STis the season for annual meetings. And a large number of companies are scrambling to clean up some of their governance practices before their proxies must go to press.

In the past few months alone, at least two dozen companies have announced plans to declassify their board of directors, rescind their poison pills, or change the way they compensate their top executives or directors. Others have chosen to revamp a large number of governance practices.

“Declassifying and repeal of poison pills are the two big issues,” asserts Subodh Mishra of Investor Responsibility Research Center.

McGurn

“I call it the last call; closing time for the bar,” quips Patrick McGurn, of Institutional Shareholder Services.

Historical Drivers

No one actually keeps score, so there is no way of determining whether this is occurring more this year than prior years. In fact, governance experts say companies have been preemptively purging punitive practices ahead of their annual meetings for the past two or three years, since the passage of the Sarbanes-Oxley Act.

However, just about all of these companies have one thing in common—In prior years, a majority of shareholders voted in favor of resolutions that called for the companies to act in the manner they have recently chosen.

For example, a number of companies recently announced plans to declassify their boards ahead of their 2005 annual meetings, including Morgan Stanley, Southwest Airlines, Gillette, Northrop-Grumman and Raytheon.

Sure enough, last year more than 61 percent of Morgan Stanley shareholders voting favored declassifying the board, according to Georgeson Shareholder. At Gillette and Northrop-Grumman, 67 percent of voting shareholders favored similar resolutions. Of course, the move may note matter much to Gillette shareholders, since the consumer products company recently agreed to be bought by Procter & Gamble.

The Bank of New York and Level 3 agreed to terminate their poison pills. Last year about 67 percent of BoNY shareholders voting approved a resolution calling for the company to either redeem the pill or allow them to vote on it.

Lam Research Corp. said it accelerated the expiration of the purchase rights of its poison pill from Jan. 31, 2007, to Feb. 28, 2005. "Our decision to accelerate expiration of the company's stockholder rights plan follows numerous discussions with our major shareholders and reflects their perspective that such a plan is no longer necessary to protect their interests," stated James Bagley, Lam's chairman and chief executive officer, in a statement.

ServiceMaster said it will move up the termination of its shareholder rights plan from Dec. 12, 2007, to March 15, 2005, one year after 62 percent of shareholders voting in 2004 called on the company to adopt this policy.

The board also said it would seek shareholder approval prior to the adoption of a future shareholder rights plan, unless—as we have reported frequently in the past—the board, including a majority of the independent directors, determines that it is in the best interests of the company and its shareholders to adopt a shareholder rights plan without delay. If a shareholder rights plan is adopted without prior shareholder approval, the plan must provide that it will expire unless ratified by shareholders within 12 months after adoption of the rights plan.

Before The Meetings

ISS’ McGurn believes Level 3, a mid-size telecom provider, decided “out of the blue” to swallow its pill in response to the recent rash of telecom merger announcements. “Telecom is in play and they don’t want to be the last wallflower,” he believes.

Other companies chose to end a few practices before their annual meetings.

For example, when shareholders of Stratos International gather today (Tuesday, March 8), the company itself will ask then to vote on resolutions to declassify its board and eliminate a requirement that an 80 percent stockholder vote be obtained to modify certain parts of Stratos' certificate of incorporation.

"We are committed to excellent corporate governance and we take our fiduciary duties seriously," said Andy Harris, chief executive officer of Stratos International, in a statement. "We have reviewed a number of our corporate governance practices in relation to Institutional Shareholder Services (ISS) and the National Association of Corporate Director recommendations, and have concluded that we should make these changes to become more aligned with our shareholders' interests."

Realty Income Corp. said it will terminate its stockholder rights plan and to declassify its board. The company said it intends to seek stockholder approval of this amendment at its annual meeting on May 10.

Back in December Honeywell International Inc. said it will ask shareholders at its April 25 annual meeting to declassify its board and eliminate supermajority voting provisions. Each of these proposals will require at least an 80 percent vote of the outstanding shares of the company's common stock in order to be approved, it said.

Compensation Issues

Several companies have voluntarily agreed to alter their severance policies.

American Electric Power, for example, said it would seek shareholder approval of any future severance agreements with senior executives that provide specified benefits that exceed 2.99 times the sum of the executive's then-current annual base salary plus annual target bonus, in line with what many governance activists have been seeking.

The company said it is taking this action after 58 percent of the shares voted were in favor of this proposal at the company's annual meeting in April 2004.

The organization submitting the April proposal, the International Brotherhood of Electrical Workers' Pension Benefit Plan, "indicated that executive severance agreements have not been an issue at AEP but have become an issue at other companies," said Michael Morris, AEP's chairman, president and chief executive officer, in a statement. "We recognize the concern of our shareholders and have adopted a policy consistent with the April proposal."

CSX Corp. also said it will seek shareholder approval for new severance packages for senior executives that exceed that 2.99 times threshold. At last year’s annual meeting, 73 percent of the votes cast supported a similar non-binding proposal.

Said Amalgamated Bank corporate governance specialist Julie Gozan, in a statement, "Moderating executive severance payouts is one key element in reining in excessive executive compensation."

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