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PROXY Governance Report of Voting
Recommendations
(September 6, 2006)
PROXY
Governance, Inc., the proxy advisory subsidiary of
FOLIOfn, Inc., issued the
press release below on September 6, 2006 announcing their recommendation that
clients vote shares of CA, Inc., against director candidate D'Amato but in favor
of all other candidates. The firm's analysis and rationale of this
recommendation, referring to the
Amalgamated LongView shareholder proposal for removal of directors, follows:
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Analysis
CA has been
in full-blown crisis mode for several years and, to some extent, remains in that
mode today. It is perhaps still premature to speculate on the likely success of
the company's now multi-year turnaround effort in view of the ongoing turnover
in its top executive ranks. Regarding governance, while most of the company's
management team and board have been brought into the company in the last several
years in an attempt to put the company's accounting scandals and turmoil behind
it, we view one director as a prominent exception to this statement. Alfonse
D'Amato's service on the CA board dates to 1999, a time period in the midst of
the accounting, fraud and stock option scandals that the company is still
attempting to recover from.
We further
note that in a March 3, 2006, court filing federal prosecutors allege a direct
correlation between the closing of a $51 million line of credit that former CEO
Kumar secured (backed by the value of his restricted shares of CA common stock)
on June 30, 2000, to buy the New York Islanders hockey team and the company’s
July 3, 2000, announcement that it would miss financial projections. CA’s stock
declined 43% following the announcement, erasing $13 billion of the company's
market value. According to the government, Kumar was able to use the stock as
collateral only because, several days earlier, the CA board had voted to ease a
previous restriction on the sale or transferal of the stock. At this time,
D’Amato, while serving on the CA board, was a consultant to Nassau Coliseum
management and helped broker the deal for Kumar to buy the Islanders. The
company did not disclose this relationship in any of its proxy statements from
1999 to 2002. D’Amato joined the board in 1999 and currently serves on the Audit
and Compliance Committee and the Corporate Governance Committee. D’Amato has
served on the Audit Committee since 2000. In view of the company's obvious need
to put the past behind it, we recommend that shareholders withhold votes for
D'Amato.
Ranieri, the
other director singled out by LongView, is a tougher call. Ranieri joined the
board in 2001 and currently serves on the Compensation and Human Resource
Committee. He appears to have been extremely active, particularly since being
named chairman in April 2004, in attempting to help CA sort out its problems.
Ranieri was awarded an additional $160,000 in fees for his "extraordinary
service" to the company during 2005. The additional fees were paid in the form
of making the company’s aircraft available to him for business and personal use.
He elected not to accept director’s fees in the amount of
$37,500 in
the fourth quarter of 2005.
While CA has
clearly continued to endure tough times on Ranieri's watch as chairman, we are
inclined to believe that he is part of the solution to the problems at CA rather
than part of the problem. That judgment, however, is certainly subject to review
as we watch the company's continuing efforts to put the current turmoil behind
it.
Rationale/Conclusion:
PROXY
Governance generally believes that the board is properly discharging its
oversight role and adequately policing itself. However, we recommend withholding
votes from D'Amato given his role in brokering a major business deal involving
Kumar in 2000, which appears to be a clear conflict of interest, and the fact
that he is the sole remaining director that served on the board during the
period when the company's accounting scandals were occurring. |
The firm's full report is available for downloading from the following link,
with the publisher's permission:
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PROXY
GOVERNANCE, INC.
Recommends CA Shareholders
Withhold Votes for D'Amato as Director and Reject Poison Pill Proposal
VIENNA, VA, Sept. 6, 2006
— PROXY Governance,
Inc., an independent provider of proxy analysis, global voting and U.S.
compliance services, today recommended that its clients withhold
votes from former Senator Alfonse M. D’Amato as a director at the upcoming
annual meeting of CA Inc. (formerly Computer Associates) and reject the
ill-considered proposal to require unanimous board approval to adopt or
extend a poison pill not approved by shareholders.
Alfonse D’Amato, a distinguished
and respected former U.S. Senator from New York, served on the CA board
dating back to 1999 and included periods when the Long Island-based software
company confronted accounting scandals, financial restatements and executive
departures.
D’Amato was one of two CA
directors targeted for defeat earlier this year by the labor-affiliated
Amalgamated Bank LongView Funds. LongView submitted a proposal in March
2006 requesting shareholders remove two CA directors –D’Amato and Chairman
Lewis Ranieri – saying that their board service prior to 2002 made their
continuing service detrimental to shareholders. The company was allowed to
omit the proposal from its proxy ballot by the Securities and Exchange
Commission, however, after the Commission issued a no-action ruling in June
saying that the proposal violated a proxy rule.
PROXY Governance
recommended that shareholders not withhold votes from CA Chairman Ranieri,
stating in its report that “while
CA has clearly continued to endure tough times on Ranieri's watch as
chairman, we are inclined to believe that he is part of the solution to the
problems at CA rather than part of the problem.” Ranieri joined the CA
board in 2001 and has been chairman since April 2004.
PROXY Governance,
however, believes it best that the company be able to start fresh with
directors that weren’t on the board when the bulk of the troubles occurred.
For that reason it believes it’s best that former Senator D’Amato not
continue with the CA board.
Separately, PROXY
Governance recommended rejection of a bylaw proposal by Harvard Law
Professor Lucian Bebchuk to require “unanimous” board consent to adopt or
extend a poison pill not approved by shareholders. Any such pill would
sunset after one year and any change to the bylaw would similarly require
“unanimous” board approval. CA’s pill is scheduled to expire in November.
PROXY Governance
believes this proposal is really bad governance, pure and simple. The
unanimity mandate would give veto power to a single director—including the
CEO—over the adoption of a critical takeover defense. As noted in an April
article by lawyers Martin Lipton and Mark Gordon, the provision not only has
questionable legality but also could lead to a “tyranny of one.” PROXY
Governance does not believe the pill has been harmful to the struggling
CA, whose stock has lost two-thirds of its value since 2000. Providing a
lone director the opportunity to frustrate the will of the majority of the
board is not best practices or even a reasonably thoughtful one.
As a separate matter,
PROXY Governance also notes that the Bebchuk proposal is part of a
mini revival this year of binding pill resolutions, which were attempted
more in earnest in the 1990s, and which PROXY Governance believes
have merit when thoughtfully presented. In addition to CA, Bebchuk filed
similar, though less rigid, proposals at Bristol-Myers Squibb Co. and
Halliburton Co. (67% board approval and three-year pill sunset), while labor
union UNITE HERE sponsored a bylaw amendment at Hilton Hotels Corp.
requiring prior shareholder ratification of any pill. Both Bristol-Myers
(which adopted the bylaw) and Halliburton (where the proposal made a poor
showing) had policies in place to put future pills to a shareholder vote
within a year of adoption.
Whether the binding bylaw approach
to pills gathers momentum next season may well depend on the outcome at CA
and Hilton--both at the ballot box and in any legal challenges. The two
companies have argued that these types of shareholder-sponsored bylaws
violate Delaware law, which gives boards specific authority to adopt and
maintain defensive measures. The Hilton proposal, which won majority
support, is under consideration by the board.
About PROXY
Governance
PROXY
Governance, Inc., (www.proxygovernance.com)
is an independent proxy advisory and voting firm that provides a full
range of proxy analysis, voting and reporting services designed to meet
the needs of pension funds, money managers, mutual funds, investment
advisors and other fiduciaries. PROXY
Governance’s
mission is to provide proxy-voting recommendations that truly build
long-term shareholder value. Its analysis uses a company-specific
methodology. Rather than evaluating proxy issues in isolation, the firm
considers each issue in the context of a company’s performance, relative
to its peers. PROXY
Governance’s policies and voting
recommendations are transparent and free from conflict, and the company
does not market any services that could generate conflicts of interest.
PROXY Governance
is a wholly-owned subsidiary of FOLIOfn,
Inc., an innovative financial services company that also provides
brokerage services and portfolio management technology for individual
investors and investment advisors.
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