Johnson & Johnson (JNJ) Responds to My Voting Advice

Guest Post from Douglas K. Chia, Assistant General Counsel & Corporate Secretary, Johnson & Johnson and formerly named a Rising Star of Corporate Governance by the Ira M. Millstein Center for Global Markets and Corporate Ownership. I wish a representative of every company would send such a thoughtful response to my voting advice. I’ve placed my response in italics.

Here are some points of clarification on your recent post, “How I Voted: Johnson & Johnson (JNJ) – Proxy Score – 76%” (April 23, 2013):

You wrote:

Special meetings can only be called by shareholders holding not less than 25% of the voting power… also too high.

JNJ COMMENT: Under the Company’s By-laws, shareholders holding at least a combined 25% of the outstanding shares entitled to vote may call a special meeting. However, it is worth noting that in addition, under New Jersey law, shareholders holding a combined 10% of the outstanding shares entitled to vote may call a special meeting, provided they obtain a court order for good cause shown.

Response: Obtaining a court order is a high bar. 

JNJ: We had NJ counsel look into this, and they found that the court order requirement is actually not much of a restriction to shareholders aggregating 10%.  However, it does provide some level of protection for all of us against those who would use this tool as a nuisance to waste everyone’s time and resources.

You wrote:

Our company imposes a supermajority vote requirement (66.67%) to approve mergers; I’d like to see that reduced to a simple majority.

JNJ COMMENT: The supermajority vote requirement that you refer to is mandated by the New Jersey Shareholders’ Protection Act. The Company amended its Certificate of Incorporation in 2006 to remove supermajority vote requirements not mandated by New Jersey law.

Response: It appears further supermajority requirements cold be reduced if a revised certificate of incorporation is adopted by the affirmative vote of two-thirds of the votes cast by the holders of shares entitled to vote.  Am I reading the provisions of section 14A:10-3(3) incorrectly? 

JNJ: This is exactly the action we took in 2006, which was to bring the 14A:10-3 threshold down to simple majority.  However, the 2/3 supermajority vote threshold under the NJ Shareholders’ Protection Act (14A:10A) is a statutory requirement that cannot be trumped by company/shareholder action.  It stands regardless of what you do under 14A:10-3.

You wrote:

Johnson & Johnson’s ISS Governance QuickScore as of Apr 1, 2013 is 9. The pillar scores are Audit: 1; Board: 2; Shareholder Rights: 4; Compensation: 9. Brought to you by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosure. ISS, so far, has provided no detail on the relative distribution of the scores. The board’s poor rating provides support for a proxy access proposal. Additionally, in 2012 more than 12% of shares were voted against five directors. Dissatisfaction is certainly brewing. Perhaps we should meet on Sharegate to do some more analysis.

JNJ COMMENT: The Company’s ISS Governance QuickScore was reissued at “1” on April 10, 2013. The new pillar scores are Audit: 10; Board: 2, Shareholder Rights: 4, Compensation: 1. Voting results from the April 25, 2013 Annual Meeting can now be found on the Company’s blog and in the Company’s April 26 Form 8-K filing.

Response: Great to see progress being made. 

Thank you for explaining the rationale for your votes. This is helpful to us going forward. I look forward to seeing you at ICGN in New York next month.

Response: JNJ is lucky to have such a conscientious Corporate Secretary. Thanks for getting back to us.

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