Corporate Governance Highlights
Vol. 13, No. 42 October 25, 2002
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SEC SAYS BOARD INDEPENDENCE PROPOSAL IS
BEYOND COMPANY’S POWER TO IMPLEMENT.
The SEC granted Farmer Brothers permission to exclude a board
independence proposal from its proxy statement because the commission agreed
with the company that it lacked to power to implement the resolution. The
proposal, which was submitted to the company by Mitchell Partners, a
California-based fund manager, sought to amend Farmer Brothers’ bylaws to
create a procedure to have a majority of the board be ‘independent,’ to form
committees comprised entirely of independent directors and to allow for
cumulative voting in board elections. In its request for no-action relief,
the company argued that it could not implement the proposal because its
board could not guarantee either the election of ‘independent’ directors or
that a sufficient number of independent directors will be elected to staff
the committees addressed in the committee proposal. “Because a board cannot
ensure or require certain types of persons to be elected as directors, these
types of proposals have consistently been excluded as beyond a company’s
power to implement,” the company said. It also pointed out such proposals
are beyond the power of boards to effectuate “because shareholders, rather
than the board, elect directors.” The company cites previous SEC decisions
on similar board independence proposals submitted to Marriott International,
Boeing and PG&E in which the commission allowed exclusion.
The proposed New York Stock
Exchange listing rules currently being reviewed by the SEC require that
within two years companies ensure that their boards are comprised of a
majority of independent directors and that their audit, compensation and
nominating committees are comprised entirely of independent directors. In
its no-action ruling at Farmer Brothers, the SEC did not address how
companies will be able to implement these requirements, if approved by the
commission.
Investor Responsibility Research Center
1350 Connecticut Avenue, NW, Suite
700
Washington, DC 20036
Tel: (202) 833-0700
Fax: (202) 833-3555
cgs@irrc.org
Editor: Rosemary
Lally
Contributors:
Subodh Mishra, Maria Carmen S. Pinnell
and
Rosanna Landis Weaver
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