For perhaps the first time since the majority vote movement took off two years ago, a company has refused to accept the resignation of a director who failed to receive the necessary votes to be re-elected to the board.
Shareholders at Gen-Probe, a maker of medical diagnostic equipment with a $3.4 billion market capitalization, cast 70 percent of their votes against director Mae Jemison’s nomination at the company’s May 31 meeting. When results were announced in July (32 million votes against, 13.2 million in favor), Jemison immediately tendered her resignation in accordance with Gen-Probe’s bylaws.
Gen-Probe’s nomination and governance committee, however, refused to accept Jemison’s resignation. In a July 18 regulatory filing, the committee said the circumstances that led to the shareholder vote against Jemison—primarily discontent with her poor attendance at board meetings—were an aberration she could remedy in the future.
The filing disclosed that in a meeting on July 6, the nomination committee discussed, among other things, Jemison’s “unique qualifications, her past contributions to the board, her historical attendance and participation in board meetings and communications, and her commitment regarding future attendance and scheduling.”
Jemison
Jemison, a former astronaut and a Gen-Probe Board member for three years, incurred the disapproval of proxy advisory firm Institutional Shareholder Services for missing 75 percent of meetings held by the board or the nominating committee (on which she sits) in 2006.
Still, the nominating committee stressed that prior to 2006, Jemison missed just one regularly scheduled board meeting. “The committee determined that there were reasonable justifications for Dr. Jemison’s absences from two quarterly board meetings in 2006,” the company said in its filing. For example, it noted that at least one of the absences was the result of poor communication by the company and that Jemison has actively participated as a director and made “substantial contributions” to the company.
It also said that in January and February, the committee received assurances from Jemison that she would take the steps necessary to avoid future absences from board meetings, and that she has attended all regular and special board and committee meetings since September 2006.
EXCERPT
An excerpt of the July 19 Gen-Probe filing about director Mae Jemison and her seat on the board of directors.
Following Dr. Jemison’s tender of her resignation, the Nominating and Corporate Governance Committee (the “Committee”) reviewed and considered the circumstances relevant to the stockholder vote and Dr. Jemison’s tender of resignation. At a telephonic meeting held on July 6, 2007, the Committee considered and discussed, among other things, Dr. Jemison’s unique qualifications, her past contributions to the Board, her historical attendance and participation in Board meetings and communications, and her commitment regarding future attendance and scheduling. In particular, the Committee considered that prior to 2006, Dr. Jemison missed only a single regularly scheduled Board meeting. The Committee determined that there were reasonable justifications for Dr. Jemison’s absences from two quarterly Board meetings in 2006, that at least one of the absences was the result of poor communication by the Company, and that Dr. Jemison has actively participated as a director and made substantial contributions to the Company. The Committee also discussed that in January and February 2007, the Committee sought and received assurances from Dr. Jemison that she would take the steps necessary to avoid future absences from Board meetings, and that she has attended all regular and special Board and Committee meetings since September 2006.
The Committee also discussed that following the Company’s May 31, 2007 annual meeting of stockholders, the Company communicated with ISS about the circumstances relevant to Dr. Jemison’s historical record of attendance, the stockholder vote, the tender of resignation, and ISS policies related thereto. The Committee concluded that a decision to decline Dr. Jemison’s tendered resignation would be consistent with ISS policies in light of all relevant circumstances, as discussed between the Company and ISS subsequent to the annual meeting. Following discussion, the Committee by a 3-0 vote adopted a resolution recommending that the Board of Directors decline to accept Dr. Jemison’s resignation. Dr. Jemison, although a member of the Committee, did not take part in the Committee’s discussions and decision concerning the recommendation to the Board of Directors.
The Board of Directors reviewed and considered the Committee’s recommendation, and the circumstances relevant to the stockholder vote, at a telephonic meeting held on July 17, 2007. The Board considered the matters reviewed at the Committee’s July 6, 2007 meeting, including Dr. Jemison’s unique qualifications, her past contributions to the Board, her historical attendance and participation in Board meetings and communications, and her commitment to the Board regarding future attendance and scheduling. The Board also discussed the Company’s communications with ISS about the circumstances relevant to Dr. Jemison’s historical record of attendance, the stockholder vote, the tender of resignation, and ISS policies related thereto. The Board concluded that a decision to decline Dr. Jemison’s tendered resignation would be consistent with ISS policies in light of all relevant circumstances, as discussed between the Company and ISS subsequent to the annual meeting.
Following discussion, the Board accepted the recommendation of the Committee and by a 5-0 vote adopted a resolution declining to accept Dr. Jemison’s resignation. Dr. Jemison did not take part in the Board’s discussion and decision.
Source
Gen-Probe 8-K Filing (July 19, 2007)
Jemison herself explains that she missed one meeting because she was in Antarctica, another because Gen-Probe changed the meeting date after she made a speaking commitment, and a third when her father passed away. She says she is sensitive to the need for shareholders to have “bellwethers to look at,” but also says, “There is no question about my commitment to Gen-Probe to work toward the best outcome.”
Interestingly, Gen-Probe also revealed that following the annual meeting and Jemison’s defeat, it discussed her situation with ISS and its belief that dismissing her from the board would not be in the company’s long-term interests. ISS agreed.
McGurn
“This case provides evidentiary proof that majority voting was not designed as a guillotine,” says Patrick McGurn, special counsel to ISS. “It is the discretion of the company. If they respond in a responsible fashion, there will be cases where the resignation is turned down.”
Michael Watts, a Gen-Probe spokesman, says both Gen-Probe and ISS now chalk up the original recommendation against Jemison as the result of poor communication.
“The negative vote could have been avoided,” Watts says. According to him, the company had written an explanatory letter to ISS before the annual meeting, but it failed to reach the right person. “It was a series of administrative miscues. It was not ISS’ fault.”
McGurn, however, adds: “We’ll both share the blame. Communication works both ways. If we had discussions and conversations in a timely fashion, it could have led to not making the recommendation.”
Indeed, Watts says, had the board communicated with Jemison early enough, it could have changed the date of one board meeting and pushed Jemison’s attendance above the critical 75 percent threshold. That would have avoided ISS’s stamp of disapproval.
Does the Gen-Probe situation portend how no-votes and withhold votes will play out in the future? No, say experts.
Allen
“Gen-Probe is interesting, but difficult to generalize from it,” says Claudia Allen, of the law firm Neal Gerber Eisenberg, who has painstakingly tracked the majority vote movement. “Not attending meetings is probably a milder basis for withholding votes. ISS is trying to indicate that it doesn’t have a black-and-white policy on the matter. It gives companies some discretion.”
Allen is confident that the majority vote tool will be used in the future in more targeted ways, especially when a company’s performance or executive compensation is a critical issue. “The threat of using it is still a powerful tool,” she says.
She points to the recent case involving CVS Caremark. In early July, the drug chain announced that Roger Headrick had retired from its board of directors, effective immediately. It did not provide a reason.
Headrick, however, had become a lightning rod for the withhold vote crowd. On May 9, CVS Caremark announced that shareholders elected its full slate of 14 directors. They included Headrick, who was the target of a withhold campaign among several shareholder activists unhappy with him over CVS’s merger with Caremark and over the company’s stock option practices.
Initially, CVS reported that shareholders withheld about 44 percent of their votes from Headrick. But CTW Investment Group, which played a leading role in the withhold campaign, claimed Headrick received as little as 43 percent of the shareholder vote, excluding what it calls “phantom votes”—those cast by brokers with no economic interest in the company.
Says Allen: “In the future, withhold votes will be used in more targeted ways and depend on the issues involved.”
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