Score one for management in one of the hot governance battlegrounds of the current proxy season: poison pills.
A poison pill — a defense against hostile takeovers devised by the attorney Martin Lipton some 20 years ago — is designed to discourage an acquisition by making it more costly, usually through the issuance of preferred stock with severe redemption provisions. At each of the past two annual meetings, 3M shareholders had passed a non-binding resolution calling for shareholder approval before any poison-pill plan could be implemented.
This year that proposal was kept out of the proxy with the blessing of the Securities and Exchange Commission, according to Reuters. In a report published before Tuesday’s annual meeting, Institutional Shareholder Services wrote, “We do not believe that the company’s recently adopted policy substantially addresses the issues raised by the shareholder resolution.” In protest, ISS urged other shareholders to withhold votes for four directors up for election.
All were approved by large margins.
Three of the company’s proposed directors — AMR Corp. executive chairman Edward Brennan, Amgen Inc. chairman and chief executive officer Kevin Sharer, and 3M chairman and chief executive officer James McNerney — were re-elected to their seats with nearly 80 percent of shareholder votes. United Parcel Service Inc. chairman and chief executive officer Michael Eskew, a first-time nominee, received 97 percent support, according to Dow Jones.
“Unfortunately, we believe ISS is wrong in this case and is at odds with the staff of the SEC, which concurred with our view that we had substantially implemented the ‘poison pill’ proposal,” said 3M’s assistant general counsel and secretary Gregg Larson, in a statement. “We agree that ISS has a right to advocate its preferred poison pill policy, but it should not confuse that position with a claim that our board was unresponsive to stockholder resolutions on poison pills in prior years.”
The St. Paul, Minnesota-based company had argued to the SEC that it had done as much to implement the prior resolutions as it could under state laws, reported Reuters. According to the legal opinion of Richards, Layton & Finger, maintained 3M, submitting a rights plan to a vote “would impose substantial delay and loss of control” and “significantly” diminish the ability of directors to protect shareholders’ interests.
Interestingly, earlier this week ConAgra Foods announced that it will voluntarily terminate its stockholders’ rights plan — a poison pill under another name — effective May 14. It was scheduled to expire in July 2006.