I recently got this from an anonymous member (here are related thoughts from Cydney Posner and Marty Lipton):
You may have seen the stories regarding ISS’ recommendation that shareholders withhold against the entire Hewlett-Packard nominating committee for the way new directors were selected. I haven’t seen the ISS report, but the news stories (eg. WSJ article) probably describe it pretty well.
At issue seems to be the fact that five new directors of H-P were identified by an ad hoc committee, which according to H-P’s proxy statement “consisted of the CEO and three non-employee directors, which was formed in November 2010 to assist in identification of new director candidates and to facilitate the process of evaluating those candidates as potential directors.”
ISS and Glass Lewis criticize the addition of the CEO to this committee, since only the independent directors of the Nominating and Governance Committee are supposed to responsible for director nominations. While CEOs play a role in nominations, it does seem unusual to formally include the CEO on the search committee. It likely also didn’t help that, as according to this Bloomberg article, many of the new directors had connections to the CEO. None of those relationships are disclosed in the proxy, as much of it relates to the CEO’s former company.
In additional soliciting materials filed on Friday, H-P responds to ISS’s recommendation. (How You Find New Directors: “True Independence” Under the Microscope – TheCorporateCounsel.net Blog, 3/14/2011)
Go to theCorporateCounsel.net/Blog article to read the links. I highly recommend the one by Cydney Posner. Personally, I come down on the side of ISS on this one, although their action might have been better with some warning. At least now other companies have it. Don’t involve your CEO in a search committee pre-screening candidates. And some people wonder why shareowners favor split chair/CEO positions and proxy access.
Taking a quick glance at CII corporate governance policies, the action at H-P appears to be at least an attempt to circumvent:
2.5 All-independent Board Committees: Companies should have audit, nominating and compensation committees, and all members of these committees should be independent. The board (not the CEO) should appoint the committee chairs and members…
7.2 Basic Definition of an Independent Director: An independent director is someone whose only nontrivial professional, familial or financial connection to the corporation, its chairman, CEO or any other executive officer is his or her directorship. Stated most simply, an independent director is a person whose directorship constitutes his or her only connection to the corporation.
Much more from J. Robert Brown Jr. on this subject at theRacetotheBottom.org under “The Myth of an Independent System for Nominating Directors” in several posts.