May 22, 2009
SEC Votes to Expand Proxy Access Rights of ShareholdersThe Securities and Exchange Commission (SEC or the “Commission”) has voted to propose changes to the rules governing proxy access by shareholders of public companies in order to facilitate director nominations by shareholders using companies’ own proxy statements.

The Commission, at its open meeting held on May 20, 2009, voted in a 3-2 decision to propose these rules for a 60-day public comment period. Given the strong opinions held by both sides of the debate over proxy access, many of which were expressed by the Commissioners themselves at the open meeting, comments are expected to be extensive. Nonetheless, the rules could be effective in time for the 2010 proxy season.

SEC Chairman Mary Schapiro noted the Commission’s belief that these rules are necessary in order to respond to the public’s increasing demands, in light of recent stock market disruptions, for greater accountability and responsiveness on the part of boards of directors of public companies. She also noted the belief that enhanced access to company proxy statements is necessary in order to ensure that shareholders have a meaningful opportunity to influence the composition of the boards of directors of the companies of which they are owners.

Opponents of the proposed rules note that they appear to represent an intrusion by a federal government agency into the substance of the corporate governance process, an area that historically has been left in the hands of state corporate law. As an example, the Sarbanes-Oxley Act of 2002 largely imposed disclosure requirements on companies and their boards of directors, as opposed to mandating specific governance practices, which were left either to state corporate laws or the listing requirements of self-regulatory organizations, such as the national securities exchanges.

While the text of the proposed rules is not yet publicly available, below is a summary of the proposed rules. The proposals address two primary areas:

•inclusion of shareholder nominees in company proxy statements; and
•shareholder proposals to modify company nomination procedures.
Inclusion of Shareholder Nominees in Company Proxy Statements
The proposed rules would create new Rule 14a-11 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), allowing shareholders to include nominees for director positions in the company’s own proxy materials, unless the shareholders are prohibited by state law or a company’s charter or bylaws from nominating a candidate for election as a director.

The right to include nominees would be based on tiered ownership thresholds, depending on the size of the company, as follows:

•For large accelerated filers (companies with worldwide public float values of $700 million or more) or registered investment companies with net assets of $700 million or more: shareholders would have to have owned at least 1 percent of the voting securities for at least one year.
•For accelerated filers (companies with worldwide public float values of $75 million or more but less than $700 million) or registered investment companies with net assets of $75 million or more but less than $700 million: shareholders would have to have owned at least 3 percent of the voting securities for at least one year.
•For non-accelerated filers (companies with worldwide public float values of less than $75 million) or registered investment companies with net assets of less than $75 million: shareholders would have to have owned at least 5 percent of the voting securities for at least one year.
Shareholders would be able to aggregate their holdings together in order to satisfy the ownership thresholds set forth above, and they would not lose eligibility to report their holdings on Schedule 13G solely as a result of making a nomination under this new rule. Nominating shareholders would be required to (1) certify that they are not holding their stock for the purpose of changing control of the company, or to gain more than a minority representation on the board of directors, and (2) declare their intent to continue to own their shares through the annual meeting at which directors are to be elected.

Nominees would be required to be independent of the company, as defined by the independence standards of the national securities exchange or national securities association on which the company’s securities are traded. However, nominees would not be required to be independent of the nominating shareholder. This represents a change from previously proposed, but never adopted, proxy access rules.

Proposed Rule 14a-11 would provide a limit on the number of nominees that could be proposed by a shareholder of (1) one nominee or (2) up to 25 percent of the company’s board of directors, whichever is greater. Using the Commission’s examples, if the board is comprised of three members, one shareholder nominee could be included in the company’s proxy materials. If the board is comprised of eight members, up to two shareholder nominees could be included in the proxy materials.

In order to nominate a director, the nominating shareholder would submit a new filing, to be known as a Schedule 14N, to the Commission and to the issuer, including the following information:

•disclosure of the amount and percentage of the company’s securities owned by the nominating shareholder;
•the length of ownership of those securities;
•a statement as to the shareholder’s intent to continue to hold the securities through the date of the meeting; and
•a certification that the nominating shareholder is not seeking to change the control of the company or to gain more than a minority representation on the board of directors.
The Schedule 14N would have to be filed at least 120 days prior to the first anniversary of the date on which the proxy materials for the company’s annual meeting held during the previous year were publicly released. The company would then be required to include disclosure concerning the nominating shareholder, as well as the shareholder nominee or nominees, in its proxy materials, that is similar to the disclosure currently required in a contested election.

During the open meeting, the Staff of the Commission alluded to procedures that would be established for companies to challenge the validity of submissions, in a manner similar to that currently used for the challenging of other shareholder proposals pursuant to Rule 14a-8 under the Exchange Act. However, the details of those procedures are not yet available.

Shareholder Proposals to Modify Company Nomination Procedures
The proposed rules would also amend Exchange Act Rule 14a-8(i)(8) in order to provide that shareholders could require companies, under certain circumstances, to include proposals in their proxy materials that would require or request amendments to company charters and bylaws addressing nomination procedures. Under this amended rule, for example, shareholders could propose resolutions to require a company to amend its bylaws in order to specify particular procedures by which shareholders can propose director nominees. Exchange Act Rule 14a-8(i)(8) currently allows exclusion of shareholder proposals that “relate to an election.” The proposed changes to Rule 14a-8(i)(8) would narrow this exclusion.

In order to submit a proposal under this amended rule, a shareholder proponent would be required to have continuously held at least $2,000 in market value (or 1 percent, whichever is less) of the company’s securities entitled to be voted on the proposal at the meeting, for a period of one year prior to submitting the proposal. These are the same eligibility provisions as those currently set forth under Rule 14a-8.

Recent Changes in Delaware Law
These proposals from the Commission come in the wake of recent changes to the Delaware General Corporation Law (DGCL), signed into law in April 2009, adding new Sections 112 and 113 to the DGCL. These sections allow, but do not require, companies to include provisions in their bylaws relating to proxy access by shareholders.

New Section 112 of the DGCL allows, but does not require, companies to include provisions in their bylaws that specifically provide for access by shareholders to the company’s proxy materials with regard to director nominations. The provisions may include conditions to the access right, such as eligibility and procedural requirements, including ownership levels, background information about the nominee, and any other conditions permitted by law. New Section 113 of the DGCL similarly allows, but does not require, companies to provide in their bylaws for the reimbursement by a company of expenses incurred by a shareholder in nominating director candidates. The reimbursement provision may include conditions, such as the number or proportion of nominees proposed and whether the shareholder has requested reimbursement previously.

Many Delaware companies already have such provisions in their bylaws. However, in light of the Commission’s proposed revisions to Rule 14a-8(i)(8) described above, activist shareholders will now have a specific statutory roadmap to follow when proposing changes to Delaware companies’ bylaws for companies that do not already have such provisions.

* * *

It remains to be seen what form the final proxy access rules to be adopted by the Commission will take. However, it seems clear that in the words of Commissioner Elisse Walter (quoting Victor Hugo) at the open meeting, the Commission believes that easier proxy access is an idea whose time has come, and the question now is not whether, but when, easier proxy access will become a reality.

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Ronnie,

Unbeleivable! I do remember this now. We were all so suspecious of Corp_Buyer because he had an M/A background. Boy did he take alot of underserved heat.

It does look like the tide is changing and the SEC is realizing that it needs to pass laws to help shareholders. If you look at some of my recent posts on these issues it appears that we can benefit greatly from these new rules.

e.g.


Posted by: jai Date: Wednesday, November 11, 2009 10:53:03 PM
In reply to: jai who wrote msg# 277152 Post # of 277431

Shareholder-Friendly Rules from the SEC Will Challenge Many a Board
by: Eric Jackson May 21, 2009 | about: BAC / TGT
Eric Jackson

On Wednesday, the Securities and Exchange Commission will hold meetings on whether and how shareholders should be allowed to nominate directors to boards of companies in which they hold stakes. If a rule is agreed upon and put in practice in the next 90 days, it could dramatically change the relationship between shareholders and management teams for years to come.

The normal course of business since the SEC was created decades ago was that management holds all the cards in selecting its board and insulating itself from criticisms from shareholders. Management picks the directors it wants, it can stagger its re-elections to make it next to impossible to overturn the board in any one year, and shareholders face huge costs and long odds in putting up their own candidates.

Even after the Enron and WorldCom scandals earlier this decade, the SEC saw fit to change nothing with respect to making corporate boards more accountable to shareholders. That's about to change.

With the latest downturn, and the large antipathy directed towards the SEC from the media and shareholders thanks to its overlooking Bernie Madoff and doing nothing to prevent large institutions like Citigroup (C), Lehman Brothers, and Bear Stearns from imploding, the SEC can no longer look the other way. Chairwoman Mary Schapiro was brought in with a mandate and, so far, she's giving every indication that she's cleaning house and going the extra mile to give shareholders a voice for their concerns. All this has implications for the number of shareholder activist battles we'll see starting in 2010 and beyond. But more importantly it should truly improve the risk-adjusted returns for all public companies.

A few weeks ago, the SEC took an important first step in helping shareholders have more of an impact in annual votes. It announced it intended to get rid of "broker votes" being counted in favor of a management team's incumbent slate.

To explain how this works, take the recent case of Bank of America's (BAC) annual meeting last month. Most press coverage focused on how a shareholder resolution was passed with a majority (50%) vote that stripped CEO Ken Lewis of also holding the chairman title. However, the truth is that broker votes played a key role in preventing other significant changes from occurring at the same meeting.

Here's how it works: Broker votes are those placed by brokers who hold the stock in the name of their clients. If these brokers don't receive specific instructions on how to vote their shares during proxy season (which happens the vast majority of the time for the vast majority of proxy votes), the brokers can vote them in the manner they see fit. About 99% of the time this means voting the shares in favor of management, artificially raising the perception of how much support there is for management among shareholders.

For Bank of America's vote, the Wall Street Journal calculated that broker votes would account for about 22% of the overall vote. This means that if BofA's vote had been held in 2010 instead of 2009, when broker votes will not be counted towards the election results, the shareholder proposal to separate the chairman and CEO titles would have been 64% instead of 50%. Moreover, based on last month's shareholder results, it's likely two other shareholder propositions would have passed: (1) allowing shareholders to call special meetings to possibly replace members of the board and (2) an advisory vote of executive compensation, or so-called say-on-pay. Two directors, Lewis and Temple Sloan, also would have received enough votes to vote them off the board entirely.

With the debate about allowing shareholders more "proxy access," the SEC is suggesting shareholders receive a more direct say on who will be elected to a board, at a significantly lower cost. Until now, it's been entirely the choice of management who gets elected to serve on the corporate board. Shareholders simply get to vote up or down on these nominees. The SEC wants to allow shareholders to put forward their own nominees for directors to be voted on. If there are eight spots open on the board, and eight put forward by management and four put forward by shareholders, the SEC is saying, "Let the best eight candidates with the highest number of votes serve." Sounds very democratic, doesn't it?

It's quite conceivable that in a few years at least the largest shareholders will see all potential directors parade through their offices in the weeks leading up to an election, pressing the flesh and making their case to be elected, much like politicians do in general elections.

The SEC's proposed rule, which will be debated Wednesday, will require shareholders to hold 1% of the company's shares outstanding in order to nominate directors to serve on companies with a market capitalization greater than $700 million. For companies under $700 million in market cap, shareholders will need to hold 3% in stock; for companies under $75 million in market cap, shareholders will need to own 5% of the shares outstanding.

By asking for "skin in the game" from shareholders who want to suggest candidates, the SEC hopes to ensure the candidates are of the highest quality and the suggestions are from the most serious shareholders.

Take the current battle being waged by Pershing Square's Bill Ackman, who is seeking to elect four directors to Target's (TGT) board. He's estimated the current proxy battle, which will be resolved next week, is costing his firm $10 million to 15 million. He will pay this out of his own pocket, even while the incumbent board pays for all of its costs out of shareholders' pockets. It shouldn't be so costly or on such uneven terms to put forward some candidates for consideration.

When I hear management -- like that of Target -- complain that a shareholder challenge is too distracting and costly that it keeps it from running the business, I think to myself that if management had done a good enough job of running its business to begin with, shareholders wouldn't have been forced to take up a crusade against it.

These new shareholder-friendly rules from the SEC will serve all shareholders better than the old skewed rules. There will be a burst of challenges in 2010 and 2011 in response to these new rules and many boards will see their composition change significantly as a result. My prediction is that this initial "cleansing period" will prompt other boards to preemptively change themselves before being forced to by their shareholders. Counter-intuitively, I expect these new rules, in the long run, to lead to fewer shareholder showdowns, not more. Sunlight is the best disinfectant and the ability to cost-effectively run a credible proxy contest against a sleepy board will rouse many of these boards to heal themselves of what afflicts them.

Disclosure: At the time of publication, Jackson had no positions in any stocks mentioned

InterDigital Communications (IDCC) Stock Trading Info:

I was thinking the same thing. He may know of someone who would like to sit on this board and be an alternative candidate to Roath. Has anyone on the board spoke with Bill Naz and is comfortable asking him this question?

A simple vote of no won't help. We have 1 1/2 months left to figure out what we want to happen at the next ASM. Even if we vote no we have no viable replacement.

Janet is not a significant piece of this puzzle so I don't think answering emails or phone calls is the issue.

With better corporate governance we will attract fund managers.

I'm off my poison pill rants and more focused on board seats. Without a voice on the board shareholder value will continue a low level priority behind executive and board compensation.

Bottomline, fighting amoung shareholders and name calling or even micromanaging the company will not help shareholder value.

Being strategic and finding out how we get shareholder advocates on this board of directors will.

I have been searching for Corp_Buyers declassification proposal. It is unbeleivable how 6 years later the same is true.

Posted by: Corp_Buyer Date: Tuesday, September 02, 2003 7:05:45 PM
In reply to: F6 who wrote msg# 42628 Post # of 277318

F6- My actual positions on the issues you mentioned are not as you assumed - they are as follows:

* I am in favor of repealing the classified board to make all the directors accountable to shareholders every year. Incidentally, proxy votes at other companies to repeal classified BoD structures similar to IDCC are achieving up to 85% of the votes in favor of repeal, so institutions are strongly in favor of repealing classified boards to improve corporate governance and shareholder alignment. This issue has nothing to do with my positions on hostile takeover defenses.

* Regarding hostile takeover defenses, I am in favor of keeping the poison pill, simply because our stock price is currently so far undervalued, IMO.

* IMO, IDCC is just NOT a candidate for ANY hostile takeover due to regulatory and a host of other reasons. Specifically, Qcom cannot, IMO, buy IDCC no matter how attractive that idea may seem to some folks. I give the Qcom scenario absolutely NO WEIGHT in my thinking about IDCC;

* I am opposed to selling the company in the foreseeable future. Instead, I am strongly in favor of IDCC starting to bring in the cash by the wheel barrel full in the near future and management driving the share price, not increasing the number of shares they control via ISO options.

* I will seriously consider voting some directors off the Board. Specifically, I think the company may have outgrown Harry.

* I have no specific replacements in mind for any directors that are voted off the Board.

* IMO, the root cause of our governance issues at IDCC have to do with top management at the BoD level and executive compensation incentives, so I am in favor of some changes at the BoD level, specifically repealing the classified board structure, changing the Chairman, and thereby reforming the Compensation Committee.

I hope this helps you understand my true positions on these important matters.

Regards,
Corp_Buyer

After spending the last couple of weeks reading and posting articles I beleive what IDCC needs right now is good corporate governance.

I read about poison pills, staggered boards, buybacks, etc and decided that as a shareholder I just want to make sure that the company is structured in a way that looks out for my investment. The day to day execution such as strategies and licensing should be left to the CEO and the people who works for him. I also like Merrit as a CEO.

What I don't like is seeing someone who performed no clear benefit to the company cashing a $1.2 million dollar lotto ticket like Roath did the other day. I want to reward engineers for inventing and patenting solutions that can be turned into commercially viable licenses. The people who go out and license these company that bring in the cash like Merrit.

For me after 10 years this isn't about Nokia. It is about the proper corporate governance in place that ensures shareholders will receive a fair return for their investment. That may mean elimination of the staggered board, changing the posion pill so shareholders have a vote or having more say in compensation issues such as stock grants and options. My belief we need a board of directors that is focused on protecting and building shareholder value and right now I beleive these guys are focused on protecting and building their personal wealth.

P.S. and loop if you are going to TOS me again you better put one on yourself because your post about Roath was my reason for more digging on corporate governance.

Protecting Shareholders and Enhancing Public Confidence through Corporate Governance
Posted by Scott Hirst, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday July 30, 2009 at 3:48 pm
(Editor’s Note: This post is the written testimony (with footnotes and references omitted) submitted by Professor John Coates to the Senate Banking, Housing, and Urban Affairs Subcommittee on Securities, Insurance and Investment. Professor Coates testified on July 29, 2009 in the hearing on “Protecting Shareholders and Enhancing Public Confidence by Improving Corporate Governance.” Professor Coates’s complete written testimony can be found here. Professor Coates’ testimony, and the research of other members of the Program on Corporate Governance, was discussed in this article published on July 29, 2009 in the Christian Science Monitor.)

Introduction

Chairman Reed, Ranking Member Bunning, and members of the Subcommittee, I want to thank you for inviting me to testify. Effective corporate governance is a crucial foundation for economic growth, and I am honored to have been asked to participate.

A. Are There Any General Lessons for Corporate Governance from the Financial Crisis?

Some have described the ongoing financial crisis as reflecting poorly on US corporate governance, as with the accounting scandals and stock market bubbles of the late 1990s and early 2000s that led to the Sarbanes-Oxley Act. Unlike those episodes, however, the ongoing financial crisis has not exposed new and widespread problems with the basic governance of most US publicly held corporations. Outside the financial and automotive sectors, most companies have suffered only as a result of the crisis, and did not contribute to or cause it. Stock prices have fallen across the board, but most price declines have more to do with the challenges facing the real economy, and the spillovers from the financial sector on companies in need of new capital, and little to do with any general problem with corporate governance. As a result, we have learned relatively little about many long-standing concerns and debates surrounding the governance of publicly held corporations – and there are few if any easy lessons that can be drawn from the crisis for corporate governance generally.

I do not mean to minimize those concerns and debates, or suggest lawmakers should remain passive in the field of corporate governance. To the contrary, the crisis makes reform more important and urgent than ever, because well-governed companies recover and adapt more readily than poorly governed firms. But the best reform path will need to attend to differences between governance across industries, and ways that corporate governance interacts with industry-based regulation – and in particular, financial industry regulation – if legal changes are not to make things worse, rather than better. Governance flaws at Citigroup differed dramatically from governance flaws at GM, and attempts to fix the problems at firms like GM through laws directed at all public companies could make things worse at firms like Citigroup.

One important problem at financial firms was excessive risk-taking, stemming from a so-called “bonus culture” of compensation practices strongly linked to share prices. But the risks that financial firms took on were harmful for the nation as a whole because the financial firms were so important (and complex) and existing resolution authority so weak and poorly designed that those financial firms could not generally be allowed to fail. As a result, in economic terms, financial firms’ compensation practices did not take into account the external effects on taxpayers in the event of insolvency. In effect, financial firms were allowed to gamble with taxpayer money. This would have been true even if managers of those firms had been perfect stewards of shareholder wealth. The suggestion of my colleagues Holger Spamann and Lucian Bebchuk (2009) – praised by the New York Times editors earlier this week – that financial firms be required to link compensation to returns on their bonds as well as their common stocks reflects this point. Shareholders are not the only important corporate constituency to consider in setting corporate governance rules for banks.

At most public companies, the diagnosis has not been the same. If anything, the conventional critique of the governance of non-financial companies is that boards and managers have tended (from the shareholder perspective) to be excessively resistant to change, and to have tied executive compensation too weakly with performance. When commentators attempt to link compensation at firms like AIG and claims about excessive executive compensation at public companies generally, they fail to acknowledge that most shareholders do not mind if executives make an enormous amount of money, as long as shareholders also gain. Efforts to increase shareholder power to encourage managers more strongly to pursue shareholder wealth could – at financial firms – undermine efforts by bank regulators to restrain risk-taking by those same firms. The most important practical lesson of the financial crisis is, then, this: whatever form general corporate governance reform takes, careful thought should be given to exempting – or at least allowing relevant financial regulatory authorities to exempt or override – financial firms from those reforms.

B. Evidence on Policy Options

Turning from the general lessons of the financial crisis to some of the specific governance reforms that have been discussed or proposed in the last few years, it is important to bear in mind that corporate governance is not rocket science – in fact, it is much more complicated than rocket science. Corporations are in their simplest sense large groups of people coordinating their activities for profit. Science has a hard enough task tracking inert matter moving through space; it has a harder time predicting the behavior of a single actual or typical human; and it has the hardest time of all attempting to describe or predict how large groups of people will act – if for no other reason than researchers cannot experiment on large groups of people in realistic settings. As a result, there are few consensus views among researchers about any non-trivial topic in corporate governance, and evidence tends to emerge slowly, is rarely uncontested, and is subject to constant (and often dramatic reevaluation). As a result, everything that you do in setting rules for corporate governance should keep the fragility of the evidence in mind: set rules that can be changed by delegating to regulatory agencies; direct those agencies to review and reassess their own rules regularly; and provide “opt outs” and “sunsets” to governance mandates that are expected to last indefinitely, as at many corporations.

As one example, to my knowledge, there is no reliable large-scale empirical evidence – good or bad – on the effects of shareholder access to a company’s proxy statement, along the lines proposed by the SEC and mandated by S. 1074, H.R. 3269 and H.R. 2861, because there has no been no significant observed variation in such a governance system within any modern developed economy. This does not mean that there is no information relevant to evaluating how such a system would operate in practice, or that there is no basis on which such a system could be recommended or adopted. Rather, the absence of observed variation means that there is no general body of data that is capable of revealing whether such a system would consistently have good or bad effects on shareholder welfare – and no such data will exist unless and until a large number of companies voluntarily adopt such a system or are required to by law. That is generally true of many corporate governance proposals, and to require such data before adopting rule changes would effectively freeze laws governing corporate governance in place indefinitely, preventing further inquiry or development of evidence.

Nonetheless, there are some corporate governance topics about which evidence is better than others. Here I set out what is necessarily an abbreviated summary of the evidence on three topics addressed in one or more bills pending in the current Congress, including the Shareholder Bill of Rights Act of 2009 (S. 1074): (a) say on pay, (b) mandatory separation of the chairman and CEO positions, and (c) mandatory annual board elections.

a. Say on Pay

The proposed requirement that shareholders be given an advisory vote on executive pay has the advantage that it is very similar to a requirement adopted in another jurisdiction (the United Kingdom (UK)) that has capital markets and laws that are otherwise similar to those applicable in the United States.

This fact enables a research approach that is otherwise unavailable: a before-and-after test of board and shareholder responses, compensation practices, stock market reactions and shareholder returns, and other items of interest surrounding the adoption of say-on-pay in the UK. Different researchers have conducted several investigations of this kind and the results published at least informally. Those researchers report that say-on-pay’s adoption in the UK:

• improved the link between executive pay and corporate performance (Ferri & Maber 2007);

• led firms (both before and after relatively negative shareholder votes) to adopt better pay practices (id.);

• led activist shareholders to target firms with weak pay-performance links and those with higher-than-expected executive compensation levels (id.; Alissa 2009);

• did not reduce or slow the overall increase in executive compensation levels (Ferri & Maber 2007; Gordon 2008).

Together, these findings suggest that say-on-pay legislation would have a positive impact on corporate governance in the US. While the two legal contexts are not identical, there is no evidence in the existing literature to suggest that the differences would turn what would be a good idea in the UK into a bad one in the US.

Researchers have also exploited the introduction of earlier say-on-pay legislation in the US to examine stock price reactions to the prospect of such a governance reform. Consistent with the UK findings, they report that stock investors appear to have viewed the proposed legislation as good for firms with higher-than-typical executive compensation, firms with weak pay-performance links, and firms with weak corporate governance measured in various ways (Cai & Walkling 2009). They also report data showing that the market reacted positively at most sample firms to the proposed legislation. The same researchers also report that shareholder-sponsored efforts to introduce say-on-pay rules at individual firms – particularly when sponsored by unions with low stock holdings in the targeted firms – were not well-received by the stock market, in part because they were not directed at firms with higher-than-typical executive compensation or firms with weak pay-performance links, but instead simply at companies that happen to be large. The researchers suggest that their findings show that one-size- fits-all say-on-pay legislation may be harmful, but this implication does not in fact follow from their findings. If anything, the UK evidence summarized above suggests that general say-on-pay legislation will weaken the ability of special interest shareholder activists to exploit executive compensation as an issue, and will lower the costs of the broad run of shareholders to use their advisory votes on pay to target firms that are most in need of pressure to improve pay practices.

b. Mandatory Separation of Chairman and CEO Positions

In comparison to research on say-on-pay rules, the evidence on the proposal to mandate the separation of the chair and the CEO of public companies is more extensive and considerably more mixed. At least 34 separate studies of the differences in the performance of companies with split vs. unified chair/CEO positions have been conducted over the last 20 years, including two “meta-studies.” Dalton et al. (1998) (reviewing 31 studies of board leadership structure and finding “little evidence of systematic governance structure/financial performance relationships”) and Rhoades et al. (2001) (meta-analysis of 22 independent samples across 5,271 companies indicates that independent leadership structure has a significant impact on performance, but this impact varies with context). The only clear lesson from these studies is that there has been no long-term trend or convergence on a split chair/CEO structure, and that variation in board leadership structure has persisted for decades, even in the UK, where a split chair/CEO structure is the norm.

One study provides evidence consistent with one explanation of the overall lack of strong findings: optimal board structures may vary by firm size, with smaller firms benefiting from a unified chair/CEO position, with the clarity of leadership that structure provides, and larger firms benefiting from the extra monitoring that an independent chair may provide given the greater risk of “agency costs” at large companies. Palmon et al. (2002) (finding positive stock price reactions for small firms that switch from split to unified chair/CEO structure, and negative reactions for large firms). If valid, this explanation would suggest that it would be a good idea for any legislation on board leadership to (a) limit any mandate to the largest firms and (b) permit even those firms to “opt out” of the requirement through periodic shareholder votes (e.g., once every five years).

c. Mandatory Annual Board Elections

The evidence on the last legislative proposal I will address – mandatory annual board elections (i.e., a ban on staggered boards) – is thinner and at first glance more compelling than that on board leadership structure, but on close review is just as mixed. There have been at least two studies that focus on the specific relationship between annual board elections and firm value (Bebchuk & Cohen 2005; Faleye 2007), and a number of other papers that include annual board elections in studying the relationship between broader governance indices and firm value more generally (e.g., Gompers et al. 2003; Cremers & Ferrell 2009). Most (but not all) conclude that annual board elections (either on their own or in combination with other governance practices) are associated with higher firm value, as measured by the ratio of firms’ stock prices to their book values. The governance-valuation studies, however, generally suffer from a well-known “endogeneity” problem – that is, it is difficult (and given data limitations, sometimes impossible) to know whether annual elections improve firm value, or firm value determines whether a company chooses to hold annual elections. While there are statistical techniques that can address this issue, none of the studies to date have presented compelling evidence that annual elections lead to better performance, at least in the last 20 years, during which time public companies rarely switched from annual to staggered elections. Moreover, the longer a given study of this type has been available for others to attempt to replicate, the more fragile the findings have appeared to be, suggesting that the bottom-line conclusions of more recent studies may not hold up in the face of continued research.

Evidence on annual elections is further complicated by the fact that companies that “go public” for the first time continue to adopt staggered board elections at high rates, as late as 2007. Since the evidence regarding the purported ability of staggered boards to improve firm value has been known for some time, and since shareholders have the ability to adjust the prices they pay for newly issued IPO shares to reflect governance practices, the fact of continued adoption of staggered board elections prior to IPOs suggests that there may be a social advantage to permitting these structures, at least when adopted before a company goes public. Other researchers have made a similar point about “dual class” capital structures, which give low or no votes to public investors, while letting founders or their family members retain high vote stock. SEC rules and stock exchange listing standards have for a long time permitted such structures to be adopted in the US only prior to a company going public, and not once a company has gone public. Such structures, as with staggered board elections, have long been thought to reduce firm value, measured by reference to public stock prices. Yet, as with staggered boards, some companies continue to adopt dual class structures – and some have done quite well by their shareholders (e.g., Google Inc. – still up over 300% since its IPO despite the recent market meltdown).

The best explanation offered by academic researchers to explain the continued use of dual class structures and staggered board elections is that they provide founders assurance of continued control, which they value more than the stock price of their companies might reflect. Such private value may arise because of particular attachments the founders have towards the companies they have helped build from scratch, or because they hope to pass control of their companies to their children, or because they have developed “firm-specific capital” that they would lose if the company were acquired (and which would be hard to value by outsiders). Some evidence has been developed consistent with these explanations (see Coates 2004, reviewing prior research). This evidence is worth considering not only because dual class structures are analogous to staggered board elections – and interfere with hostile takeovers and shareholder voting rights even more than do staggered board elections – but also because any to mandate annual board elections would also require a ban on dual class structures, or else it w ould simply push companies to adopt the more restrictive dual class structure in lieu of staggered boards.

C. Recommendations

My recommendations flow from my review of the implications of the financial crisis and my review of evidence above:

First, any corporate governance reform that attempts to shift power from boards or managers to shareholders should either not include financial firms, or should include a clear delegation of authority to financial regulators to exempt financial firms from these power shifts by regulation. Simply directing financial regulators to regulate the same governance practices (as in H.R. 3269) may not suffice to prevent shareholder pressure from encouraging firms to craft ways around those regulations. It would be better more generally to moderate the pressure of shareholders on financial firms to maximize short- term profit at the potential expense of the financial system and taxpayers.

Second, “say on pay” legislation is likely to be a good idea. By enabling shareholders across the board to provide feedback in the form of advisory votes to boards on executive compensation, such a requirement would be likely to increase board scrutiny on one element of corporate governance that has the greatest potential for improving incentives and firm performance in the long run. At the same time, it should be recognized that “say on pay” is not likely to achieve general distributive goals – wealthy CEOs will continue to earn outsize compensation, as long as their shareholders benefit. If the goal of Congress is to reduce wealth or income disparities, say on pay is not the right mechanism, and executive compensation is only a relatively minor part of the picture. For that reason, efforts to use corporate governance practices –- which after all only affect a subset of all US companies, those that have dispersed shareholders – to force a linkage between CEO and employee pay seem to me misguided. It would be better to address pay disparities in the tax code.

Third, while mandating a split between the chair and the CEO is not clearly a good idea for all public companies, it may well be a good idea for larger companies. Because shareholders of those same companies may find it difficult to initiate such a change, given the difficulties of collective action, a legislative change requiring a split leadership structure but permitting shareholder-approved opt outs may improve governance for many companies while imposing relatively minor costs on companies generally. Requiring that companies give shareholders a vote on such a choice episodically (e.g., every five years) would also be a way to help solve shareholders’ inevitable collective action problems without forcing a one-size-fits-all solution on companies generally.

Fourth, mandating that all public companies hold annual elections for all directors is not clearly supported by evidence or theory. It perhaps bears mentioning that other important institutions (the SEC, the Fed, the Senate) permit staggered elections for good reason, and that any rule mandating annual elections would ride roughshod over state law – in Massachusetts, for example, companies are required to have staggered board elections unless they affirmatively opt out of the requirement. In prior writing, I have suggested it be left to the courts to review director conduct with a more skeptical eye at companies that adopted staggered boards prior to the development of the poison pill (Bebchuk, Coates & Subramanian 2001), and I have also suggested elsewhere reasons to consider “re-opening” corporate governance practices put in place long ago (Coates 2004). Both approaches would be better than an across-the-board annual election mandate, which would be likely to lead new companies to adopt even more draconian governance practices without any clear net benefit.

Finally, precisely because there is no good evidence on the potential effects of shareholder proxy access, it would seem to be the best course to move cautiously in adopting rules permitting or requiring such access. For that reason, the most that would seem warranted for a hard-to-change statute to achieve is to mandate that the SEC adopt a rule providing for such access, and thereby to clarify the SEC’s authority to do so. Any shareholder access rule will need to address not only the length of the holding period and ownership threshold required to obtain such access, the ability of shareholders to aggregate holdings to obtain eligibility, rules for independence of nominees and shareholders using the rule, and the availability of the rule to those seeking control or influence of a company. Efforts to specify rules for such access at a greater level of detail will probably miss the mark, and be difficult to correct if experience shows that the access has either provided too much or too little access to accomplish the presumed goal of enhancing shareholder welfare.

0 Comments

Proxy Voting Policies and Procedures
General guidelines, policies and procedures
RiverSource funds uphold a long tradition of supporting sound and principled corporate governance. For more than 30 years, the funds' Boards of Trustees/Directors ("Board"), which consist of a majority of independent Board members, has determined policies and voted proxies. The funds' investment manager, RiverSource Investments, LLC and the funds' administrator, Ameriprise Financial, Inc. provide support to the Board in connection with the proxy voting process.

General Guidelines
Corporate governance matters
The Board supports proxy proposals that it believes are tied to the interests of shareholders and votes against proxy proposals that appear to entrench management. For example:

•The Board generally votes in favor of proposals for an independent chairman or, if the chairman is not independent, in favor of a lead independent director.
•The Board supports annual election of all directors and proposals to eliminate classes of directors.
•In a routine election of directors, the Board will generally vote with management's recommendations because the Board believes that management and nominating committees of independent directors are in the best position to know what qualifications are required of directors to form an effective board. However, the Board will generally vote against a nominee who has been assigned to the audit, compensation, or nominating committee if the nominee is not independent of management based on established criteria. The Board will also withhold support for any director who fails to attend 75% of meetings or has other activities that appear to interfere with his or her ability to commit sufficient attention to the company and, in general, will vote against nominees who are determined to have been involved in options backdating.
•The Board generally supports proposals requiring director nominees to receive a majority of affirmative votes cast in order to be elected to the board, and opposes cumulative voting based on the view that each director elected should represent the interests of all shareholders.
•Votes in a contested election of directors are evaluated on a case-by-case basis. In general, the Board believes that incumbent management and nominating committees, with access to more and better information, are in the best position to make strategic business decisions. However, the Board will consider an opposing slate if it makes a compelling business case for leading the company in a new direction.
Shareholder rights plans
The Board generally supports shareholder rights plans based on a belief that such plans force uninvited bidders to negotiate with a company's board. The Board believes these negotiations allow time for the company to maximize value for shareholders by forcing a higher premium from a bidder, attracting a better bid from a competing bidder or allowing the company to pursue its own strategy for enhancing shareholder value. The Board supports proposals to submit shareholder rights plans to shareholders and supports limiting the vote required for approval of such plans to a majority of the votes cast.

Auditors
The Board values the independence of auditors based on established criteria. The Board supports a reasonable review of matters that may raise concerns regarding an auditor's service that may cause the Board to vote against a management recommendation, including, for example, auditor involvement in significant financial restatements, options backdating, material weaknesses in control, attempts to limit auditor liability or situations where independence has been compromised.

Stock option plans and other management compensation issues
The Board expects company management to give thoughtful consideration to providing competitive long-term employee incentives directly tied to the interest of shareholders. The Board votes against proxy proposals that it believes dilute shareholder value excessively.

The Board believes that equity compensation awards can be a useful tool, when not abused, for retaining employees and giving them incentives to engage in conduct that will improve the performance of the company. In this regard, the Board generally favors minimum holding periods of stock obtained by senior management pursuant to an option plan and will vote against compensation plans for executives that it deems excessive.

Social and corporate policy issues
The Board believes proxy proposals should address the business interests of the corporation. Shareholder proposals sometime seek to have the company disclose or amend certain business practices based purely on social or environmental issues rather than compelling business arguments. In general, the Board recognizes our fund shareholders are likely to have differing views of social and environmental issues and believes that these matters are primarily the responsibility of a company's management and its board of directors.

Request for Rulemaking To Amend Rule 14a-8(i)
To Allow Shareholder Proposals
To Elect Directors
August 1, 2002

Mr. Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549

Re: Petition for Rulemaking

Dear Mr. Katz:

The Committee of Concerned Shareholders ("Committee") and James McRitchie (collectively "Petitioners") hereby jointly petition the Securities and Exchange Commission ("SEC"), under Rule 192, to modify provisions of SEC Rule 14a-8(i), as attached. Rule 14a-8 sets forth provisions for shareholder proposals to be included in proxy statements and associated ballots of corporations ("Shareholder Proposals") and the procedures to implement the given rights. The proposed modifications would, in effect, permit investors ("Shareholders") to use Shareholder Proposals for the purpose of electing Directors.

Background
Impediments to Improving Corporate Governance
With Enron, Global Crossing, WorldCom and similar issues permeating the news, many are seeking ways to improve corporate governance. Solutions, which seek better disclosure and stiffer penalties, miss the big picture. Tweaking rules and regulations at the margins will only minimally improve the quality of corporate governance. Those who ask corporate management ("Management") and/or Directors to voluntarily abandon concepts of greed and conflicts of interest miss the core issue. There is a much more effective approach whereby Shareholders can play a major role in curing corporate governance problems. Just as former President Richard M. Nixon, the anti-Communist crusader was uniquely qualified to take bold initiatives in China, George W. Bush, our first MBA president, is uniquely qualified to initiate a reform which goes to the heart of corporate governance.

What Happened To Democracy?
Nobody decided one day to remove the element of democracy from corporations. Adolf A. Berle and Gardiner C. Means pointed out in their classic 1932 book, The Modern Corporation and Private Property, simply that it had already occurred. Much has been written about this phenomenon over the past seven decades but there has been virtually no change in law or practice to reflect a shift in control from Shareholders to Management. While the corporation laws of every state, solemnly recite that the Shareholders elect the Directors, each year Shareholders of American corporations are asked to participate in an exercise which bears little resemblance to the word "election" as commonly used in any democratic country.

Shareholders generally have no real choice in the election of Directors. Even if an overwhelming majority of Shareholders oppose a Director- nominee, that person will serve as Director so long as he or she gets one vote, unless an expensive proxy contest is undertaken. The real election for Directors occurs within the boardroom, with Shareholders relegated to a rubber-stamp process of affirmation.

When intelligent, honest professionals repeatedly use a legal term in a manner contrary to its commonly accepted usage, we are entitled to ask why. When the corporation laws of 50 states indicate that Shareholders "elect" Directors; that Shareholders "vote" for their choice of "nominees"; that proxies are solicited for the "election" of Directors, we are given an impression contrary to actual practice.

The "independent" Board of Directors ("Board") is supposed (and assumed) to hold power granted to it by the owner Shareholders. Its actual power in fact derives from the Chief Executive Officer ("CEO") - which tends to dilute its legitimacy. It is well known that the vast majority of Board vacancies have been filled via recommendations from the Chairman of the Board ("Chairman"). Further, given that in the vast majority of companies the Chairman is also the CEO, it is clear the CEO plays a dominant role in the selection of Directors. The fact that we speak of Directors as "representing" or being "elected" by Shareholders when Shareholders play no role in their nomination is evidence of the challenges we face in corporate accountability.

Since it is the duty of a Director to supervise Management, there is little likelihood that Management will select a candidate who is inclined to ask "tough questions." A Director who does not cooperate with Management will, in all likelihood, not be asked to serve an additional term. However, while dependent on Management and/or fellow Directors for his/her longevity, a Director still has a fiduciary duty to the Shareholders to monitor Management's actions.

Until Directors can be held personally accountable, e.g., removed from office by irate Shareholders, they will not be responsive to the desires of Shareholders. However, it is almost impossible for Shareholders to replace Directors who they deem to be incompetent and/or corrupt.

Other potential means to achieve accountability of Directors are ineffective. The threat of potential litigation, through class-action lawsuits and/or derivative actions brought by Shareholders, is highly overrated as a deterrent to corporate malfeasance and waste corporate assets. Corporations themselves and/or the SEC generally reveal corporate improper acts before civil litigation is commenced. Shareholder lawsuits rarely result in the perpetrators, themselves, paying damages. If damages are recovered, it is paid out of insurance policies and out of corporate assets. Shareholders end up paying themselves from corporate assets after plaintiffs' attorneys recover substantial sums. Such does not even consider exorbitant legal fees generated by defense attorneys before an inevitable settlement is reached.

The Petitioners know, from personal experience, that, under present SEC Rules, it is practically impossible for a candidate NOT selected by Management and/or incumbent Directors (an outside candidate) to mount an effective proxy contest to replace Directors.

1991 Nomination of Robert A. G. Monks to the Board of Directors of Sears
In 1991 business leaders surveyed by Fortune magazine rated Sears at 487th out of 500 companies for the reputation of its Management. Dale Hanson, then chief of the California Public Employees Retirement System (CalPERS) a large Sears shareholder said, "from 1984 on, Sears went to hell in a handbag."

In May of 1991, Robert A. G. Monks ("Monks") indicated he would engage in a proxy contest for one seat on the Board of a public company, something no one had ever done before at any company; his target was Sears. Sears hired renowned takeover lawyer Marty Lipton, brought a lawsuit to stop Monks and budgeted $5.5 million dollars over and above Sears' usual solicitation expenses, just to defeat him (as Crain's Chicago Business pointed out, one out of every seven dollars made by the retail operation during the previous year). Sears also assigned 30 of its employees to spend their time working to defeat his candidacy.

With cumulative voting and five Directors up for election, Monks could have won a seat; he needed only 16 percent of the vote. But Sears shrunk its board by eliminating three Director seats, which meant that he needed 21 percent of the vote to win a seat. That was virtually impossible since 25 percent of the vote was held by Sears employees (and voted by Sears trustees) and much of the rest was held by individuals, who were impossible to solicit without spending millions of dollars.

The myth is that the Management reports to the Board. The reality is that the Board reports to the CEO, at least that was the case at Sears. When the CEO (who is also Chairman and head of the Board's nominating committee) tells three Directors they are off, they are off, especially, as in this case, when they were inside directors, full-time employees of the corporation.

Committee of Concerned Luby's Shareholders
The Committee of Concerned Luby's Shareholders, predecessor to the Committee, consisting of shareholders of Luby's, Inc. ("Luby's"), who met on an Internet Yahoo! Finance Message Board, were the first and only grass-roots Shareholders to conduct a formal proxy contest under present SEC Rules. Luby's, headquartered in San Antonio, Texas, is a 200-unit cafeteria chain with annual sales of approximately $400 million. The Committee's efforts revealed the true difficulties which current SEC Rules cause to private investors seeking to implement corporate change by replacing Directors.

The Committee's Director-nominees (Les Greenberg [a semi-retired attorney and private investor in Culver City, CA], Thomas C. Palmer [an investment advisor in Tyler, Texas] and Elisse Jones Freeman [daughter of one of the founders of Luby's]) received 24% of the votes cast and two of the Shareholder Proposals which it supported (i.e., removal of all anti-takeover defenses, annual election of all Directors) received approximately 60% of votes cast. The relevant Annual Meeting of Shareholders was held in January 2001. Luby's has neither implemented those Shareholder Proposals nor explained why it has refused to do so.

Near Insurmountable Hurdles to Shareholders Who Wish to Elect Directors
In essence, most hurdles to engaging in an effective proxy solicitation effort occur because the name of Shareholders' Director-nominees will not appear on a corporation's ballot. Under applicable state corporate law, Shareholders can easily nominate a candidate for a corporate Directorship, but, under present SEC Rules, only the names of those persons nominated by the corporation need appear on the corporation's ballot. The assets of all Shareholders are expended by Management to distribute those ballots.

To overcome the hurdles, a Shareholder can expect to expend about $250,000 to purchase the expertise to accomplish the task or needs to develop that expertise. Normally, Shareholders must:

locate other potential Director nominees and conduct related due diligence;

draft a charter for a committee;

decide how to finance/allocate the out-of-pocket expenses, e.g., legal document drafting, printing and distribution costs;

obtain a copy of the corporation's Bylaw and Articles of Incorporation;

learn details of state corporate law, federal securities laws and various SEC Rules;

learn how to use the SEC's EDGAR electronic filing system (as there is no paper filing);

deal with the corporation and its transfer agent which stall and request thousands of dollars for a copy of the Shareholders list which costs them little to produce;

be willing to file a legal action in Delaware or other state courts to get the Shareholders list;

be prepared to expend funds and effort in defense of a frivolous legal action by the corporation used to exhaust funds and energies;

deal with the SEC's responses to draft filings;

make sure that the appropriate parties are notified that the election is "contested";

verify that proxy statements have actually been mailed to "beneficial holders" of the stock and that votes have been counted properly;

locate and attempt to communicate with the Proxy Voter at large Institutional Investors;

learn the rules to be employed at the Annual Meeting without the cooperation of the corporation.
The SEC is well aware of the aforesaid hurdles. The Division of Corporation Finance, responded to recent correspondence from Les Greenberg by stating, "[W]e remain sensitive to the importance of this issue to shareholders, particularly in view of the difficulty minority shareholders may have in seeking the election of their nominees to the board of directors." Yet, the SEC has done little to demonstrate any such sensitivity.

Public Investor Reaction to Learning of Difficulties of Shareholder Selection/Election of Directors
Through Internet message boards and other means, the Committee has discussed hurdles of nominating/electing truly "independent" Directors --- those not beholden to Management or fellow Directors for their selection, nomination and/or the financing of their proxy solicitation efforts. Most public investors were shocked to learn how Directors are selected/elected. The general investing public does not think about such issues. However, when awakened to the issue, investor confidence in corporate governance tends to decline. Many written responses were received.

The following, from an investor in Germany, is a sample response. "When I have started to invest in the USA about 3 years ago I was sure that elections of directors are fair. ... So when I have discovered that elections of directors of USA public companies are not democratic I was very surprised and disappointed. ... This is EXACTLY how voting in communist countries worked. Everyone could vote, but there was just NO CHOICE of candidates. The point was not how to be elected, but how to get on the election list. With this system no changes were possible, so there was no motivation to improve the governance." (Emphasis in original.)

Conclusion
The Wall Street Journal (7/16/02), in an article entitled, "Wall Street Rushes Toward Washington, Flees Responsibility," stated, "Ms. Teslik [Council of Institutional Investors] cites how difficult it is for shareholders to elect a director other than those hand-picked by management --- even though the directors, in theory, represent the shareholders. 'Our system allows executives to pick the boards who are supposed to police them,' she says."

The Los Angeles Times (7/22/02), in a series entitled, "Crisis In Corporate America," stated, "'The biggest obstacle to a good board is arrogance,' Raber [Roger Raber, president of the National Assn. of Corporate Directors] said. 'With some directors, there is a sense of entitlement. ... "I'm here as long as I want to be."'"

Time Magazine (7/22/02), in an article entitled, "More Reform and Less Hot Air," stated, "Get Rid of Pet-Rock Boards ... [T]oo many corporate boards of directors still serve as little more than puppets of management. ... Companies should be required to give shareholders election materials about rival candidates; as it stands, small investors who want to wage upstart campaigns don't stand a chance."

The New York Times (7/30/02), in an article entitled, "Labor to Press for Changes in Corporate Governance," stated, "He [John J. Sweeney, President of the A.F.L.-C.I.O.] will also call for changes to give pension funds more power to choose directors who do not rubber-stamp the decisions of company executives."

Time Magazine (8/5/02), in an article entitled, "Interview - 10 Questions for Ralph Nader," states, "Congress passed a corporate accountability act last week. Was that enough? ... The election of corporate board members is a Kremlin type of election. It's a self-perpetuating system, with shareholders having no real power. That has not been touched."

Entrenched Managers and Directors will only improve corporate governance when they can be held personally accountable, e.g. voted out of office and replaced by candidates nominated by Shareholders.

We urge the SEC to consider taking the steps proposed herein as soon as possible.

Please communicate with us in the event that further information is desired.

Respectfully submitted,


Committee of Concerned Shareholders


By:
Les Greenberg
Internet: http://www.ConcernedShareholders.com


James McRitchie, Editor
CorpGov.Net
9295 Yorkship Court
Elk Grove, CA 95758-7413
E-mail: jm@corpgov.net
Internet: http://www.corpgov.net
Phone: (916) 691-9722




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Attachment
Petition by Greenberg and McRitchie
August 1, 2002

Description of Proposed Amendments
Rule 14a-8 provides an opportunity for a Shareholder owning a relatively small amount of a Company's securities to have his/her proposal placed alongside Management's proposals in the Company's proxy materials for presentation to a vote at an annual or special meeting of Shareholders. It has become increasingly popular because it provides an avenue for communication between Shareholders and Companies, as well as among Shareholders themselves. Rule 14a-8 generally requires the Company to include the proposal unless the Shareholder has not complied with Rule14a-8's procedural requirements or the proposal falls within one of 13 bases for exclusion. Rule 14a-(8)(i)(8) excludes proposals, which relate to an election for membership on the Company's Board of Directors or analogous governing body. The Committee petitions that that exclusion be replaced with certain content requirements and amendments to potentially contradicting sections when proposals relate to an election for membership on the Company's Board of Directors or analogous governing body.

The intended effect of the suggested modifications is that the solicitation of proxies for all nominees for Director positions, who meet the other legal requirements, be required to be included in the Company's proxy materials.

Rule 14a-(8)(i) should be modified as follows:

8. Relates to election: If the proposal relates to an election for membership on the company's board of directors or analogous governing body; provided, however, the aforesaid exclusion shall not apply if each of the following conditions are met:

(A) The letter of nomination:

(1) complies with the relevant state law and the company's bylaws requirements
(2) contains a statement, signed by the nominee, that the nominee will serve as a Director, if elected;

(B) The proposal includes:

(1) name of the nominee;
(2) age of the nominee;
(3) business address of the nominee;
(4) nominee's securities holding in the company;
(5) nominee's transactions within the past two (2) years in the securities of the company;
(6) the past five (5) year's work experience of the nominee;
(7) whether the nominee is party to a slate of candidates, and, if so, the name(s) of the other members of the slate; and,
(8) whether the nominee has any agreement with other nominees, if any, his/her nominator and/or with the company;

(C) The proposal may be excluded if, during the past ten (10) years, the nominee has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) and failed to set forth details of the matter in the proposal.

Additionally, Rule 14a-8(i) should be added as follows:

8.1 If my proposal for nomination of a Director-candidate is not excluded under 8 and the beneficial owner of stock does not instruct the proxy holder on the ballot as to which Director-candidate(s) to vote for, will the proxy holder be permitted to vote those shares in favor of any non-designated Director-candidate? No.

Additionally, Rule 14a-8(i) should be added as follows:

8.2 If my proposal for nomination of a Director-candidate is not excluded under 8 and the beneficial owner of stock does not instruct his/her stock brokerage firm or similar fiduciary in whose account the stock is held as to how to vote for Director-candidates, will the stock brokerage firm or similar fiduciary be permitted to vote those shares in favor of any non-designated Director-candidate? No.

Additionally, Rule 14a-8(i) should be amended as follows:

9. Conflicts with company's proposal: If the proposal directly conflicts with one of the company's own proposals to be submitted to shareholders at the same meeting, except those related to the nomination for election for membership on the company's board of directors or analogous governing body.





http://www.sec.gov/rules/petitions/petn4-460.htm

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Home | Previous Page Modified: 09/20/2002

Shareholder-Friendly Rules from the SEC Will Challenge Many a Board
by: Eric Jackson May 21, 2009 | about: BAC / TGT
Eric Jackson

On Wednesday, the Securities and Exchange Commission will hold meetings on whether and how shareholders should be allowed to nominate directors to boards of companies in which they hold stakes. If a rule is agreed upon and put in practice in the next 90 days, it could dramatically change the relationship between shareholders and management teams for years to come.

The normal course of business since the SEC was created decades ago was that management holds all the cards in selecting its board and insulating itself from criticisms from shareholders. Management picks the directors it wants, it can stagger its re-elections to make it next to impossible to overturn the board in any one year, and shareholders face huge costs and long odds in putting up their own candidates.

Even after the Enron and WorldCom scandals earlier this decade, the SEC saw fit to change nothing with respect to making corporate boards more accountable to shareholders. That's about to change.

With the latest downturn, and the large antipathy directed towards the SEC from the media and shareholders thanks to its overlooking Bernie Madoff and doing nothing to prevent large institutions like Citigroup (C), Lehman Brothers, and Bear Stearns from imploding, the SEC can no longer look the other way. Chairwoman Mary Schapiro was brought in with a mandate and, so far, she's giving every indication that she's cleaning house and going the extra mile to give shareholders a voice for their concerns. All this has implications for the number of shareholder activist battles we'll see starting in 2010 and beyond. But more importantly it should truly improve the risk-adjusted returns for all public companies.

A few weeks ago, the SEC took an important first step in helping shareholders have more of an impact in annual votes. It announced it intended to get rid of "broker votes" being counted in favor of a management team's incumbent slate.

To explain how this works, take the recent case of Bank of America's (BAC) annual meeting last month. Most press coverage focused on how a shareholder resolution was passed with a majority (50%) vote that stripped CEO Ken Lewis of also holding the chairman title. However, the truth is that broker votes played a key role in preventing other significant changes from occurring at the same meeting.

Here's how it works: Broker votes are those placed by brokers who hold the stock in the name of their clients. If these brokers don't receive specific instructions on how to vote their shares during proxy season (which happens the vast majority of the time for the vast majority of proxy votes), the brokers can vote them in the manner they see fit. About 99% of the time this means voting the shares in favor of management, artificially raising the perception of how much support there is for management among shareholders.

For Bank of America's vote, the Wall Street Journal calculated that broker votes would account for about 22% of the overall vote. This means that if BofA's vote had been held in 2010 instead of 2009, when broker votes will not be counted towards the election results, the shareholder proposal to separate the chairman and CEO titles would have been 64% instead of 50%. Moreover, based on last month's shareholder results, it's likely two other shareholder propositions would have passed: (1) allowing shareholders to call special meetings to possibly replace members of the board and (2) an advisory vote of executive compensation, or so-called say-on-pay. Two directors, Lewis and Temple Sloan, also would have received enough votes to vote them off the board entirely.

With the debate about allowing shareholders more "proxy access," the SEC is suggesting shareholders receive a more direct say on who will be elected to a board, at a significantly lower cost. Until now, it's been entirely the choice of management who gets elected to serve on the corporate board. Shareholders simply get to vote up or down on these nominees. The SEC wants to allow shareholders to put forward their own nominees for directors to be voted on. If there are eight spots open on the board, and eight put forward by management and four put forward by shareholders, the SEC is saying, "Let the best eight candidates with the highest number of votes serve." Sounds very democratic, doesn't it?

It's quite conceivable that in a few years at least the largest shareholders will see all potential directors parade through their offices in the weeks leading up to an election, pressing the flesh and making their case to be elected, much like politicians do in general elections.

The SEC's proposed rule, which will be debated Wednesday, will require shareholders to hold 1% of the company's shares outstanding in order to nominate directors to serve on companies with a market capitalization greater than $700 million. For companies under $700 million in market cap, shareholders will need to hold 3% in stock; for companies under $75 million in market cap, shareholders will need to own 5% of the shares outstanding.

By asking for "skin in the game" from shareholders who want to suggest candidates, the SEC hopes to ensure the candidates are of the highest quality and the suggestions are from the most serious shareholders.

Take the current battle being waged by Pershing Square's Bill Ackman, who is seeking to elect four directors to Target's (TGT) board. He's estimated the current proxy battle, which will be resolved next week, is costing his firm $10 million to 15 million. He will pay this out of his own pocket, even while the incumbent board pays for all of its costs out of shareholders' pockets. It shouldn't be so costly or on such uneven terms to put forward some candidates for consideration.

When I hear management -- like that of Target -- complain that a shareholder challenge is too distracting and costly that it keeps it from running the business, I think to myself that if management had done a good enough job of running its business to begin with, shareholders wouldn't have been forced to take up a crusade against it.

These new shareholder-friendly rules from the SEC will serve all shareholders better than the old skewed rules. There will be a burst of challenges in 2010 and 2011 in response to these new rules and many boards will see their composition change significantly as a result. My prediction is that this initial "cleansing period" will prompt other boards to preemptively change themselves before being forced to by their shareholders. Counter-intuitively, I expect these new rules, in the long run, to lead to fewer shareholder showdowns, not more. Sunlight is the best disinfectant and the ability to cost-effectively run a credible proxy contest against a sleepy board will rouse many of these boards to heal themselves of what afflicts them.

Disclosure: At the time of publication, Jackson had no positions in any stocks mentioned

The point is that we need to separate the people who are working hard and adding value from those that don't. It is unfair to put the day to day guys that are working hard and delivering deals with the Roaths of the world who play poker with Harry on friday night.

The company is not broken it just needs to be more in line with shareholder interest. That job is the responsibility of the Board of Directors who are elected by the shareholders.

For the people who are unhappy with the board, like myself, we need to band together and ensure that our rights are being looked after properly

Don't throw the baby out with the Bath water

I think Merrit is doing a great job in Licensing. Nokia is making sure that every single avenue is needed to be met before they absolutely sign. The only error he made was having too much confidence that he would win this case. He didn't and options are on the table. He also is not communicating very well on why Sony/Erisson has held out and not been brought to the ITC. I understand Motorola with a loss in court but sounds like SNE is off the radar.

The only reason the company is flush with cash is because of his leading of the licensing team and signing the Apples, Rimm's, Samsung's, LG's, etc of the world.

That being said I don't want a say in day to day operations but I want to be able to judge this board on a year to year basis. This is a what have you done for me lately with regard to the board of directors. The entire slate needs to be verified by a shareholder vote once a year. So if we get one proxy in this year it needs to be making these board member more accountable to shareholders.

Also, we need a viable replacement added to the vote for next years board to replace Roath. Someone who will fight for the shareholders. I don't know if Bill Naz can because of conflict of interest or is willing but he would be a perfect person to replace Roath in June.

Press Release
June 9, 2009


Office of Public Affairs
(916) 795-3991
Pat Macht, Assistant Executive Officer
Contact: Clark McKinley, Information Officer
pressroom@calpers.ca.gov


Proxy Advisors Back CalPERS Proposal for Annual Board Elections at Dollar Tree
SACRAMENTO, CA – The California Public Employees’ Retirement System has received support from three proxy advisors in the CalPERS bid to have board directors at Dollar Tree stores stand for annual election.

Proposal 2 at Dollar Tree’s June 18, 2009 annual shareowners meeting is the same nonbinding proposal that received 67.7 percent support last year. However, the board declined to implement the proposal.

Despite strong shareowner backing, Dollar Tree left in place its classified board structure whereby directors serve staggered three-year terms in three director classes, which makes it difficult to make changes on the board.

“The ability to elect directors is the single most important use of the shareholder franchise, and all directors should be accountable on an annual basis,” RiskMetrics Group said. “A classified board can entrench management and effectively preclude most takeover bids or proxy contests.”

Glass Lewis said: “Empirical studies have shown that companies with classified boards may show a reduction in the firm’s value; in the context of hostile takeovers, classified boards operation as a takeover defense, which entrenches management, discourages potential acquirers and delivers less return to shareholders.”

Egan-Jones also said in support: “The election of directors is the primary avenue for shareholders to influence corporate governance policies and to hold management accountable for its implementation of those polices. Shareholders should have the opportunity to vote on the performance of the entire Board of Directors each year.”

The pension fund plans to withhold votes against the re-election of J. Douglas Perry, Thomas A. Saunders III, and Carl P. Zeithaml for their failure to implement last year’s board declassification proposal. RiskMetrics Group recommended withhold votes for the same three directors as well.

In 2007, CalPERS placed the discount variety store chain on its Focus List for underperforming companies, citing its classified board structure and other corporate governance practices.

A copy of the CalPERS letter to Dollar Tree shareowners can be found in the pension fund’s Press Room at www.calpers.ca.gov. CalPERS owned approximately 73,150 shares of Dollar Tree as of April 17, 2009.

With approximately $182 billion in assets, CalPERS is the nation’s largest public pension fund. It administers retirement benefits for more than 1.6 million active and retired State, public school, and local public agency employees and their families on behalf of 2,600 California public employers.

For additional CalPERS proxy votes and corporate governance information, visit www.calpers-governance.org.

###

Dated: 06-09-2009

Shareholder Proxy Access for Director Elections:
What You Should Know
Overview
Shareholder proxy access for the election of directors is about to arrive.
Directors of public companies, shareholder activists and shareholders
generally soon will be dealing with an important new set of issues and
dynamics associated with the election of directors and the management of the
board process. This memorandum is intended to provide a briefing on key aspects
of this important subject.
What is The Issue?
In a nutshell, the issue is whether and, if so, under what conditions, a shareholder of a
public company should have the right to include — in the company’s proxy
statement and on the company’s proxy card —nominees proposed by the shareholder
in opposition to the company’s candidates for election to the board of directors.
A sharp distinction has always existed in director election contests between how
company and dissident candidates are presented for shareholder consideration.
Company candidates are presented in the company’s proxy material — proxy
statement and card — and dissident candidates are presented in separate proxy
material prepared, paid for and presented to shareholders by the dissidents. Classic
election contests are typified by each side preparing various forms of dueling
soliciting materials —such as formal proxy statements, print and electronic media
advertisements, letters to shareholders, investor presentations — which are
delivered to shareholders through an active solicitation campaign by each side.
Although proxy reforms in recent years have been designed to streamline the proxy
solicitation process, an election contest can still involve real cost and effort.
The rise of corporate governance concerns in recent years has increasingly focused
on board performance and the rights of shareholders to change directors in
response to perceived deficiencies in performance. One mechanism that has been
proposed to facilitate shareholder action seeking to change directors is to give
shareholders direct access to the company’s proxy statement, permitting the inclusion
of shareholder-proposed candidates and a supporting statement. Among the arguments
advanced for this mechanism is that including shareholder-sponsored director
candidates directly in the company’s proxy statement (and on its proxy card) will
make it significantly easier and less costly to present to shareholders meaningful
choices regarding board composition with a view toward improving performance.
Where Does The Issue Stand?
The proxy access issue has been debated for some time. In 2003 and again in 2007,
shareholder proxy access proposals were considered by the Securities and
Exchange Commission (SEC). However, no rule was adopted, or position taken,
by the SEC either directly granting a proxy access right under the federal proxy
rules or permitting shareholders to include in a company’s proxy statement, under
Rule 14a-8, a shareholder proposal to amend the company’s bylaws which, if adopted by shareholders,
would provide for shareholder proxy access in the election of directors (proxy access
bylaw). In fact, in 2007 the SEC codified an exclusion from Rule 14a-8 that made it clear that a
proxy access bylaw could be excluded by a company from its proxy statement.
The issue has not disappeared, however. Events of the last year, which have raised
concerns about board oversight associated with, among other things, risk assumption leading to the
financial system meltdown and executive compensation practices, have reinvigorated the corporate
governance focus on board performance, including proxy access reform.
This renewed focus has led to legislation in Delaware and confirmation by the new SEC Chairman,
Mary Schapiro, that a rulemaking proposal on shareholder access to management’s proxy
materials for director elections will be on the SEC’s agenda in May 2009.
The Delaware Response
On Friday, April 10, 2009 the governor of Delaware signed into law enabling legislation, effective
August 1, 2009, which expressly permits, but does not require, Delaware companies to adopt
bylaws governing access to the company’s proxy material for board nominees proposed by
shareholders and reimbursement of proxy solicitation expenses incurred by a nominating
shareholder. Either the board of directors or shareholders may adopt these bylaws. The provisions
were specifically designed to offer flexibility to companies, their boards and shareholders.
New Section 112 of the Delaware General Corporation Law (DGCL) allows a company’s bylaws
to provide that if the company solicits proxies for the election of directors, the company would be
required, subject to such procedures and conditions as are provided in the bylaws, to include in its
proxy materials one or more nominees submitted by shareholders in addition to those individuals
nominated by the board of directors. Although the bylaws may prescribe any lawful condition to
the exercise of a right of access to the company’s proxy materials, Section 112 also includes a
nonexclusive list of prerequisites that the bylaws may impose before allowing access. Among
other things, the bylaws may condition access on such factors as a minimum level of stock ownership
by the nominating shareholder, the number or percentage of board seats to be
contested and whether nominations are related to an acquisition of a significant percentage of the
company’s stock.
New Section 113 of the DGCL allows a company’s bylaws to require it to reimburse expenses
incurred by a shareholder soliciting proxies in connection with the election of directors, subject to
conditions that may be set forth in the bylaws. Section 113 also identifies a nonexclusive list of
conditions that may be imposed on any such right to reimbursement. Among other things, the
bylaws may limit reimbursement based on the number or proportion of persons nominated by, or
the proportion of votes cast in favor of one or more of the persons nominated by, the shareholder
seeking reimbursement. A reimbursement bylaw could apply to election solicitations by shareholders
in connection with or apart from nominees submitted pursuant to a proxy access bylaw.
The flexibility offered by Sections 112 and 113 should provide boards of directors and shareholders
with an opportunity to craft proxy access and expense reimbursement bylaws that are balanced,
designed for the specific circumstances of each company, and do not permit unreasonable intrusions
on the company’s proxy materials or corporate funds.
2
The SEC’s Current Focus
SEC Chairman Schapiro has stated that the SEC’s 2009 shareholder proxy access proposal will
“ensure that a company’s owners have a meaningful opportunity to nominate directors.” This
clearly reflects the basic mindset of the Obama administration — that something has gone
seriously wrong with the system and active efforts to fix it are in order. Still, there can be no
assurance as to when, or if, the SEC will act. Acase can be made that no action need be taken now in
light of the Delaware legislation. However, the basic fix-it mindset, coupled with the fact that the
Delaware response has not (yet) been adopted elsewhere, points to the likelihood of quick SEC action.
As in the past, one choice for the SEC would be to adopt a rule directly providing proxy access to
shareholders. This would tread on territory traditionally left to state corporate law. It also would
require the SEC to determine what conditions to access should apply, rather than permitting a
company’s shareholders or board to decide this as provided by the Delaware legislation.
An alternative would be for the SEC to amend Rule 14a-8(i)(8) to specifically authorize shareholders
to include in management’s proxy materials shareholder proposals related to access
bylaws. The SEC staff has issued a number of no-action letters adhering to an interpretation of that
rule which allows companies to exclude shareholder proposals from management’s proxy materials
that may result in a contested election. Without an amendment, continued application of that
interpretation will foreclose shareholders from using Rule 14a-8 to promote bylaw amendments
such as contemplated by the Delaware legislation.
Of course, nothing would foreclose a shareholder from proposing a proxy access bylaw outside of
Rule 14a-8 through means of a traditional proxy solicitation using its own proxy materials. The
SEC might be concerned, though, that defaulting to this approach would impose the cost of the
proxy solicitation on the shareholder. However, that concern may be unfounded. The shareholder
proposing the proxy access proposal also could propose, under the general right to amend
bylaws noted below, an expense reimbursement bylaw which could provide that, if adopted, it
would apply to the expense of pursuing the concurrent proxy access proposal.
Other Related Issues and Considerations
Non-Delaware Companies
At this juncture, Delaware is the only state which has adopted legislation expressly dealing with
shareholder proxy access bylaws. What about those companies incorporated elsewhere?
Obviously this is a state by state inquiry. However, in most if not all states, whether or not enabling
legislation such as Delaware’s is enacted, directors and shareholders have the general right to
amend their companies’ bylaws, which is likely to include adopting procedural-related bylaws
providing for proxy access in connection with the election of directors (and providing for election
solicitation expense reimbursement). The fact that Delaware chose to enact legislation expressly
enabling these bylaws should not be taken to mean that shareholders of Delaware companies do
not otherwise have the right to adopt them.
Whether And When The Board Should Act
Boards need to consider whether and, if so, when they should act to adopt a shareholder proxy
access bylaw (and an election solicitation expense reimbursement bylaw). For now, at least, these
3
should be considered company-specific assessments. Focusing on shareholder proxy access
bylaws, factors to be considered include:
• Assessment of impact of shareholder proxy access bylaw. Boards will need to assess what they
expect the impact will be of a shareholder proxy access bylaw. Will it turn some, perhaps
many, annual meetings into election contests? Will it facilitate the election of “special interest”
directors to the board and, as a result, impair the board’s ability to function effectively?
Will it facilitate creating a better relationship between the board and shareholders? Will it
facilitate or hamper getting directors with needed skill-sets on the board? Depending on its
overall assessment, a board may determine to embrace or oppose adoption of a shareholder
proxy access bylaw.
• Assessment of company’s ability to defeat proposal. In determining whether to oppose
adoption of a shareholder proxy access bylaw, a board should assess whether it has the ability
to defeat any proposal for such a bylaw. If defeat is uncertain or unlikely, alternatives to
outright opposition should be considered.
• Advance adoption to mitigate proposal receipt. Having a reasonable proxy access bylaw in
place may mitigate shareholder interest in submitting such a proposal — although as a
Delaware law matter, subject to enforceable limitations in a company’s charter or bylaws,
shareholders would be entitled to amend a board-adopted bylaw.
• Advance adoption to mitigate shareholder support of proposal. Having a reasonable proxy
access bylaw in place at the time a shareholder proxy access proposal is received could play an
important role in encouraging other shareholders not to support the proposal. (There is some
evidence from the consideration of earlier majority voting proposals which supports the view
that being proactive may have a positive effect.)
• Advance adoption to support exclusion of proposal. Having a reasonable proxy access bylaw
in place at the time a shareholder proxy access proposal is received may provide a basis for
seeking SEC staff no-action concurrence that the proposal may be excluded from the company’s
proxy statement under rule 14a-8(i)(10) (even if permitted under an amended Rule
14a-8(i)(8)) because the company has already substantially implemented the proposal.
• Assessment of reality/timing of possible receipt of proposal. Many companies may not be
under a near term threat of receiving a shareholder proxy access proposal. As to most companies
with annual meetings already scheduled to be held during the Spring proxy season, the
dates have passed for submission of shareholder proposals under Rule 14a-8 to be included in
the company’s proxy statement and for advance notice of a shareholder proposal submitted outside
of Rule 14a-8. Even for companies for which those dates have not passed, such as
companies with annual meetings later in the year, whether a shareholder proxy access proposal
should be expected in connection with the annual meeting may well depend on, among other
things, whether the SEC has adopted a shareholder access rule and, if so, exactly what it says.
• Impact of current activist issues. Some companies with current activist shareholder issues may
be subject to particular circumstances (e.g, the ability of shareholders to act by written consent
or to call a special meeting), which could present an accelerated risk of receipt of a shareholder
proxy access bylaw proposal.
• Value of a “wait and see” approach. Companies may benefit from taking a “wait and see”
approach. This may permit looking, in advance, at what other similarly situated companies have
done, what particular shareholder sponsors of proxy access proposals have suggested in the first
instance and what they have accepted after negotiating with target companies, and what significant
shareholders of the company were prepared to accept/support in other situations.
Bylaw Design Features
In designing the terms of a shareholder proxy access bylaw (or an election solicitation expense
reimbursement bylaw) it undoubtedly will be the case that “the devil is in the details.” And the
“details” will inevitably involve specific circumstances affecting individual companies—such as:
What is the company’s shareholder profile (type, size of holdings, turnover pattern)? Are activist
shareholders involved with the company and, if so, which ones, how much stock do they own (if
detectable), who are their “friends” in the company’s stock, what positions are they espousing,
etc.? What is the company’s market capitalization? What has the company’s relationship been
with its shareholders and the investment community? How is the board’s performance rated? How
has the company been performing, and over what period of time?
Clearly there is no “one size fits all” design for a shareholder proxy access (or an election expense
solicitation reimbursement) bylaw. However, it might be useful to see how some design features
could be incorporated. So, by way of example, the board of a Delaware company might consider
a proxy access bylaw (pursuant to Section 112) or an expense reimbursement bylaw (pursuant to
Section 113) that requires, among other things, a shareholder seeking access to management’s
proxy or seeking election expense reimbursement to be a holder of record, and to own a certain
percentage of stock representing a significant ownership position (perhaps somewhere between
three to five percent). Another possibility would be for the bylaw to require, among other things,
such a shareholder to have held its shares for a period of time (possibly for two continuous years)
prior to seeking access to managements’ proxy statement or expense reimbursement, and also to
contain provisions that would prohibit access to managements’ proxy materials or expense reimbursement
for anyone making a takeover proposal or creeping acquisition. Such provisions would
promote the interests of shareholders that have long term, vested interests in the company, and not
just traders or others seeking short term opportunities.
Be Well Advised
The are many issues surrounding the approach to shareholder proxy access and many constituencies
and sensitivities to be taken into account. As a highly visible — and highly charged —
corporate governance subject in today’s environment, boards should pay close attention to how it
is handled by their companies and should seek input from experienced advisors to avoid potentially
costly missteps.

It does have an effect. I do not wish to annoy shareholders so I'll discontinue this subject.

My only motivation was 10 years of frustration with the BOD and my feeling that they have not been looking out for the shareholders.

End of discussion.

No CNBC please.

They do not have the answers people want to here right now.

Until they either settle Nokia or announce they will finish the existing buy back or God forbid license Sony/Ericson, they are better off just keeping quiet.

They are simply not willing to speak about many subjects right now.

I won't blame them on the licensing but they need to comment on the buy back.

Thomas Davey - Sidoti & Company

Okay, great. Scott, a question for you about the shared buyback. You said how much was bought back?

Scott McQuilkin

Under the $100 million authorization we bought back $25 million and about a million shares.

Thomas Davey - Sidoti & Company

That's in the quarter or so far this year?

Scott McQuilkin

That's so far this year. We started the program at the end of March.

Thomas Davey - Sidoti & Company

Okay. So that was $25 million, how many shares again?

Scott McQuilkin

One million shares.

Thomas Davey - Sidoti & Company

One million.

Scott McQuilkin

It's basically over two quarters.

Bill Nasgovitz - Heartland Advisors

Okay. Thank you. In terms of cash, what are we earning on our cash?

Scott McQuilkin

Well, it's a very low rate. I mean, it's somewhere between 0.5% and 1%, and the reason for that is because we keep it in very safe, very liquid, very short-term type of investments.

Bill Nasgovitz - Heartland Advisors

Okay.

Scott McQuilkin

Basically we had next to no losses over the last couple of years, so that's the good news. The bad news is yeah, the rates are low for right now.

Bill Nasgovitz - Heartland Advisors

Okay. I appreciate that. Well, Bill, getting back to your previous statement, trying to achieve the highest value to shareholders. Just a couple comments. With the stock trading at essentially at below $20 a share, and estimates I've got a 250 estimate. Maybe you're going to do it for the year. We'll see, but if so, that's an 8 PE, about a third of what QUALCOMM is selling at, but an earnings yield of 12.5%, I'm a bit puzzled by why you don't think that that's a very extremely attractive return for shareholders?

Bill Merritt

I think that if you look at the investment opportunities, and you're right though. You have to compare what you can achieve in terms of shareholder return in a buyback versus what you can achieve in a shareholder return through investment in the business and as Scott and I both mentioned, we see some very significant opportunities out there to make some investments that we think would create greater value than share repurchase.

Obviously in looking at that you have to think about the risk of execution on those strategies and compare that against the buyback of stock which some people would say, well, isn't that less risky? Well, it can be or can't be because obviously you have to think about what the stock is worth versus what you're buying it at. So I would I tell you, Bill, it's a very active dialogue within the company.

Bill Nasgovitz - Heartland Advisors

Well, I would hope so, Bill. Because the company in the past has had a history of diversifying outside of its main business and not really making any money for shareholders, losing a ton. So to me a low-risk, very prudent approach would perhaps to do step up the buyback activity substantially here. Hell, you're going to have well over half a billion dollars in cash or $600 million. If you spent $200 million yesterday and today you could have bought back a quarter of the company. A quarter of the company for $200 million for a business, which today is being valued at $400 million net of cash that has thrown off over a billion and a half in royalty revenues. Is that right, $400 million for a billion and a half of previous royalties? You're talking about a pretty optimistic future here?

Bill Merritt

Yes.

Bill Nasgovitz - Heartland Advisors

Or am I wrong? Or are we just [de-essing] here?

Bill Merritt

Yes. I mean, I believe we do have a very strong future.

Bill Nasgovitz - Heartland Advisors

Well, 12.5% seems to make a pretty good sense versus 0.5% or 1%, so I really urge the Board to consider, if you like the stock at $30 or $35, my god, at $19 or $20 a share it would seem to make sense and a dividend to shareholders might cause other people who invest also for dividends to take a look at this thing. My god, you're selling for $400 million net of cash. Am I wrong? Is my math wrong or what?

Bill Merritt

No, I think your math is probably right, and as I said, it's a very active dialogue within the company and I think that we have a lot of good opportunities to drive value here.

Bill Nasgovitz - Heartland Advisors

Do you expect earnings to be up next year?

Bill Merritt

We don't tend to give earnings guidance, and we never have, but certainly with respect to the business, we see a lot of opportunities to drive value.

Bill Nasgovitz - Heartland Advisors


Okay. Well, I wish you well on that, but certainly give this I think a low-risk approach some serious discussion, and in my view there is a sense of urgency to take advantage of these disappointments with Nokia when the stock is selling for a ridiculous price at a fraction of your peers. The shareholders would certainly appreciate more value being recognized. The intrinsic worth of this company is I think we would all agree substantially higher than $19 a share?

Bill Merritt

I appreciate your comments, Bill.

Thanks olddog, I stand corrected yet again.

The 2 major issues by TC and Bill Naz are insider buying and buy backs.

For the insider buys my guess is that Tom is hoping insider buys trigger institutions to start to look. Once they look they may actually like what they see. I know they do not like the sea of insider sells. In order for the executives to buy they need to stop selling. Would not make any sense to buy shares one day and two weeks later sell them. This was a personal challenge from TC to IDDC exec basically telling them to put their money where their mouth is.

2006 Article.

INSIDER TRADING ACTIVITY proved to be a lucrative signal for investors seeking to outperform the market last year.

To mark the one year anniversary of the "Inside Scoop" column, Barron's Online has taken a look at some of the smart buys insiders made, as well as some of the clunker calls over the past six months. (In a second installment tomorrow, we will focus on stocks that insiders were selling.)

We focused on stocks that were featured in Inside Scoops that appeared on our Website between Jan. 31 and the end of the August.

The average six-month return of the stocks following insider buying activity was nearly 12%, generally outpacing the overall market.

Of the 78 instances of insider buying activity that we wrote about, 55% of the stocks posted gains of 5% or more.

Among the stocks that got the biggest kick following insider purchases: Titanium Metals, which rose 161%, RightNow Technologies, which gained 106%, and Midway Games, which gained 52%.

A number of insiders also helped fuel the momentum behind energy stocks. Chesapeake Energy shares shot up 49% since executives purchased shares in May, and continued to post strong double-digit gains following several subsequent transactions. Other notable plays include XTO Energy (38%), Goodrich Petroleum (29%) and Input/Output (12%).

H. Nejat Seyhun, professor of finance at the University of Michigan's Ross School of Business, says that insiders' buying activity can often predict gains, but "there's a lot of times it misses as well."

Based on historical data, he says insider buying leads to subsequent share-price gains for the following 12 months only 55% of the time.

For investors that trade in large values, those odds can work to their favor.

But smaller investors have to be more prudent about using the buy activity as triggers for entering a stock they believe is fundamentally strong, says Seyhun.

It's understandable why smart investors often take their cues from corporate insiders. Executives, directors and major shareholders (such as activist hedge funds) tend to act on the same profit motive that propels the average investor to trade stocks.

As experts on their companies and industries, these insiders can signal good entry points into a stock, point to value in a hot industry or even cue investors to an up-and-coming star, says Mark LoPresti, senior quantitative analyst at Thomson Financial.

"There are two things to look at: the actual value [of the stock] and the perception of the actual value," he says.

Although it can take a year or more for insider optimism or pessimism to play out in the stock price, we are highlighting six-month returns for one simple reason: Inside Scoop is only a year old.

Meanwhile, Seyhun argues that forward-looking sentiment reflected by insider trading can be a more powerful indicator of future stock performance when it is coupled with the tools of fundamental analysis, including price-to-earnings multiples, book-to-market values or the dividend yield.

"If you have insider trading signals that agree with these signals, you get a stronger reaction" in the stock's movement, he says.

For instance, Thomson Financial's LoPresti notes that senior executives at Titanium Metals actually started buying the stock before it began to rise dramatically, "but a lot of people didn't jump on it then."

Overall, Seyhun says buying by small-cap insiders tend to be more significant than buying in diversified mega-cap stocks like General Electric. That's in part because these small stocks are driven by fewer news events in a given year.

Last fall, New York-based fund manager Tony Marchese, general partner for Insiders Trend Fund, told Barron's Online about his favorite small-cap stock picks based on insider trading data. (See Electronic Q&A, "Finding Stocks By Following the Money," Aug. 9, 2005.)

But not all buying is equal. Seyhun says the strongest buys are by senior executives who purchase at least 10,000 shares, when there hasn't been a sell in at least three to four months. It could take anywhere from a few months up to five years for a positive signal to play out, depending on the company's fundamentals.

Seyhun dissects insider trading patterns based on data available between 1975 and 1996 in a book published in 1998 titled, Investment Intelligence from Insider Trading.

Fortunately for investors, insider data has become more pertinent since corporate-governance reforms were passed under the Sarbanes-Oxley Act of 2002, following the collapse of Enron.

Insiders are required to report their transactions to the Securities and Exchange Commission within two business days. Before 2002, insiders could take between 10 and 40 days to report depending when they made their transaction in a given month.

Collectively, insider trading data in an industry can even point to future market or economic trends. Despite heavy selling in the energy sector amid surging stock prices, LoPresti says insiders also kept buying up millions of dollars in shares in companies like Chesapeake.

Not only does this signal additional gains in stocks, but continues to sustain a consensus that oil prices will remain at higher levels, at least for a while, he adds.

While insider buying can send value cues, Seyhun says investors should not jump into a stock without weighing the fundamental prospects of a company and any headline risks.

Take Overstock.com, for example: The stock continued to plummet despite heavy buying by executives. The company's president, Patrick Byrne, has been battling short sellers publicly and in the courts. The stock has fallen 47% in the six months following Byrne's open-market purchases in August.

LoPresti says among Overstock.com senior executives, there is "clearly a commitment for the long term" as executives continue to put money into a faltering stock.

Seyhun says investors need to gauge their investment objectives and timeline and then use the buying as trigger points for companies or industries they are interested in.

"Don't put all your eggs in one basket and don't invest on a single signal," he says.

Stay tuned tomorrow for the breakdown of insider selling activity.

JimLur. I have a lot of respect for you in building this board and I do not want to violate any rules by being focused on an agenda. If you say I need to change the subject I will. But this very well be my last Harry post.

IDCC
InterDigital, Inc. NASDAQ-GS
Insider Trades of CAMPAGNA HARRY G Description
Traded Price Holdings
IDCC 06/04/2009 Form 4 JB D 2,000 - 253,000
IDCC 05/28/2009 Form 4 AS D 48,000 $24.480 251,000
IDCC 05/28/2009 Form 4 Op D 48,000 $4.813 299,000
IDCC 01/15/2009 Form 4 AS D 10,000 $26.870 241,000
IDCC 01/15/2009 Form 4 JB D 10,000 - 251,000
IDCC 12/18/2008 Form 4 AS D 49,500 $25.140 251,500
IDCC 12/18/2008 Form 4 S D 500 $25.860 251,000
IDCC 12/18/2008 Form 4 Op D 50,000 $4.313 301,000
IDCC 12/17/2008 Form 4 AS D 50,000 $25.080 251,000
IDCC 12/17/2008 Form 4 Opt D 50,000 $4.313 301,000
IDCC 06/05/2008 Form 4 JB D 8,000 - 251,000
IDCC 01/15/2008 Form 4 JB D 10,000 - 243,000

From Jan 08 he started with 243,000 received RSU and low price options totaling 176,000 shares to finish the period with 253,000 while selling 168,000, SO receiving 176,000 in an 18 month period is a very generous reward. Harry must have done something really wonderful to earn this kind of cash?

2007 he was granted 90k shares, He really has a unquie talent of collecting shares.

Poor Harry, I should pick on him especially since everyone from the ceo to the janitor has been selling regularly and getting very, very healthy amounts.

My beleive is that these guys are way too fat with RSU's.

I also beleive that having these guys fat is a demotivator for us. By getting so many shares for free with a cost of 0 they have no focus on the share price so it is not important to hav it go up. If it does great but if not no big deal I take home $1.1 million instead of $1.3. So they sell the $21 RSU in 3 months I can sell my $27 rsu.

Some way we have to get these guys to start actually start caring about the shareprice.

Harry's rigged Game

I'll switch the subject back to Harry and the reason institutions aren't touching IDCC with a 10 foot pole.

I remebr being at an ASM a few years ago when the bookkeeper Rich Fagen was speaking. I was sitting next a fellow shareholder Bob when they were annoucing results of the recent buyback and the shares outstanding. Bob being an accountant correctly pointed out to Rich the bookkepper that the option grants and exercise basically keep the shares outstanding unchanged even with the large buybacks. Rich's reply was well, uh.

Fund managers simply do not beleive that any of this revenue will get back to the shareholders. The extremely generous option program got replaced with an extremely generous RSU program. Guess what? If they had stayed on the option progran we would not have an insider selling problem like we do here. The options would be underwater (meaning below grabt price) so they would not be executed and sold. The RSU program simply gives Harry and his gang stock where by after the vesting period they sell. They sell because they know they will get more stock.

Now we have had no response from the company on Bill Naz's cursing outbreak. He cursed because he was pissed. Harry and his arrogance chooses to simply ignore the Heartland fund manager because he can. He has his RSU's, his poison pill and his staggered board and nothing is going to spoil his pretty little scam.

And anybody who doesn't think fund managers are staying away because of this scam doesn't understand how these guys think.

Mickey. I think we should start by looking at the structure and not who gets what. I'll leave the day to day operation with the company and focus on the issues that affect us directly, shareholder rights. We do not have the right to tell the company how to run its operation or who or how many RSU's to grant. We do have a right to elect the COB and board of directors and vote on stock based compensation plans. I beleive that last ASM while we were all sipping champagne over the Samsung signing and licking our chops at finally getting Nokia Right where we want them the board slipped in a new 3 million share plan.

Well Nokia is Nokia and I'm no lawyer. I can't comment on who was right or who was wrong. What I do know is that Harry has created a very nice world for himself based on our shares and we can do something about it.

Olddog?

Do we have any clarity in the vesting period on the RSU's.

It sure seemed like a lot of $0 acquiring went on in the last couple off years. Longer vesting periods would mean that those granted would need to hold them. It appears that the employees and executives are treating these shares like an ATM machine. Stock grants have traditionally be thought of as a way for companies to align the employee with the long term direction of the company. People would hold these shares like assets for years.

Lack of the company buying back shares or what appears to be stopping the current buyback along with all executives and high level employees not willing to hold on to granted shares let alone buy new ones shows the street that they have no faith in the share price. Very bad message.

Something is broken

While I do not have a concreate idea of what needs to be done I think that certain instruments in place here are doing damage to shareholder value. The current structure of the poison pill, the staggered board including the term of the COB and the stock compensation system. These need to be addressed in a way that is in sync with building long term shareholder value. Something that this company has dailed to do.

SOURCE: The Boston Consulting Group

Jul 14, 2009 00:01 ETProblems With Executive Compensation Extend Beyond Financial Sector, According to Study by The Boston Consulting Group
BCG White Paper Says Typical Vehicles for Long-Term Incentive Compensation, Such as Stock Options and Restricted Stock Grants, Are Only Weakly Linked to Company Performance

BOSTON, MA--(Marketwire - July 14, 2009) - Furor over bankers' pay has once again put a critical spotlight on executive compensation, but the problems aren't limited to the financial sector, according to a recent study by The Boston Consulting Group (BCG).

BCG analysis of changes in CEO compensation between 2007 and 2008 at 158 U.S. companies with more than $5 billion in revenues found a widespread disconnect between top executive pay and company performance. Nearly all the companies studied (94 percent) had negative total shareholder return (TSR) in 2008, and, as one would expect, the average level of CEO pay declined from the previous year. About 40 percent of those companies with negative TSR, however, actually paid their CEOs more in 2008 than they did in 2007.

Systemic Flaws in Current Executive Compensation Systems

The BCG White Paper "Fixing What's Wrong with Executive Compensation" argues that in order to solve the problem, it's not enough simply to renew demands that companies "pay for performance."

"The idea of paying for performance isn't new," said Gerry Hansell, senior partner and managing director in BCG's Chicago office and a co-author of the report. "The very compensation systems that many criticize today are the product of nearly two decades of efforts to achieve precisely that goal."

Since the late 1980s, the mix of the executive pay package has shifted decisively toward variable pay in general and long-term incentive compensation in the form of equity vehicles such as stock options and restricted stock grants in particular. The problem, according to the BCG White Paper, is that these dominant forms of long-term incentive compensation are rarely linked to meaningful long-term performance metrics.

As a result, the vast majority of executives continue to focus on the annual cash bonus as the more meaningful and, therefore, more motivating component of variable pay. This trend has led, as in the banking industry, to a narrow focus on maximizing short-term results and a willingness to take risks that boost near-term returns even if those returns prove unsustainable over the long term.

Even worse, the internal financial and operational metrics typically used to determine the annual bonus often do not really measure what creates value in the business. "Too often, managers are rewarded for beating plan targets for, say, increasing sales, growing earnings per share, or improving their P&L statement," said Frank Plaschke, a partner and managing director in BCG's Munich office and a co-author of the study. "But such metrics either reward growth irrespective of its impact on profitability or reward profitability but with no consideration of how much capital was invested to achieve that goal. They also encourage companies to retain earnings when, from a value-creation perspective, there might be better uses of that cash -- for example, returning it to investors in the form of dividends."

Key Principles of Compensation Redesign

To address these shortcomings, the paper describes five principles that should inform any redesign of executive compensation systems:

-- Emphasize the Long Term. Incentive compensation plans should have a bias toward the long term in the form of longer vesting periods and multi-year performance targets.

-- Reward Relative Performance. Performance metrics for equity-based compensation should be based on relative, not absolute, performance by indexing a company's performance to that of a designated peer group.

-- Measure Performance That Executives Can Directly Influence. In general, executives at the business unit level should be evaluated according to financial and operational performance metrics that are relevant to the units they head.

-- Focus on Value Creation, Not Just Earnings or the P&L Statement. Internal performance metrics should take into account how executives use the capital entrusted to them by holding them accountable for the size and sustainability of the cash flows they generate after reinvestment.

-- Minimize Asymmetries of Risk. In addition to allowing executives to enjoy the benefits of a potential upside, an effective incentive-compensation system must also ensure that they suffer the costs of potential downside by putting some portion of their own wealth at risk.

The paper also examines concrete mechanisms for applying these principles to the two dominant forms of variable pay: long-term incentive compensation in the form of stock options or grants, and short-term incentive compensation in the form of the annual cash bonus.

A Complex Challenge

The BCG White Paper also warns companies that designing an effective executive-compensation system is a complex challenge and requires careful coordination and alignment across multiple high-level units: the board's compensation committee, the senior team, corporate finance, investor relations, and HR. "The precise combination of mechanisms appropriate for any individual company will depend on the complexity of its business, the specifics of its strategy, the key drivers of value creation in its industry, and the priorities of its investor base," said Lars-Uwe Luther, a senior partner and managing director in BCG's Berlin office and co-author of the study.

Given the many shortcomings of current practices, however, companies cannot really avoid the challenge. The economy is moving into a new period with major impacts on company strategy and investor expectations. "The 'rules of the game' are changing," said Plaschke. "Executive compensation has to change along with them."

To receive a copy of the report or arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 66 offices in 38 countries. For more information, please visit www.bcg.com.

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Bottomline, We need to bring more power to the shreholders and replace Harry as COB. The only thing that is certain is that Harry will get more shares and sell more shares He won't step aside for the good of the company because he is focused on the good of the Harry.

I'm nor advocating selling out but I'd like to see at least a little bit of a buy out premium priced in. We now basically have licenses being priced out of the stock,

Adoption or Renewal of Non-Shareholder Approved Pills (US)
Background and Overview
There has been a decrease in the average duration of shareholder rights plans or “poison pills” over the last few years and an increase in the adoption of pills with a term of 3 years and less. The companies that still adopt pills of a longer duration generally do not give a specific rationale, such as an opportunistic takeover threat, but rather implement these provisions as long-term entrenchment devices.

Institutional investors view poison pills as among the most onerous takeover defenses that may serve to entrench management and have a detrimental impact on their long-term share value. Poison pills are a high-priority issue for institutional investors. In RiskMetrics’ 2009 policy survey, 43.3 percent of respondents indicated that “non-approved shareholder rights plan” was their most problematic takeover concern. An additional 25.6 percent ranked rights plans as their second highest concern. Additionally, investors’ highly negative opinions of pills do not appear to be significantly influenced by market conditions—83.7 percent of respondents indicated that their view of poison pills is not influenced by market conditions.

While recognizing that boards have a fiduciary duty to use all available means to protect shareholders’ interests, RiskMetrics believes that, as a best governance principle, boards should seek shareholder ratification of a poison pill (or an amendment thereof) within a reasonable period. Boards that fail to do so should be held accountable for ultimately disregarding shareholders’ interests. As a recent trend, pills with terms of 12 months or less have been adopted to provide temporary short-term protection against unsolicited, opportunistic offers that may not be in the best interests of shareholders. RMG recognizes that such a short-term pill may give a target board the time and leverage necessary to maximize shareholder value. Although these shorter-term pills may be less onerous to shareholders than longer-term pills, RiskMetrics believes that shareholders, after a prudent but limited period, ought to be the ultimate arbiters of unsolicited offers.

Key Changes Under Consideration
Based on an FAQ published in April 2009, RiskMetrics currently provides companies leeway in regard to non-shareholder approved poison pills only if they are considered short-term (one year or less). In turn, for non-approved pills with a term longer than one year, a company can expect RiskMetrics to recommend shareholders vote AGAINST or WITHHOLD votes from all director nominees, with the exclusion of new nominees, whether the term is two years or ten years. This may encourage companies to adopt a longer pill, since the repercussions are the same in both situations.

The following changes are proposed to strengthen this policy and to encourage companies to submit pills to shareholder approval both initially and on a more regular basis:

(1) Clarify the policy language to incorporate RMG’s view on shorter-term pills into the general policy with the aim of encouraging shareholder ratification. RMG considers unilaterally adopted pills as follows:

If the board adopts a poison pill with a term of more than 12 months (“long-term pill”) or renews any existing pill, including any existing “short-term” pill (12 months or less), without shareholder approval, RMG will recommend a WITHHOLD/AGAINST vote on the full board (except new nominees, who should be considered on a CASE-by-CASE basis). A commitment or policy that puts a newly-adopted pill to a binding shareholder vote may potentially offset an adverse vote recommendation.

If the board adopts a poison pill with a term of 12 months or less (“short-term pill”) without shareholder approval, recommendations for the elections of directors will be considered on a CASE-by-CASE basis taking into account the following factors, including but not limited to:

◦The date of the pill’s adoption relative to the date of the next meeting of shareholders- i.e. whether the company had time to put the pill on ballot for shareholder ratification given the circumstances;
◦The issuer’s rationale;
◦The issuer's governance structure and practices; and
◦The issuer's track record of accountability to shareholders.
(2) Include a three-year review for companies that have adopted long-term pills without shareholder approval. RMG will review such companies at least once every three years and may recommend (or continue to recommend) that shareholders vote AGAINST or WITHHOLD votes from the entire board should the company still maintain a non-shareholder-approved poison pill.

(3) Clarify in our policy that if the board makes a material, adverse change to an existing poison pill without shareholder approval, RMG will recommend an AGAINST or WITHHOLD vote.

Intent and Impact
The proposed poison pill policy aims to encourage companies to seek shareholder approval of poison pills. It also seeks to address short-term pills that have been adopted in response to specific circumstances that may affect the interests of shareholders. Those companies that unilaterally adopt a pill will also be subject to a more frequent review –at least once every three years, beginning at the first year following the adoption and extending until the pill has expired or been redeemed.


Request for Comment
Please feel free to add any additional information or comments on the proposed policy changes. In addition, RiskMetrics is specifically seeking feedback on the following:

Are there circumstances under which shareholders should not expect an issuer to put up a short-term pill for a vote?

Is a three-year review of non-shareholder approved poison pills appropriate?

Submit a comment

View submitted comments

$30 is not a realistic price for this patent portfolio.

What you need to understand is the value of the patent portfolio. Indeed Merrit was right to say it is worth substantial more than Nortel's which an analyst put a $2 billion dollar price tag on.

When you take $2 billion and divide by 43 million shares you get $46 a share. Add another $10 in cash and you get $56 a share. Round it up to $60 and you get a starting point.

Also we were just at $30 a share a few months ago so this number will get no one excited. I doubt whether Bill Naz would either after holding for all these years. When the price hits $30 be my guest and sell for a profit.

14-Aug-09 30.89 30.91 27.86 29.50 2,320,800 29.50
13-Aug-09 31.64 31.79 30.81 30.83 914,800 30.83
12-Aug-09 30.89 31.61 30.89 31.42 762,900 31.42


Bill Merritt

Tom, I think it's a couple things. I mean, certainly we see these disparities in the market too. A JPMorgan analyst comes out and says that the Nortel patent portfolio is worth $2 billion, and our portfolio is actually quite substantial compared to that, but I think for us it's a couple things.

Certainly I think that there is always a continued effort to refine the communications of the company and speak to not only the high level of confidence we have with respect to resolving the license agreements for 3G with the major manufacturers, and we do have a very high level of confidence there. I think we would also speak to life beyond that.

I think that the technologies that we've been working on for the last couple years are now becoming very relevant. I think if you sort of observe conferences out there on wireless, the biggest issue has become this bandwidth crunch. AT&T is talking about it. There was actually a really good article from either Verizon or Sprint's CTO a couple days ago on the same thing. So I think what we're seeing is people are really responding to the message that we have with respect to this new opportunity and the technology we're developing there I think.

So I think the time is now to get out and sort of beat the drum with respect to where we're going as a company with that technology, and it's not obviously just a technology story. It's how do you make money off of technology at the end of the day, and I think there the opportunity is that these technologies move. While they certainly are used in the handset and will drive the handset licensing program, we think also it will open up opportunities with respect to other manufacturers and players who have substantial investment in this business and that we can certainly talk to with respect to licensing. So I think there is a real upside there, as well.

So I think the other thing beyond communication obviously is execution, and so there we have to move forward crisply with respect to the issues with Nokia, and I think we have a good plan and we will move forward on that. I think on the licensing agreements, we will also move forward on those and deliver on those.

Also I think that to move beyond just communications and make things look concrete, for example, we intend to put on a pretty good show in Barcelona next year with respect to our technology and to get people exited about what we're doing. So there is a lot we can do to move things ahead. We continue to be very excited about where we are as a company and where we can go, and hopefully we can translate that internal excitement into the market, as well.

First, understand that with the pill in place nobody is taking the company over at $30+ a share unless Harry and company have the votes and want to sell at that price. I don't think either is in place. The only way the pill can be removed I beleive is by having a vote at next years ASM which isn't until June 2010.

In spending the last few days reading about pills I've decided that I don't want to remove it altogether I just want for it to be more shareholder friendly. I think the deck is currently stacked against the shareholders and we need more say in what goes on here. That means a pill that requires shareholder voting and approval and not just a bllank check for Harry.

Again, this should be done at next ASM which is June of 2010.

If anyone is happy with the shareprice and the direction of Harry and company simply ignore my posts and vote against any proposal to give the shareholders more rights.

In any event, I do think Merrit is doing a good job. I think the licensing under these circumstances has been great. My beef so to speak is with the BOD. They are the ones pulling then strings on the buy back and who have not been able to create any sort of shareholder value. I beleive on patents alone this company is worth $60 a share and if we had the right people at the top (COB) we would not be sitting here in the low 20's.

Research Spotlight Shareholder Input on Poison Pills
New York - April 23, 2007 John Laide

The 2007 proxy season is in full swing. Several topics feature prominently this year, including majority voting in director elections, executive compensation, independent board chairman and eliminating supermajority voting requirements. However, perhaps buoyed by recent trends, shareholders have shifted their focus from proposals to redeem or require a shareholder vote on poison pills – long a bedrock principal of good governance for individual activists. On the surface, it would appear that the historical outcry against poison pills has had its intended effect, as first-time adoption rates have declined, the pace of plan renewals has slowed and the number of companies seeking shareholder input on a variety of poison pill-related issues has increased. Yet, companies are still bucking the trend by adopting or extending poison pills, and a surprising number of them are not seeking shareholder approval.

Declining First-Time Adoption Rates
So far in 2007, only 10 companies are first-time adopters of poison pills. At this pace, the number of first-time poison pill adoptions will be less than the previous 17-year lows* of 49 in 2006 and 65 in 1992 and will most likely be the lowest since the early 1980s.

* Statistics available since 1990.

Pace of Plan Renewals Slowed
Over 80% of companies with a poison pill scheduled to expire in 2001 replaced or extended the poison pill. In 2006, only 30% did.

Declining first-time adoption rates and the slowing pace of plan renewals clearly illustrate the trend of fewer companies maintaining poison pills. In 2001, 2215 US-incorporated companies had a poison pill in force, and 61% of the S&P 1500 maintained a poison pill. Today, 1,549 US-incorporated companies currently have a poison pill in force, a decline of 666 companies or 30%. Just 41% of the S&P 1500 currently maintain a poison pill.

Increased Shareholder Input
Thus far this season, six US-incorporated companies have included a company sponsored poison pill-related proposal in their proxy statements. There were 10 such votes in 2006, the most since FactSet SharkRepellent.net began tracking this data in 2001, and in all likelihood, the most ever based upon how infrequently companies have historically sought shareholder input on poison pills.

Company Sponsored Poison Pill-Related Proposals

Company
Issue

Haynes International, Inc.
Ratify recently adopted poison pill

Kellwood Company
Ratify poison pill adopted in 2006 that was amended for the vote "to meet the published requirements of the Corporate Governance Policies and Guidelines issued by Institutional Shareholder Services"

LodgeNet Entertainment Corporation
Approve amended and restated poison pill originally adopted in 1997 that extends the pill’s term another nine years and incorporated several shareholder friendly features

MediciNova, Inc.
Ratify recently adopted poison pill

Online Resources Corporation
Approve the termination of the poison pill originally adopted in 2002

Synovis Life Technologies, Inc.
Ratify recently adopted poison pill



While shareholder anti-poison pill proposals have appeared on the ballot with some regularity over the years, management sponsored proposals seeking shareholder input on poison pills have been rare. In 2001, there were two management sponsored poison pill-related proposals, and in 2002 there were none. The increase in recent years stems from an ISS policy, effective with the 2005 proxy season, to recommend its clients withhold votes for a company's directors that vote in a poison pill (or renew an existing one) that will not be subjected to a stockholder vote within 12 months of the adoption.

While there has been an increase of the number of companies asking shareholders to ratify poison pills, the number is substantially less then one would expect given the ISS policy.

Bucking the Trend
We are in the midst of the third proxy season with the ISS policy in effect. Based upon data from FactSet SharkRepellent.net, it appears that the majority of companies are taking two approaches under the current environment: opting to forgo having a poison pill in place entirely or accepting the repercussions and adopting or extending a poison pill without seeking shareholder approval.

Of the companies bucking the trend and adopting or extending poison pills, the vast majority are not seeking shareholder approval. An analysis of companies that adopted a poison pill or amended an existing one to extend the term since the ISS policy became effective shows that only 4.7%, 7.6%, and 6.1% have sought, or publicly disclosed they intend to seek, shareholder input via a vote in 2005, 2006, and year to date 2007 respectively. Beyond the embarrassment factor, the consequences of a withhold vote recommendation are greatly increased, as more companies are switching from a plurality to a majority vote requirement to elect directors. Whether this will cause companies to rethink going against ISS on this issue is unclear, considering it may be unlikely that the withhold votes will represent a majority. In its 2006 Postseason Report, ISS cited Thermo Electron Corporation (41% withheld), Equifax Inc. (32% withheld) and QUALCOMM Incorporated (35% withheld) as S&P 500 companies that received significant withhold votes against its directors for failing to bring a poison pill to a vote. However, none of these votes represented a majority. Further evidence is provided by Georgeson Inc.'s 2006 Annual Corporate Governance Review, which states that despite the various policies institutions have adopted over the last few years calling for withholding votes for directors, only 385 directors at 189 companies in the S&P 1500 received withholds of 15% of more of the votes cast, and only six directors more than 50%.

Poison Pills on the Rise...A Reaction to Shareholder Activism or a Signal of the Turbulent Financial Times?
January 2009
Jane K. Storero

Wall Street Lawyer



If you thought poison pills were a thing of the past, think again! After a decline in interest in the pill over the past several years, the poison pill, a popular anti-takeover defense created in the early 1980s, reemerged in 2008 as a popular tool for public companies experiencing a decline in the market price of their stock as a result of the ongoing financial crisis.

According to FactSet SharkRepellant, during the first nine months of 2008, at least 40 public companies adopted a pill for the first time.1 By way of contrast, in all of 2007, only 42 companies adopted pills.2 Public companies terminating previously adopted poison pills are also on the decline. Only 15 companies terminated pills during the first nine months of 2008, as compared to as many as 45 companies that terminated their pills in 2004.3 As of August 2008, over 1,300 companies worldwide had poison pills in place.4

The increased use of the poison pill has been .attributed to the current economic crisis which has been responsible for the decline in the market values in equity securities of U.S. companies as evidenced by the approximately 40% decrease in the S&P 500 in the last quarter of 2008.5 As the market for U.S. equities dropped, the stock of a significant number of companies became undervalued and management concerns regarding unsolicited takeover attempts increased. As the market for U.S. equities dropped, the stock of a significant number of companies became undervalued and management concerns regarding unsolicited takeover attempts increased.

The poison pill—or shareholder rights plan—is an anti-takeover device designed to make a hostile takeover more expensive to the acquirer by providing for the issuance of a significant number of additional shares to the company's shareholders, other than the hostile acquirer. The mechanics of a typical poison pill are as follows:

The board of directors adopts a rights plan, which consists of warrants or rights to purchase the target company's stock, which allow the warrant-holder to buy the target company's common stock at a substantial discount from the market price.
The pill is exercisable in the event an acquirer gains ownership of more than a specified percentage of the target company's stock (generally 10% to 15%) without approval of the board of directors of the target company.
The exercise of the pill eventually makes the target more expensive to acquire and dilutes the ownership interest of the hostile acquirer.
The board of the target can elect not to utilize or eliminate the pill to allow the acquisition of the target company by a friendly acquirer.
The most common version of the pill is referred to as a "flip-in" pill. The "flip-in" pill gets its name because if a hostile acquirer trips the specified percentage of the voting stock of the target, without the approval of the target's board, the rights of other shareholders, other than the acquirer, are triggered and these shareholders, other than the acquirer, are permitted to acquire additional shares of the target company at a significant discount, often as much as 50% of the current market price. When shareholders take advantage of this right, the percentage ownership of the hostile acquirer is significantly diluted, making the takeover attempt more expensive. Thus, the pill makes the acquisition more difficult from an expense standpoint for the acquirer to swallow.

Another version of the pill is called the "flip-over" pill. This type of pill is utilized after the hostile acquirer takes over the target company. Since the pill is typically housed in the target company's bylaws, the acquirer has no choice to permit target shareholders to purchase shares at a substantial discount, thus diluting the interest of the acquirer. Under either version of the pill, the board ultimately reserves the right in its discretion to elect to trigger the pill or to abandon the pill and let a friendly acquisition proceed. As a result of this feature, the pill serves as a valuable bargaining tool for the target's management to negotiate with a potential acquirer.

The new pill has several upgrades from those we were used to seeing in the 80s and 90s. For instance, given the rise in hedge fund activism and the use of derivative securities by hedge funds to increase their holdings without having to disclose their ownership position and intent to wage a proxy contest on Schedule 13D, the language of the new poison pills specifies that derivative holdings are included in the calculation of a hedge fund's share ownership for purposes of purposes of calculating the trigger of the pill. In addition, newer versions of the pill frequently have a term of a few years as compared to the year 10-term terms that were prevalent in the 1980s. This trend of decreasing the lifespan of the pill has made them more palatable to the institutional investors. It is estimated that approximately half of the 1,300 pills in place will expire in the next two years.6 Whether these pills are renewed remains to be seen.

The addition of derivative transactions in the trigger language, however creative, can be problematic given the absence of a private right of action resulting from the failure to report derivative holdings as a result of the recent U.S. Court of Appeal's ruling in CSX Corporation vs. The Children's Investment Fund.7 In the CSX case, the Court held that a public company had no private right of action against a hedge fund that failed to reports its holdings of a derivative security called cash-settled. equity total return swaps on Schedule 13D.8 In light of this case law, careful consideration needs to be given to the use of language regarding derivate holdings in the trigger provisions of the pill.

The first poison pill was utilized in 1983. The creation of the pill is attributed to Martin Lipton, 'one of the founders of the Wachtell, Lipton, Rosen & Katz, the renowned New York-based M&A law firm. The legality of the poison pill was validated by the Delaware courts in 1985 in Moran v. Household International, Inc.9 In Moran v. Household, the Court upheld the Household rights plan as a legitimate exercise of the board's business judgment. The court found that the rights plan did not "limit the voting power of individual shares”10 and was therefore "reasonable in relation to the threat posed.11

The poison pill remained extremely popular throughout the 1980s and early 1990s when shareholder activists, such as T. Boone Pickens and others, who were commonly referred to as "corporate raiders", engaged in hostile takeover attempts of many publicly-traded U.S. companies. Since 1983, over 1,900 U.S. companies and at least 200 foreign companies have adopted poison pills.12 The most effective argument for the pill is that it advances shareholder interests by enabling a board to resist incentive takeover tactics and allowing the board to negotiate effectively with potential acquirers.

The board’s ability to control the company’s destiny has angered activist shareholders who view the ability to resist takeover attempts as harmful to shareholder interests. Activists argue against the pull indicating that consolidated takeover attempts are typically at substantial premiums over the current market price of the target’s stock, so investors benefit. Indeed, since unsolicited or hostile tender offers are generally made at a significant premium above the current market price of the target’s stock, shareholders of the target company generally benefit from such tenders, however; management will typically lose their jobs. As a result, institutional shareholders frequently oppose pills because they limit the ability of shareholders to sell their shares at a significant premium.

RiskMetrics Group (formerly ISS), which provides voting advice on shareholder proposals to institutional shareholders, released its revised voting guidelines for the 2009 proxy season on Nov. 25, which address, among other things, poison pills. These guidelines recommend support for management proposals to approve or ratify a poison pill on a case by case basis, but generally would be supportive of a pill which includes, among other things, a 20% trigger, a two- to three-year sunset provision, and no dead hand, slow-hand or similar provisions.13 These guidelines also recommend a vote against the entire board (except new nominees) if the board adopts a pill without shareholder approval or does not commit to put the pill to a shareholder vote within 12 months of its adoption.

In this troubling financial period, effective takeover defenses are more critical than ever. These defenses may include a poison pill as well as other strategies as part of a company's defensive arsenal. These other strategies include, among other things, a staggered board and amendments to articles and bylaws designed to address both a hostile bid and other tactics currently employed by activists.

Although in this new age of shareholder activism, poison pills-are not the show-stoppers they were in the 1980s, they still can play an important role in a company's defensive strategy. The reasons for adopting a poison pill remain much the same today as they did in the 1980s. First, the pill is a formable deterrent to a hostile tender offer. For example, Anheuser-Busch's recent hostile bid from InBev was received when the company did not have a pill available to it.

The significant decline in stock market value for U.S. equities has made companies more susceptible to activist attacks. An effective anti takeover plan enables a board of directors to take a commanding role in negotiating with hostile shareholders. Having a strong negotiating position is critical when confronted with a takeover bid or other activities by activist shareholders. As the old saying goes "the best defense is a good offense” and the same holds true today.

Notes

See also John Laide, Rethinking the Role of the Poison Pill, Sharkrepellent.net, Sept. 17, 2008. https://www.sharkrepellent.net/pub/rs 20080916.html.
Laide, Rethinking the Role of the Poison Pill.
See also Alan Rappeport, The Return of the Poison Pill, CFO.com, Sept. 10,2008, http://www.cfo.com/article.cfm/12081395!/f=rsspage.
See Arzu J. Cevik, Strategic Research: 2008 Second Quarter Poison Pill Update, Thomson Reuters (Aug. 2008).
See Elizabeth Stanton and Jeff Kearns, U.S. Stocks Drop, Led by GM; Exxon Falls on $25 Oil Forecast, Bloomberg.com, Dec. 4, 2008, http://www.bloomberg.com/apps/news?pid=20601087&sid=aUJksGOwGEU&refer=home.
See Arzu J. Cevik, Strategic Research: 2008 Second Quarter Poison Pill Update, Thomson Reuters (Aug. 2008).
See CSX Corp. v. The Children's Inv. Fund Mgmt.(UK) LLP, et aI., 562 F. Supp. 2d 511 (S.D.N.Y. 2008).
CSX Corp., 562 F. Supp. 2d at 573.
Moran v. Household Int’l., Inc., 500 A.2d 1346 (Del. 1985).
Moran, 500 A.2d at 1356.
Moran, 500 A.2d at 1357.
See, Arthur Fleischer, Jr. & Alexander R. Sussman Takeover Defenses §5.02[1] (5th ed. Supp. 1997).
RiskMetrics Group, U.s. Corporate Governance Policy, 2009 Updates, November 25,2008, available at http://www.riskmetrics.com/sites/default/files/RMG2009PolicyUpdateUnitedStates.pdf
Reprinted from the Wall Street Lawyer. Copyright © 2009 Thomson Reuters/West. For more information about this publication please visit www.west.thomson.com.

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Ali C. Akyol
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Carolyn Carroll
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September 2006



Abstract:
This paper is among the first to examine the removal of poison pills. Poison pills are adopted by boards without shareholder approval and have the potential to entrench management. In addition, the poison pills in our sample have been in place for a long time. If shareholders cannot force boards to remove the pills and the pills are in managements' best interests, why do boards remove them and why now? We hypothesize that boards remove poison pills because shareholders pressure them to do so. Our sample consists of 126 firms that removed their poison pills during the period 1990-2004. We show that shareholder proposals to remove are more prevalent among firms where shareholders submitted proposals to remove, that the pills were removed in spite of management's recommendation not to remove, and that removals were much more prevalent during the post-Enron period when shareholders were more active. We also examine why some firms remove their pills without any prompting from shareholders. We provide evidence consistent with the hypothesis that boards remove the pills when institutional investors actively negotiate the pills' removal. We also find that board independence and insider shareholdings are positively related to a board's responsiveness to shareholder activism to remove pills.

Its probably more like a HARD SIX all the shareholders have been getting it for years.

And it has been coming from Harry.LOL.

Press releases and empty news flashes will not do anything for the stock price. Many companies can put out press releases and the stocks can be shams.

One time dividends won't help either. Selling will occur after the x-dividend day.

I beleive if Bill Naz goes unanswered or ignored the company will be doing itself a lot of damage. You can't just take a well respected fund manager who has held steady for years fo F*&k OFF.

His concerns need to be addressed in a public manner before new fund managers come to the table> Putting out a press release stating they feel the stock is undervalued and will excelerate the current buy back with the board evaluating buy back options after the current buy back is finsihed will do wonders for the street credibility.

The buy back will create permanent shareholder value and that is what NAZ wants.

Think about it this way. If the patents are worth $2 billion and we were sold today the company would go for $46 a share. If under Bill Naz suggestion we take $200 million and buy 10 million shares that same $2 billion would now be $60 a share.So he is thinking in terms of what the valuation of shares he owns should be. ($2Bil/43 mil shares = $46 a share, $2 bil/33 million shares = $60 a share after a 10 million share buy back).

Sorry Bob. I should have figured it was a joke. But IDCC is a four letter word in my house. I'm invested, my wife is invested, my mother-in-law is invested, my brother-in-law, cousins, friends, friends of friends, neighbors, etc. I'm raking my leaves yesterday and ducking questions from my next door neighbor.

Sometimes I feel like I'm in Vegas.

Maybe the next cc we will get Nokia news then it will POP.

Come on baby give me a hard twelve.

I think that I've been posting a lot since the ITC decision just to vent and keep my sanity.

What I'd really like is some intelligent dialog as to what we can do as a shareholder group. Clearly it would be beneficial to my marriage if this saga ended with a buyout. So my agenda is sort of personal.

Sorry for the typo on Harry's sales.

The fact is that I think the structure that was created by this BOD and is currently in place needs to researched and discussed. I think collectively as a group we should look at the existing poison pill and can it be replaced with something that gives the shareholders more power. I do not beleive we have to sit powerless while these guys tell us to shut up we know best. I think the financial crisis was caused by people who we thought were smarter then everybody else. Guess what? They were not.

We have the power to band together and make proposals and vote on issues if we are not happy.

I for one am not happy with the share price.

I am not happy with the insider sales.

I am not satisfied that the COB brings enough to the table to warrent the compensation he receives.

I'm not happy that they chose not to support the share price even though they had $75 million dollars in authorized funds to do so.

I'm not happy not having any say what so ever if INTEL came knocking on the door and wanted to buy the company.

Finally I was not happy with the answers that Bill Naz received and feel that he is the closest thing to a shareholder advocate I've seen in my ten years of holding this stock.

P.S. I do not have a proposal for the ASM. If one is to be submitted it nees to be in before the end of December. I'd like to here input from people (like olddog) as to what type of proposal can be made that shifts more power to the shareholders instead of the COB.

The only urgency I have is my wife is sick and tired of hearing about this comapny and she wants to know when my IDCC obsession will end.

Honest question.

I have been posting for 10 years on IDCC and came over with Jim when the group cane to Investorshub from ragging bull. I have 758 posts on this board.

Do you actually beleive that I am a paid poster?

If so do you beleive that I've been paid by short groups for the past 10 years?

RMG released our 2009 Policy Updates in late November 2008 and has received several questions regarding our policies on Poison Pills.

Last updated: April 10, 2009

Shareholders view shareholder rights plans, otherwise known as poison pills, as a potential insider entrenchment device. RMG recognizes that pills, when used judiciously for a limited period of time, can give a target board the time and leverage necessary to maximize shareholder value. As such, the current RMG pill policy provides a “fiduciary out” which permits a board to adopt a pill without prior shareholder approval if the board determines its fiduciary duties require it. However, RMG believes that it is the shareholders (and not the directors) who ultimately should determine whether and when a pill should be implemented, and ultimately whether or not to accept an unsolicited offer. Historically, RMG has recommended shareholders withhold their votes from directors who implement a pill without, at the time of the pill’s adoption, publicly committing to put the pill to a shareholder vote within 12 months of adoption.

RMG adopted its “fiduciary out” pill policy at a time when issuers were adopting multi-year pills. Given the recent unprecedented rapid and severe market downturn, issuers and their advisors have become increasingly concerned that a depressed share price will attract low-ball, “opportunistic” offers. At the same time, issuers and their advisors generally have acknowledged that the old-style ten-year pill is no longer considered a corporate governance best practice. As a result, RMG is seeing a growing trend of issuers adopting pills with terms of 12 months or less, ostensibly to provide temporary short-term protection against unsolicited offers that the board believes are not in the best interests of shareholders. Although RMG views these shorter-term pills as more favorable to shareholders than the longer 10-year term pills, in many cases issuers are not committing to put the short-term pill (or the renewal of a pill upon expiration) to a vote within 12 months. Implicit in the decision to not commit to a shareholder vote is the board’s desire to retain sole discretion on whether to renew the pill after it expires, a result which would run counter to the spirit of our policy (i.e., that shareholders, after a prudent but short-term period, should be the ultimate arbiters of unsolicited offers).

In addition to adopting shorter-term pills, some issuers are proactively seeking shareholder approval of pills. Under long-standing policy, RMG will recommend shareholders vote in favor of pills that contain certain shareholder friendly provisions, including shareholder redemption provisions that, under a specific set of circumstances, allow shareholders to redeem a pill previously adopted by the board. Some issuers are asking shareholders to approve pills with “qualified offer” provisions specifically crafted to deal with current market conditions.

Over the past several months, issuers and their advisors have asked us if RMG would consider revising or clarifying our pill policies given the unprecedented market turmoil. RMG also has had informal discussions with our institutional investor clients about this subject. The following FAQ is meant to provide the market with additional guidance on the application of our pill policies, which are available on pp. 19-20 of the U.S. Proxy Voting Guidelines Summary.


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Q1Will RMG recommend a WITHHOLD/AGAINST vote on directors who adopt or renew a pill with a term of 12 months or less without the prior approval of shareholders or a public commitment to put the pill to a vote within 12 months?A1RMG encourages issuers to adopt a public policy statement that commits the issuer to seek prior shareholder approval of a newly adopted pill (or extension of an existing pill) subject to a "fiduciary out" provision that would allow the issuer's board, in the exercise of its fiduciary duties, to adopt or extend a pill without prior shareholder approval, provided that the issuer publicly commits to put the pill to a shareholder vote within 12 months of its adoption or extension.

For issuers that have not adopted a public pill policy and which adopt or extend a pill with a term of 12 months or less without prior shareholder approval, RMG will continue to seek a public commitment from the issuer at the time of adoption or extension that the issuer will put the pill to a vote within 12 months of its adoption or extension if the pill ultimately does not expire within the initial 12 months-or-less term. If an issuer makes such a public commitment, RMG will generally recommend that shareholders not oppose the election of directors on that basis at the next shareholders' meeting.

In the absence of a public pill policy or commitment, RMG will consider its recommendation on the election of directors on a case-by-case basis, taking into account the following factors:

◦The initial term of the pill (must be equal to or less than 12 months);
◦The issuer's governance structure and practices;
◦The issuer's track record of accountability to shareholders;
◦The date of the pill’s adoption (or extension) relative to the date of the next meeting of shareholders; and
◦The board’s rationale for adopting or extending the pill.

Q2If RMG does NOT recommend a WITHHOLD/AGAINST vote on directors under the circumstances outlined in Question 1, will RMG recommend a WTHHOLD/AGAINST vote on the board at the next shareholder meeting for renewing/extending the pill upon expiration of its initial 12-month or less term without a shareholder vote?
A2In the absence of a public policy or commitment, if an issuer previously has not received a withhold/against vote under the factors listed above and subsequently extends or renews its pill without shareholder approval, RMG will generally recommend shareholders withhold votes from all directors at the next shareholder meeting.

Q3How will RiskMetrics evaluate management proposals that seek shareholder approval of a pill? A3RMG applies a comprehensive case-by-case analysis when evaluating management proposals that seek shareholder approval of a pill. RMG generally will recommend shareholders approve a pill with the following features:

◦a 20% or higher flip-in or flip-over threshold;
◦a two- or three-year sunset provision;
◦no dead-hand, slow-hand, no-hand or similar features; and
◦a shareholder redemption feature (e.g., if the board refuses to redeem the pill 90 days after a qualified offer is announced, ten percent of the shares may call a special meeting or seek written consent to vote on the redemption of the pill).

In addition to examining the features of the pill, we will also consider the company’s rationale for adopting the pill and its existing governance structure, including the presence of additional takeover defenses. RMG is less likely to support a management pill proposal at a company that has multiple takeover defenses that in combination with the pill risk insider entrenchment, or that has charter and bylaw provisions that inhibit board accountability.

Q4How will RiskMetrics evaluate shareholder redemption features?A4RMG will evaluate shareholder redemption features on a case-by-case basis. No single version of a redemption feature works effectively for all issuers. In spirit, a redemption feature should allow a majority of shareholders to, after an appropriate interval, veto a board’s decision to adopt a pill, provided that certain shareholder friendly prerequisites are met. For example, an acceptable redemption feature may be made contingent upon the following factors:

◦the offer is for all shares;
◦the offer is fully financed;
◦the offer is subject to minimal conditions;
◦the offer is in cash or in shares traded on a major securities exchange; and
◦the offer is at some reasonable minimum price (e.g., a 25% premium over a trailing 12-month average)

Note: The questions and answers in this FAQ page are intended to provide high-level guidance regarding the way in which RiskMetrics' Global Research Department will generally analyze certain issues in the context of preparing proxy analyses and vote recommendations for U.S. companies. However, these responses should not be construed as a guarantee as to how RiskMetrics' s Global Research Department will recommend that its clients vote in any particular situation

Poison pills form the very heart of the corporate re-structuring, mergers and acquisitions. The origin of the term can be attributed to the domain of espionage and refers to the cyanide pill spies are instructed to swallow rather than face capture. This usage of the term ‘poison pills’ eventually spilled over to the realm of hostile takeovers . In the event of an unsolicited bid for acquiring publicly held target companies, the target company’s board devised various anti-takeover strategies, commonly referred to as poison pills, which were potent enough to ward off the bidder or acquirer but in doing so caused harm to their company as well. Hence, the name ‘poison pill’. Currently, hostile takeovers account for 19 per cent of global mergers and acquisitions and are running an all-time high in almost a decade as companies with cash-rich balance sheets continue to swallow their weaker counterparts at a fraction of the latter’s true value. While the potency of these pills as anti-takeover defences stand uncontested, controversies regarding protection of shareholder interest have evolved. Consequently, there has not only been a sharp decline in the adoption of poison pills but also a number of companies have either scrapped or amended their policy on poison pills. This paper attempts to analyze the reasons behind the increasing unpopularity of poison pill and the legality of poison pills within the Indian regulatory framework.

Tracing the meaning of poison pills through its history:
Generally speaking, ‘poison pill’ is a term referring to any strategy, usually in business or politics, to increase the likelihood of negative results over positive ones for a party that attempts any kind of takeover. It is thus a strategic move by a takeover target company to make its stock less attractive to the acquirer. It was invented in 1982 by noted American lawyer Martin Lipton in the form of a warrant dividend plan or the shareholder rights plan to be used by El Paso Corporation as a successful defence against a hostile bid made by former railroad company Burlington Northern. A year later in 1983, the term ‘poison pill’ was coined during the hostile takeover of the fine china maker, Lenox by Brown-Forman Distillers, the producers of Jack Daniel’s Whiskey by Lenox’s lead investment banker, Martin Siegel .

Putting a halt to the erstwhile rampant hostile acquisition activity in America, leading to concentration of excess economic power in the hands of few corporations, the U.S. Supreme Court passed a landmark ruling in the case of Edgar v. MITE Corp. that invalidated the basis of anti-takeover laws in thirty-seven states. This was followed by a lax policy in implementing anti-takeover laws which prompted many companies to adopt their own versions of poison pill and also gave way for controversies pertaining to their illegality. Thereafter in 1985, the legality of poison pill provisions was affirmed unequivocally by the decision of the Delaware Chancery Court in the case Moran v. Household International, Inc. wherein the board’s right to adopt a pill without prior shareholder approval and the rights of the company’s independent directors to refuse a bid were upheld to be perfectly in tandem with shareholder interest and hence, legal. Thereon there was no looking back. From being the panacea that frustrates an unsolicited takeover bid, poison pills transformed gradually into a strategy primarily designed to make it difficult, time-consuming and expensive for a hostile acquirer to consummate offers that may not offer fair value to all shareholders. The idea was to arm the prospective target with an in-built defence mechanism that would not necessarily beat a takeover attempt but would nonetheless ensure a fair evaluation, if not an over-evaluation, of the target company in the hands of the acquirer. In order to consummate the bid, the acquirer would thus have to overcome the prohibitive price tag, or quite so literally, swallow the poison pill.

However, in the context of takeover defenses, Delaware courts have recognized that there is increased risk that a board may be acting primarily in its own interest rather than that of the corporation and its shareholders. Because of the potential for conflict of interest in this area, Delaware courts have imposed the additional requirement that a board show it had reasonable grounds for believing there was a threat to corporate policy and effectiveness. This burden may be satisfied by a showing of good faith and reasonable investigation on the part of a board. In addition, the defensive measure taken must be reasonable in relation to the threat posed. If these criteria are met, courts generally will defer to a board’s actions.

The Concept and its Ingredients:
Typically, takeover bids are attempts by a potential acquirer to obtain a controlling block of shares in a target company, and thereby gain control of the board and, through it, the company's management. There are several types of "poison pills" that can be planned by a company that thinks it may be the target of a takeover by a potential acquirer, but the conventional poison pill is now a shareholder rights plan.

The Shareholder Rights Plan works by threatening to substantially dilute the unfriendly acquirer’s equity interest. Upon the occurrence of certain takeover events, the target company issues rights to existing shareholders to acquire a large number of new securities, usually common stock or preferred stock . The new rights issue triggers if anyone acquires more than a predetermined amount( typically 20-30%) of the target’s stock, thereby allowing shareholders (other than a bidder) to convert the right in order to buy additional equity securities in the company or of the acquirer at a substantial discount. This dilutes the percentage of the target owned by the bidder, and makes it more expensive to acquire control of the target. This strategy has, therefore, aptly been termed as the shareholder rights plan as it provides shareholders (other than the bidder) with rights or warrants to buy more stock in the event of a control acquisition. The risk of dilution, combined with the authority of a target’s board of directors to redeem the rights prior to a triggering event, compels the potential acquirer to negotiate with the target’s board of directors, rather than proceeding unilaterally. This classic version of the poison pill is primarily of two types:

- A ‘’flip-in’’ allows existing shareholders (except the acquirer) to buy more shares in the target company at a discount, upon the mere accumulation of a specified percentage of stock by a potential acquirer. By purchasing the shares cheaply, investors get instant profits and, more importantly dilute the shares held by the competitors. As a result, the competitor’s takeover attempt is made more difficult and expensive. Internet major Yahoo! adopted this form of poison pill in 2000 allowing the board to issue upto 10 million shares on new stock in the event of an acquisition offer on the table that they did not want to endorse (like that of Microsoft) and each share cane have nearly unlimited voting power. Furthermore, they entitled every director to cash in all of their outstanding stock options which amounted to about 16 million potential new shares. This defence made it practically impossible for Microsoft to proceed with a hostile bid after Yahoo! expressed its unwillingness towards Microsoft’s offer for Yahoo! and ultimately resulted in the withdrawal of the same.

- A ‘’flip-over’’ allows stockholders to buy the acquirer’s shares at a discounted price after the merger. The holders of common stock of a company receive one right for each share held, bearing a set expiration date and no voting power. In the event of an unwelcome bid, the rights begin trading separately from the shares. If the bid is successful, all shareholders except the acquirer can exercise the right to purchase shares of the merged entity at discount. For instance, the shareholders have the right to purchase stock of the acquirer on a 2-for-1 basis in any subsequent merger. The significant dilution in the shareholdings of the acquirer makes the takeover expensive and sometimes frustrates it. If the takeover bid is abandoned, the company might redeem the rights.

Poison pills are now used more broadly to describe other types of takeover defences as well that involve the target taking some action that harms both the target and the bidder, although the broad category of takeover defences is more commonly known as ‘’shark repellants’’ and includes the traditional shareholder rights plan. The defences related to the classic version of poison pills include poison debt , put rights plan , voting poison pill plan , macaroni defence etc to name a few.

Also, several other shark repellant practices have evolved, few of them being:
• Staggered board defence wherein only a certain percent of the company’s directorial board to be replaced every year making it difficult for an acquirer to seize control

• Bankmail defence wherein the bank of a target firm refuses financing options to firms with takeover bids thereby having the triple impact of imposing financial restrictions upon the acquirer, increasing transaction costs in locating another financing option and also buying time for the target company to put more defences in place.

• White Knight defence wherein the target company joins hands with a friendly acquirer called the white knight (who may be a corporation, a private company or any person) in the event of a hostile bid and the knight might effect the acquisition by offering a higher and more enticing bid than that of the hostile acquirer or by striking a favorable deal with the management of the object of acquisition.

• People pill defence wherein the entire management tem of the target company threatens to quit in the event of a coercive takeover, leaving the company without any experienced leadership. This defence may also be strengthened by Golden Parachute Clauses included in the executives’ employment contract specifying that they will receive certain large benefits if their employment is terminated. In the event of a takeover, executives cash in their golden parachute irrespective of whether under their stewardship their companies prospered or incurred irreparable loss.

Nonetheless, there has been a lot of innovation as well as criticism with regard to these defences. Traditionally speaking, the shareholder rights plan, commonly called the poison pill, combined with the staggered board defence is deemed to be a potential defence in warding off unwelcome takeover bids.

Impact Analysis: Benefits vs. Drawbacks
That the poison pills offer inimitable aid to a company caught unaware by a hostile bid, is indeed, an axiomatic truth. Elucidating the same, Mr. James P Bouchard, CEO and Chairman of the Essar Group rightly observed:

‘’We believe the adoption of the stockholders rights agreement will level the playing field among bidders and help maximize shareholder value as we move forward with the current process to sell the company.’’

The obvious benefit of a poison pill is that it offers the target company three enviable options even in the critical situation of a coercive takeover:
a) The first option, allows the target to successfully ward off an unwelcome bid.

b) As for the second option, in case the target company is considering going ahead with the deal, it makes the raider negotiate and buys time for the target company to get a proper evaluation of the offer and thereby maximizes the takeover premium, in the best interest of the shareholders of the target company.

c) The third option furnishes the target company with a much-needed opportunity to investigate other alternatives such as locating a white knight or exploring better takeover options, in the time period between the offer being made by the hostile acquirer and acceptance of the same.

The cumulative effect of the strategy is thus to make it prohibitively expensive for an acquirer to buy the control of a company. The underlying assumption being that the board will always act in the best interest of the shareholders, a view that is explicitly rejected by agency theorists. They argue that the practice of allowing management to adopt poison pill strategy without shareholder approval has reduced the number of potential offers and actual takeovers. In doing so, the vested interests of the incumbent management are protected at the cost of shareholders who are faced with lower stock values.

The increasing instances of corporate scandals and an overall perception of poor corporate ethics has turned the shareholders of publicly held companies aggressively cynical about the underlying objective of the shareholder rights plan and their impact on shareholder value. Pre-supposing that a poison pill has real effect on the bargaining power of the target firm’s managers, most of the pervious empirical studies using U.S. data have investigated two theoretical hypotheses about effect of poison pills on shareholder value:

- On one hand, the shareholder interest hypothesis predicts that the adoption of poison pills should be accompanied by stock price increases because the pill is adopted primarily to protect shareholders from receiving less that full value for their holdings in controlled transactions. Also, pills increase takeover premium without decreasing the likelihood of takeover.

- On the other hand, the management entrenchment hypothesis predicts that poison pill adoptions make it less likely that shareholders will receive takeover premiums and announcements of poison pills result in stock price declines.

Both the contradictory views reflect the mixed reaction of shareholders towards the adoption of poison pill strategies but since 2000, these defences witnessed considerable decline.

Poison Pills on the decline:
Even when shareholder activism is on the rise and hostile bids are expected to grow, global poison pills that are in force show a steady decline of about 12 percent from September 2007. According to a report by Thomson Reuters Strategic Research, there have been no poison pill adoptions in the last quarter of 2007 from the Fortune 500 roster, no pills have been renewed and eight pills expired quietly during the first quarter of 2008. The trend of questioning poison pills began with a couple of large cap U.S Companies dismantling their takeover defences in the year 2000 and they continued to be increasingly unpopular thereafter. The percentage of S&P 500 companies with a poison pill in place fell below 30% by the end of 2007 as against a 60% in 2002. Most of the Fortune 100 companies have either shed their poison pills or adopted board pill policy to make poison pills shareholder-friendly, if adopted in the future. The year 2008 witnessed Japanese companies like cosmetic giant, Shiseido and internet access provider, e-Access scrapping their poison pills in 2008 following the example of their counterparts.

Also, larger U.S. Corporations continue to steer clear of the poison pill as a means to protect the company from unwelcome shareholders and are willing to take the risk that an unwelcome bidder could take a meaningful position. Summing up, pressure from shareholders, concerns of corporate governance image and a subdued M & A market have been identified as the key reasons that explain the sharp decline in poison pills.

Potent shareholder activism: Tirade against poison pills
In 2007, activist investors, mostly hedge funds, increasingly agitated for changes to maximize shareholder value and this was followed by dismantling of takeover defenses by companies of all sizes. The primary reason for the increased shareholder activism is that powerful institutional shareholder groups generally do not like rights plans. Institutional Shareholder Services (ISS), an influential provider of proxy voting and corporate governance services, recommends that institutions vote in favor of shareholder proposals requesting that the company submit its poison pill or any future pills to a shareholder vote, or redeem poison pills already in existence. In addition, a company that has a poison pill in place that has not been approved by shareholders will suffer a significant downgrading in ISS’ ratings system (Corporate Governance Quotient).

The growing apathy of shareholders towards poison pills may be attributed to a various factors, the prominent once being as follows:
a) Firstly, these defences tend to block all hostile takeovers without weighing out its merits. An unsolicited bid may sometimes cause the stock prices to shoot up and may have vast potential to increase shareholder wealth. Also, it may offer an attractive takeover premium which the shareholders might be interested in. A case in point is the Microsoft’s offer of a 62 percent premium to acquire internet giant, Yahoo! in February 2008 which was turned down by the Yahoo! Board and the Board’s decision was met with heavy criticism for having acted irresponsibly, followed by a spate of lawsuits alleging undermining of shareholder interests and a shareholder revolt led by billionaire investors like Carl Icahn.

b) Secondly, as was seen in Japan and U.S.A., poison pills tend to shield managers of dismally performing companies from the pressures of the stock market as well as from the ‘threat’ posed to its incumbent management by a better offer. Sometimes, such threat of takeovers by ‘outsiders’ is primarily in the best interest of the shareholders but is against the vested interest of the management of the target company which failed to maximize shareholder wealth. This in turn denies the shareholders the opportunity to accept a welcome offer.

c) Thirdly, with corporate governance becoming the order of the day, companies have shed their poison pills in order to enhance their corporate governance ratings. The more transparent and shareholder friendly the company practices, the better the company image and hence bigger the size of the company.

d) Fourthly, in an era of economic liberalization, economic growth is but a function of foreign investment. Thus adoption of extreme defence measures by domestic companies creates the impression of a closed marked, thereby waning foreign interest in that country. This is in itself is reason enough for companies such as e-Access thriving in developing nations to scrap their poison pills and be open to takeover offers.

There are nevertheless a host of companies which instead of scrapping the poison pills in toto have adopted favorable policies that preclude their flip side. These include several practices such as the one followed in Canada of making the shareholder rights ‘’chewable’’ by incorporating a permitted bid concept such that the bidder who is willing to conform to the requirements of a permitted bid can acquire the company by takeover bid without triggering a flip-in event. Also, the periodic review of poison pills by an independent board and adopting a board pill policy, in the lines of Fortune 100 companies like Exxon Mobil, Hewlett Packard, General Electric amongst several others, whereby the board cannot adopt poison pills without prior shareholder approval (and if done without such approval, the plan needed to be ratified or terminated within a certain period) seem to have gained popularity.

Indian legal framework vis-a-vis Poison Pills:
In India, the law pertaining to takeovers is embodied in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, commonly called the Takeover Code and the SEBI (Disclosure & Investor Protection Guidelines), 2000. Apart from these, various provisions of the Companies Act, 1956 need to be referred to as and when required. At the outset, the regulatory framework governing Indian capital market does not pose any insuperable impediment to a determined hostile acquirer. It simply mandates the acquirer to make public disclosure of his shareholding or voting rights to the target company as well as the stock exchange on which its shares as listed, if he acquires shares or voting rights beyond pre-determined threshold limits . Also, in case he wishes to acquire control over a target company, the acquirer has to make a public announcement of the same, stating lucidly various details of the bid including his intention of acquisition, his identity, details of offer price and number of shares to be acquired from public, future plans (if any), change in control over the target company, amongst others. This paves way for an informed decision as well as planned course of action.

The Takeover Code also restricts the corporate actions of target companies during the offer period, such as transferring assets or entering into material contracts and prohibiting issue of any authorized but unissued securities during the offer period . Furthermore, the shareholder rights plan sanctions the target companies to issue shares at a discount and warrants which convert to shares at a discount, even without shareholder approval, which is illegal in the Indian context unlike the U.S. where companies are permitted to do so. The DIP Guidelines require the minimum issue price to be determined with reference to the market price of the shares on the date of issue or upon the date of exercise of the option against the warrants. Such issue must also be approved by shareholders. Without the ability to allow its shareholders to purchase discounted shares/options against warrants, an Indian company would not be in a position to dilute the stake of the hostile acquirer and also seeking shareholder approval in the event of a takeover attempt is a very time-consuming process, thereby making impossible poison pills to operate within the existing Indian legal framework. Apart from this, in the event of a takeover bid, all the directors of the target company may be removed in a single shareholders meeting, as permitted under the Companies Act, 1956, thus making futile the Staggered Board defence available to foreign companies.

Thus, Indian market can be safely concluded to be a pro-acquire market. Several regulatory changes would be required to give effect to these takeover defences in India. In the meanwhile, other defences such as ‘’brand pills’’ are home to Indian Companies like Tata who have in place an arrangement whereby anyone who acquires any of its entities, may not be allowed to use its name or brand. By depriving the right to use the brand name, the acquirer loses out on a considerable portion of the target company’s valuation and this serves as an acquisition deterrent.

India is yet to foray into the realm of poison pills and shark repellants.

Conclusion:
Poison pills can thus be termed as a necessary evil in an age of rising mergers and acquisitions. However, their sharp decline also reflects a change in the attitude of the investors and their increasing participation in management decisions. Gone are the days when investors had blind faith in the board’s decision. Shareholder activism and corporate governance measures have practically changed the traditional perception of hostile takeovers and their defences. With the shareholders determined to get the best value for their investment at any cost, the negative image of ‘hostile acquirer’ or say an ‘acquirer’ amongst the shareholders of the target company seems to be a thing of the past. There is absolutely no melodrama revolving a takeover attempt, which is now evaluated strictly on merits and from a purely business perspective. The recent sale of Indian pharmaceutical giant Ranbaxy to a Japanese drug discoverer, Daiichi Sankyo bears testimony to this. Against the background of increasing hostile acquisitions, it is therefore too early to conclude whether poison pills do the vanishing act or make a surprise comeback

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Poison pills erode shareholder value - experts
Fri Apr 27, 2007 8:46am EDT
By Mathieu Robbins

LONDON, April 27 (Reuters) - Tactics to frustrate takeover bids -- especially those that favour one bidder over another -- run counter to the duty of company boards to maximise value for shareholders, academics say.

Dutch bank ABN AMRO AAH.AS, at the centre of an increasingly acrimonious takeover battle, is selling U.S. retail banking unit LaSalle to Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz) for $21 billion, as part of an agreed takeover by Britain's Barclays (BARC.L: Quote, Profile, Research, Stock Buzz).

But the move has been viewed by some investors in favour of an auction of ABN AMRO as a "poison pill" tactic, used to discourage a rival group of bidders led by Royal Bank of Scotland Plc (RBS.L: Quote, Profile, Research, Stock Buzz), for whom LaSalle Bank was a key asset.

The RBS group, which also includes Belgian-Dutch group Fortis (FOR.BR: Quote, Profile, Research, Stock Buzz) and Spain's Santander (SAN.MC: Quote, Profile, Research, Stock Buzz), on Wednesday announced a 72 billion euro ($98 billion) bid proposal that would trump Barclays -- but said a bid would be conditional on ABN scrapping the LaSalle sale.

And investors including hedge fund TCI asked on Thursday that the LaSalle sale to Bank of America be put to a vote.


CROWN JEWELS

"Following American corporate governance principles, there would be a strong argument that you couldn't use this kind of crown-jewel lock-up as a means of protecting yourself from the unwanted bidder," Columbia University Law School professor John Coffee told Reuters.

A poison pill is a device used to prevent a company from being taken over by another. Classic examples include the issuing of a new class of stock or warrants to make a takeover more expensive for a potential suitor.

Some analysts and ABN AMRO investors have referred to the sale of LaSalle to Bank of America as a poison pill because of the complications it adds to the RBS group bid.

But ABN dismissed talk of poison pill tactics this week, and the bank's Chief Executive Rijkman Groenink told shareholders on Thursday that when ABN struck its deal with Barclays there was no competing offer on the table.

Groenink has also said the conditions of the sale -- including a 14-day "go shop" clause allowing ABN to look for higher bidders -- would still allow a competing bid for the whole group. Any bidders, though, would have to buy the two parts separately -- a move that would imply a higher offer.

"Defence measures like voting restrictions or poison pills which make a takeover more expensive, more complicated and uncertain usually decrease shareholder value," said Christopher Kummer, Director of the Institute of Mergers, Acquisitions and Alliances at Webster University in Vienna, Austria.

"Defence tactics like looking for a white knight which lead to increased offers have a positive effect on the target`s shareholder value."


MORE BIDS

The Dutch bank has insisted it is "actively engaged in soliciting alternative bids" for LaSalle.

But some experts said potential bidders may be put off by the knowledge BoA only has to match their offer to win LaSalle, nor would there be any further auction to glean higher bids.

"If ABN AMRO gets an offer that is higher than the one by Barclays plus the proceedings from the sale of LaSalle, then the board certainly has to take it seriously," added Kummer.

"If it then proceeds with the sale of LaSalle, it would not act in the best interest for its shareholders unless it has very good economic and legal reasons for it."

European legal standards differ from those in the U.S., said the experts, and a company can more easily argue it is acting on behalf of other stakeholders.

"The courts in Europe...would protect a management that tries to keep a company intact, even if it is doing it at some cost to shareholders," said Coffee.

"It's not at all clear to me that shareholders in Europe have the same ability to pressure or to overrule management that they might have say by going to court in Delaware." (Additional reporting by Mark McSherry in New York)


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Great now lets blame the shareholders for the price.

Okay I'll take the blame for the .75 cent down turn today if I can blame Harry for the $4.00 down turn from $24 to $20.

Mickey, I hate to sound lie a broken record but I don't beleive we should close the barn door after the cow gets out.

The bonus and incentive plan is in place. It was voted on and passed. We need to move on from here. People in this company work hard at creating patented technology and licensing that technology to companies. They are the reason the company is in great finacial shape and they should be rewarded. So I'm not for taking money away from the people who work hard and deserve these RSU's.

The poison pill and staggered board is designed to keep management in place. This is what is killing our valuation. No one will come here to nibble, MSFT, CSCO, INTEL, HP, DELL, APPL, RIMM. They can not defeat the pill and won't even attempt to bid with the pill in place. Thus the pill creates a price surpression.

Two ways in which a stock price can go up. Investors and institutioms want to hold on shares for long term because they see that eps will grow and they will make money in the future. (this isnt happening).

A company sees that the assets of the corporate will be beneficial to obtain so they work to acquire all outstanding shares via buyout at a preminum price.

They understand but they are not willing to do it.

The big problem with the RSU grants and sells is not the effect on the float so much as the attitude of the management team. If they kknow they are getting new shares and can sell shares they have why do they care about short term issues around the share price. They beleive all these issues wil be resoved when they sign Nokia.

No pain and a continuous stream of RSU gains from Harry all the way down to tke mail room guy who gets 10 RSU's for Xmas(just kidding).

So while we mau cringe at the sub $20 share price the management team does not feel the same pain. This is where alignment comes in. They look at this cash the way the kid looks at his mothers halloween candy bowl. All mine.

That is why NAZ took them to task. Basically telling them that cash is for the shareholders and should be used to increase shareholder value and not to buy some pretty compnay that may or may not increase shareholder value.