Corporate Securities Law Blog

In January 2006, the SEC staff rejected the argument of Hewlett-Packard Company that it could exclude from its proxy statement a stockholder proposal to adopt a majority vote standard in the election of directors. Hewlett-Packard had argued that it could exclude the proposal under the SEC proxy rules because its existing voting policy "substantially implemented" the proposal. At its annual meeting on March 15, 2006, 53.0% of the votes present voted against the proposal, 43.5% voted for the proposal and 3.5% abstained.

In November 2005, Hewlett-Packard announced that its board had adopted a policy to require a nominee for director who has received a greater number of votes "withheld" from his election than votes "for" his election to tender his resignation to the Nominating and Governance Committee which, in turn, would recommend to the board the action to be taken with respect to the offer of resignation. The United Brotherhood of Carpenters Pension Fund requested that Hewlett-Packard include in the proxy statement for its 2006 annual meeting a proposal that the board initiate the appropriate process to amend the certificate of incorporation or bylaws to provide that director nominees be elected by the affirmative vote of the majority of votes cast at an annual meeting.

Rule 14a-8(i)(10) permits a company to exclude a proposal if it has already substantially implemented the proposal. The SEC staff, without analysis, rejected Hewlett-Packard's argument that its existing voting policy substantially implemented the proposal.

A copy of Hewlett-Packard's request, the response of the UBCPF, Hewlett-Packard's rebuttal and the staff's reply are available here.

Although Hewlett-Packard included the proposal and supporting statement in its proxy statement, the board recommended a vote against the proposal for the following reasons:

• the company's existing voting standard adequately addresses the UBCPF's concerns;
• the proposal fails to address the "holdover rule" whereby under state corporate law an incumbent director who is not re-elected continues to serve until his successor is elected and qualified; and
• while the rules governing plurality voting are well understood, a majority vote standard raises technical and legal issues in the context of cumulative voting.

Hewlett-Packard's proxy statement is available here.

For further information, please contact Peter M. Menard at (213) 617-5483