Additional info from ISS on IDCC's proxy
Items 1.1-1.3: Elect Directors
Harry G. Campagna is an affiliated outsider on the Compensation and Nominating Committees.
- A majority of the board members are independent outsiders. ISS prefers that a substantial majority of the directors be independent.
- ISS prefers that all key board committees include only independent outsiders.
- Harry G. Campagna was awarded 10,000 RSUs in 2005, for his continued oversight of the company's ongoing patent arbitration proceedings and other company matters in his capacity as the chairman during 2004 into 2005. The proxy does not provide any further disclosure about the nature of the service provided and any rationale as to why Harry G. Campagna, as a board chair had to provide such service directly to the company.
We recommend a vote FOR the directors with the exception of Harry G. Campagna. We recommend that shareholders WITHHOLD votes from Harry G. Campagna for standing as an affiliated outsider on the Compensation and Nominating Committees.
Vote FOR Items 1.2 and 1.3.
WITHHOLD a vote on Item 1.1.
Item 2: Declassify the Board of Directors
Michael Cohen, owner of 44,500 shares of the company's common stock, has submitted this shareholder proposal calling for the repeal of the company’s classified board structure and for the annual election of all directors. Currently, the board comprises three director classes, each of which serves a three-year term.
Although a majority of U.S. public companies have classified boards, most that have emerged in the past decade were put into place at the time of initial public offerings. Managements argue that staggered boards provide continuity and stability, but empirical evidence has suggested that such a structure is not in shareholders’ best interests from a financial perspective. Specifically, staggered boards provide a potent antitakeover defense, particularly when coupled with a poison pill, by forcing unsolicited bidders to win two board elections in order to gain control of the company.
A 2002 study by three academics covering hostile bids between 1996 and 2000 showed that classified boards nearly doubled the odds of a target remaining independent. However, the findings revealed that a staggered board structure did not provide any countervailing benefits in terms of higher acquisition premiums. In fact, for the period covered, it resulted in the loss of $8.3 billion for target shareholders by impeding value-creating transactions without any offsetting increases in alternative transaction or stand-alone target returns. Similarly, a 2001 study found that over the period 1990 to 1999, firms with weak shareholder rights, including classified board structures, exhibited lower net profit margins and sales growth and made more capital expenditures and acquisitions than firms with a high degree of shareholder rights.
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. A classified board can entrench management and effectively preclude most takeover bids or proxy contests. Board classification forces dissidents and would-be acquirers to negotiate with the incumbent board, which has the authority to decide on offers without a shareholder vote.
Vote FOR Item 2.
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