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Efforts to increase shareholder control over US company boards were dealt a setback on Wednesday after Hewlett-Packard shareholders rejected a proposal that would have allowed stockholders to nominate directors directly through the company’s proxy documents.
Just 39 per cent of HP shareholders voted for the measure, far short of the two-thirds of votes required for it to pass.
The rejection of the stockholder proposal marks a setback for some of the biggest US pension plans, including the California Public Employees Retirement System, which had supported the measure.
The HP vote was an early test case in what promises to be a lively season for stockholder meetings, as shareholders throughout the US weigh other proxy access proposals at companies such as UnitedHealth and Reliant Energy.
Ahead of the vote, Mark Hurd, HP’s chairman and chief executive, urged stockholders to reject the proposal, arguing that it could lead to the appointment of directors who represented the interests of only a narrow cross-section of investors.
HP had also argued that the plan could lead to expensive proxy fights over board nominees, and that it would discourage people from serving on the company’s board.
HP said it was “pleased” that the proxy access proposal had failed. “The board believe this proposal was not in the best interests of HP stockholders,” the company said.
Proxies are documents sent to shareholders by companies each year that contain proposals to be voted on at annual meetings. While some shareholders choose to cast their votes in person at shareholder meetings, most, including nearly all big institutional investors, cast their votes by proxy.
The Securities and Exchange Commission, the US securities regulator, had long blocked shareholder access to proxy documents. That policy was reversed last year after a US appeals court supported a challenge to the rule by the American Federation of State, County & Municipal Employees, a big institutional shareholder.
Scott Adams of AFSCME, who spoke at the HP meeting in favour of giving shareholders proxy access, said the fact that 39 per cent of shareholders had voted for the measure had sent a “tremendous message”.
“For 39 per cent of shareholders to say we want access to the ballot is a very strong message,” he said. “It is now in the SEC’s court to standardize the rules to give shareholders access to proxy ballots.”
HP emerged as a target for governance reform last year after the company revealed that operatives working on behalf of the HP board had spied on board members, HP employees, journalists and their families to uncover the source of a boardroom leak.
The scandal forced the resignation of Patricia Dunn, HP’s former chairman, and several other top officials. Ms Dunn and three others yesterday had felony charges over the scandal dismissed.
Although HP managed to fend off the proxy access proposal, shareholders applauded the approval of two other measures that HP had opposed.
One, a proposal to submit any future poison pill anti-takeover measure to a vote of shareholders, was approved by 72 per cent of stockholders who cast votes.
An initiative to more tightly link executive pay to company performance passed by a vote of 53 per cent in favour to 45 per cent against, reflecting investor frustration at the large pay packages awarded to Mr Hurd when he joined HP, as well as the multi-million dollar severance package handed to his predecessor, Carly Fiorina, when she left the company two years ago.
HP said it was disappointed the two measures had passed, but agreed to review its policies.
Shareholders also rejected a proposal that would have forced the company to separate the roles of chairman and chief executive. Mr Hurd assumed the role of chairman in addition to his CEO duties after Ms Dunn resigned in September.
HP’s shares have nearly doubled in value since Mr Hurd took over as chief executive in 2005. They rose 0.6 per cent on Wednesday to $39.79 ahead of the company’s annual shareholder meeting.