothered to attend.
"I heard a comment that shareholders would like to see more directors present," said Patricia Klarfeld, director, corporate communi- cations for the Boston-based company.
Because the directors had a meeting in April and another scheduled in June, they felt they didn't need to come to the meeting, she added.
"It was disrespectful to shareholders," said Timothy H. Smith, senior vice president at Walden Asset Management, Boston. Mr. Smith, who attended the meeting, is president of the Washington-based Social Investment Forum, an association of institutions involved in social investing.
"It's the least the directors can do in terms of accountability to shareholders to directly face them once a year," said Michael Zucker, director-corporate affairs at the American Federation of State, County and Municipal Employees, Washington, commenting when he heard about the attendance.
"Part of thereason for the reform movement in proxy access is shareholders feel directors are out of touch with them as a constituency, and don't have a consciousness that shareholders elect them."
The $600 million AFSCME staff pension fund was instrumental in the Securities and Exchange Commission's decision in April to direct its division of corporate finance to recommend changes to proxy rules on the nomination and election of directors.
AFSCME owns Gillette stock through a Standard & Poor's 500 index fund, Mr. Zucker added.
Nell Minow, editor, The Corporate Library, Washington, a website of corporate governance resources, said she did not know how often large numbers of directors miss their company annual meetings.
"Whenever it happens, we seem to hear complaints about it," she said. "I feel strongly that all directors should attend all annual meetings and be available to answer questions. In this era of advanced technology, companies should be using webcasts and other methods to make their meetings and their directors more accessible, rather than less. Shareholders should not vote in favor of directors who do not understand that they need to be available and accountable. They can run, but they can't hide."
Gillette directors weren't the only ones who were hard to find. There weren't a lot of shareholders either - only 25 showed up, said Mr. Smith. "It was a colossal disaster."
Gillette shareholders, nonetheless, voted by proxy 63% in favor of a shareholder proposal calling for an end to the company's classified board and for annual election of directors, the second year in a row the non-binding proposal has gotten a majority of the proxy votes. Last year, Gillette shareholders voted 55.7% in favor of the resolution. One-third of the board is elected each year; each director has a three-year term. Gillette's Ms. Klarfeld said the board will reconsider the proposal and make a decision at a later date.
Large pension funds that voted for the resolution included the $131 billion California Public Employees' Retirement System, Sacramento, and the C$66.2 billion (US$49 billion) Ontario Teachers' Pension Plan, Toronto. CalPERS voted 4.7 million shares; OTPP, 309,500 shares.
Mr. Smith of Walden Asset blamed the Wilmington venue for the lack of attendance by shareholders, accusing corporate executives of trying to avoid facing shareholders by holding the meeting in an inconvenient location for shareholders to reach.
Ms. Klarfeld said the annual meeting, typically in Boston, was moved to Wilmington for the second year in a row, primarily because Gillette is incorporated in Delaware. She said the board plans to explore whether to have the annual meeting in major cities around the country "to make it easier for different shareholder groups to attend."
She said the board also will consider having more directors present at the next shareholdermeeting.