AutoNation (AN)

 

Under our by-laws, the Board has the flexibility to determine whether it is in the best interests of our stockholders and the Company to separate or combine the roles of the Chairman of the Board and Chief Executive Officer at any point in time. This proposal would remove this flexibility and

 

AutoNation’s Compensation Committee and its Executive Compensation Subcommittee, each comprised entirely of independent directors elected by stockholders, review and approve annually the compensation for the executive officers of the Company. As discussed above under “Compensation Discussion and Analysis,” the Compensation Committee’s fundamental philosophy is to closely link executive compensation with the achievement of Company performance goals and to create an owner-oriented pay-for-performance culture. The Compensation Committee’s objectives in administering our compensation program for executive officers are to ensure that we are able to attract and retain highly-skilled executives and to provide a compensation program that incentivizes management to optimize business performance, deploy capital productively and increase long-term stockholder value. If implemented, an advisory vote could have the effect of interfering with the Company’s ability to meet these objectives and, in our view, would be contrary to best corporate governance practices of vesting authority over compensation with an independent compensation committee comprised of elected directors.

 

Furthermore, the Compensation Committee considers both public and confidential information about the Company’s strategies and performance when assessing executive performance and determining compensation. Some of the confidential information could not be made available to stockholders without also providing such information to the Company’s competitors. If implemented, an advisory vote would require the Company either to ask stockholders to endorse or reject compensation decisions without complete information or to disclose competitively sensitive information in a public document.

 

In addition, the Board believes that the Company already maintains an effective means for stockholders to communicate directly with the Board and any Board committee, as discussed above under “Corporate Governance — Can our stockholders and interested parties communicate with our directors?” We believe that by using such direct communication, stockholders can effectively provide the Board with meaningful insight into specific concerns regarding compensation of the Company’s executive officers. An advisory vote, on the other hand, may not communicate meaningful or specific criticism that could be used by the Board to address stockholder concerns. Instead, an advisory vote would require the Compensation Committee to speculate about the meaning of the stockholder vote. For example, a negative vote could signify that stockholders do not approve of the amount or type of compensation awarded, or alternatively that stockholders do not approve of the format or level of disclosure in the Summary Compensation Table and accompanying narrative disclosure. Any conclusions that the Compensation Committee might reach could be speculative due to the lack of information conveyed through the vote and therefore counter-productive to the desired effect of such vote.

 

The Company complies with the rules of the Securities and Exchange Commission regarding disclosure of compensation information. The Company fully and fairly discloses the relevant details of its executive compensation in each annual proxy statement so that stockholders may evaluate the Company’s approach to rewarding its executives. The Company believes its compensation policies and practices result from a disciplined and thorough process for determining executive compensation, as outlined above under “Compensation Discussion and Analysis.”

 

The proposal suggests that companies in the United Kingdom have been successful in implementing an advisory vote and that, therefore, companies in the United States should resort to this approach. However, given the vast differences between the United Kingdom and the United States in corporate governance policies, the United Kingdom’s success and experience with such stockholder advisory votes offers little or no guidance as to the effect that it may have on our company.

 

The Company is currently not aware of any of its competitors that have adopted this practice and very few U.S. public companies have adopted this practice. Therefore, the proposal would subject the Company to an advisory vote requirement without any assurance that other public companies, particularly its industry peers, would be subject to a similar requirement. Adoption of the proposal could therefore put the Company at a competitive disadvantage vis-à-vis its competitors whose compensation reports are not subject to an advisory vote and negatively affect stockholder value.

 

 

Under our by-laws, a special meeting of stockholders may be called at any time by the Board of Directors. This by-law provision conforms to the requirements of the Delaware General Corporation Law, and is an appropriate corporate governance provision because it

 

 

The Board does not believe it is appropriate to enable holders of only ten percent (a small minority of stockholders) of our common stock to have an unlimited ability to call special meetings for any purpose at any time. Enabling the holders of only ten percent of the Company’s outstanding stock to call special meetings could subject the Company and the Board to disruption from stockholder activists or special interest groups with an agenda not in the best interests of the Company or long-term stockholders. Additionally, special meetings could impose substantial administrative and financial burdens on the Company and could significantly disrupt the conduct of the Company’s business.

 

For a Company with as many stockholders as AutoNation, a special meeting of stockholders is a very expensive and time-consuming affair because of the legal costs in preparing required disclosure documents, and printing and mailing costs. Additionally, preparing for stockholder meetings requires significant time and attention of the Board of Directors, members of senior management and significant employees, diverting their attention away from performing their primary function which is to operate the business of the Company in the best interests of the stockholders. Calling special meetings of stockholders is not a matter to be taken lightly, and special meetings should be extraordinary events that only occur when either fiduciary obligations or strategic concerns require that the matters to be addressed cannot wait until the next annual meeting. Finally, the Company’s entire Board of Directors is elected annually, giving stockholders a significant opportunity to indicate their approval of the Board’s actions each year.

 

 

 

Your Board opposes this proposal because it does not believe that cumulative voting is in the best interests of AutoNation and all of its stockholders. Like a majority of public companies and S&P 500 companies, we provide that each share of common stock is entitled to one vote for each available director’s seat. We believe that this system is most likely to produce an effective board of directors that will represent the interests of all of AutoNation’s stockholders. Cumulative voting, on the other hand, could impair the effective functioning of your Board by allowing a small group of stockholders to elect a director who feels compelled to represent the narrow special interests of the group, rather than the interests of all stockholders as a whole. Cumulative voting also may increase the likelihood of factionalism among directors, which could interfere with the effective operation of your Board. We believe that our current system of voting has served us well and should be retained.

 

Contrary to Mr. Chevedden’s claim, our by-laws provide that nominees for election to your Board must receive the affirmative vote of the holders of a majority of the total votes cast in order to be elected. Our use of majority voting in director elections distinguishes us from a majority of public companies, most of which use plurality voting (in which the nominees for available directorships who receive the highest number of affirmative votes cast are elected irrespective of how small the number of affirmative votes is in comparison to the total number of votes cast). Majority voting in director elections recently has been a significant topic in the corporate governance landscape, as it is favored by many corporate governance commentators and institutional shareholder advisory services, such as the Council of Institutional Investors (CII), the California Public Employees’ Retirement System (CalPERS) and Institutional Shareholder Services (ISS), all of which have actively advocated the use of majority voting in director elections. We believe that our use of majority voting reflects our significant commitment to director accountability to stockholders and a democratic process for director elections. We do not believe that we also should adopt cumulative voting.

 

This proposal was submitted by John Chevedden, a frequent proponent of shareholder proposals to America’s large companies. In support of his shareholder proposal, Mr. Chevedden makes numerous statements that we believe are false and misleading. For instance: