SCHAUMBURG, Ill. Carl J. Icahns independent campaign to seek election as a director to Motorola Inc. will force the company to revert to traditional plurality voting for directors, from the majority voting it adopted last year the first company to make such a turnabout.
We just went through the process of educating shareholders on majority voting last year; now we have to re-educate them for plurality voting, said Jeffrey Brown, senior corporate counsel at Schaumburg, Ill.-based Motorola.
Under majority vote, directors have to obtain a majority of shares voted for election; those who dont must submit resignations to the board, which has the discretion to accept or reject the resignations. Under a plurality system, directors can be elected by less than a majority, regardless of the number of votes withheld.
Shareholder activists, after the failure over the last few years to win Securities and Exchange Commission approval for access to the corporate proxy statement to nominate directors, began campaigns at dozens of companies through shareholder proposals to seek majority-vote election of directors. They view it as a fairer system of making directors more accountable to shareholders than the plurality standard.
But Motorolas switch to plurality vote for this years annual meeting isnt a reactionary move in corporate governance. In fact, Institutional Shareholder Services Inc., Rockville, Md., advises that majority-voting policies revert to plurality voting in the event of a contested election. Requiring a majority vote in such a situation might make it difficult to elect a full board, explained ISS Patrick McGurn, special counsel and executive vice president and director-corporate programs.
The majority-vote standard adopted by Motorola last year contains an automatic reversion policy.
Motorola will be the first company under majority-vote standard that will have a contested election to the board, Mr. Brown said. Mr. Icahn, who submitted a request to be nominated in Motorolas preliminary proxy statement, is asking shareholders to vote for him in a dissident proxy ballot he is sending out. Motorolas annual meeting is May 7.
Our board has said it doesnt support his candidacy, Mr. Brown said.
Whether he (Mr. Icahn) will be successful is hard to say, said Kent Hughes, managing director, Egan-Jones Proxy Services, Haverford, Pa. He may be successful on playing on dissatisfaction of some shareholders of Motorola, but whether it will be enough to get him a seat is another question.
For investors, the question is not only am I dissatisfied, but is he the person I would want as director. You may join him in dissatisfaction without wanting him on the board, Mr. Hughes added.
Egan-Jones hasnt yet issued its recommendations on Motorolas board election.
Mr. Icahn also has endorsed a say-on-pay proposal that would require Motorola to have an annual shareholder advisory vote on executive compensation; Motorolas board opposes the proposal.
But he takes no position on the other executive compensation shareholder proposal favored by corporate-governance activists that calls for recouping senior executives unearned incentive pay to the extent their performance targets are not achieved. Motorolas board also opposes this proposal.
In October, Mr. Icahn succeeded in remaking New York-based ImClone Systems Inc.s board. The company announced the resignations of two directors and an agreement that three other directors would not stand for re-election this year, all demands Mr. Icahn made, while he obtained board-endorsed nominations for himself and two others. All three Icahn nominees won election, and Mr. Icahn was named ImClones chairman.
At Blockbuster Inc. in 2005, Mr. Icahn formed a dissident slate, along with two allies, for seats on its board. They won, beating out three incumbent directors, including Chairman and CEO John A. Antioco. Dallas-based Blockbuster then expanded the board to include Mr. Antioco.
At Motorola, once on the board, he (Mr. Icahn) would have a platform from which to attempt to aggressively persuade other directors to take actions to raise the price of the stock, said Mr. Hughes. He is a person its hard not to listen to. But he could be isolated on the board if the other directors refuse to go along with him.