The divisive proxy contest to elect five dissident nominees of the Trian Partners LP hedge-fund group to H.J. Heinz Co.'s 12-member board shows shareholders need a freer hand in voting for directors.
Shareholders in the Heinz contest had to choose one of two proxy ballots, each with 12 candidates: the Heinz proxy card or the Trian proxy card. The Heinz card listed the 12 directors recommended by the board. The Trian proxy card listed its five dissident nominees and seven of the 12 Heinz nominees.
For whichever ballot they chose, shareholders could vote or withhold their votes for any of the 12 nominees listed.
Shareholders had to choose one card. They could not mix votes by, say, voting for any combination of 12 from both sets. Shareholders could not choose 12 board members from the full roster of 17 candidates. The Trian ballot meant the Trian Group selected five incumbent Heinz directors for removal by keeping them off its ballot.
In a sense, shareholders could choose one of two sets of uncontested elections.
The lack of a completely free choice in voting on all 17 nominees might have been a reason many shareholders were undecided on how to vote until the Heinz annual meeting.
Although shareholders typically cast proxy votes in advance of an annual meeting, more than 60 million, or nearly 20%, of 332 million shares outstanding were voted at the company's meeting Aug. 16 in Pittsburgh, according to William Mullen, Heinz spokesman. That amount of late voting was called unprecedented by Patrick J. McGurn, special counsel, executive vice president and director-corporate programs at Institutional Shareholder Services Inc. It is a reason Heinz officials said they would withhold release of a preliminary tally of the vote at the meeting, instead waiting for the certified results, which could be issued Sept. 15, if not earlier, Mr. Mullen said. A delay of preliminary voting results by a company is unusual, said Frank Lentini, director of Innisfree M&A Inc., Trian's proxy solicitor.
The way proxy contests work isn't ideal from a corporate governance standpoint, although they give shareholders more choice than just the typical corporate ballot.
The Securities and Exchange Commission never brought to a vote its proposal to allow shareholders to nominate directors on the corporate proxy ballot. But in proxy contests, where shareholders can nominate directors, albeit on a separate ballot the dissidents sent out, the SEC should find a way to allow shareholders to select from all of the nominees put forth. That would enhance shareholder choice. The Heinz proxy-voting campaign was highly contentious: Heinz and Trian made a combined 90 separate filings with the SEC. The contest has been a victory for shareholders, whether or not Trian gets any seats on the Heinz board.
For one, the contest should give the Heinz board a sense of urgency to improve the company's performance and hold William R. Johnson — Heinz's chairman, president and CEO — more accountable. For another, Heinz executives agreed, after talks with officials of the $210.7 billion California Public Employees' Retirement System, to improve corporate governance, including adopting a majority vote policy to elect directors and appointing two new independent directors, whom Heinz has begun to recruit. CalPERS voted its 1.66 million shares for the company's 12 nominees.
"Without the pressure from the Trian Group, CalPERS might not have had the same leverage to effect corporate governance changes," said Kent Hughes, managing director at Egan-Jones Proxy Services.
It remains to be seen if shareholder activists will devote the resources to revive the battle next year if expectations for better performance fail.