This excerpt taken from the CVS DEF 14A filed Mar 24, 2006.
On or about October 17, 2005, the Company received the following proposal from William Steiner, 112 Abbottsford Gate, Piermont, New York 10968 (Steiner), beneficial owner of approximately 8,500 shares of the Companys stock. In accordance with SEC rules, we are reprinting the proposal and supporting statement (collectively, the Steiner Proposal) in this proxy statement as they were submitted to us:
Independent Board Chairman
RESOLVED: Stockholders request that our Board of Directors change our governing documents to require that the Chairman of our Board serve in that capacity only and have no management duties, titles, or responsibilities. This proposal gives our company an opportunity to cure our Chairmans loss of independence should it occur after this proposal is adopted.
When a person acts both a companys Chairman and its CEO, a vital separation of power is eliminated and we as the owners of our company are deprived of both a crucial protection against conflicts of interest and also of a clear and direct channel of communication to our company through our Chairman.
Twenty (20) shareholder proposals on this topic achieved an impressive 54% average yes-vote in 2005. The Council of Institutional Investors www.cii.org, whose members have $3 trillion invested, recommends adoption of this proposal topic.
Progress Begins with One Step
It is important to take one step forward in our corporate governance and adopt the above RESOLVED statement since our 2005 governance standards were not impeccable. For instance in 2005 it was reported (and certain concerns are noted):
D in Overall Board Effectiveness.
D in Board Composition.
D in CEO Compensation.
D in Takeover Defenses.
Overall Governance Risk Assessment = High
1) Stanley Goldstein due to his involvement with Footstar, Inc. filed for Chapter 11 bankruptcy.
2) Marian Heard due to her involvement with the FleetBoston board, which approved a major round of executive rewards even as FleetBoston was under investigation by regulators for multiple instances of improper activity.
3) Terrence Murray For the same reason as Ms. Heard.
4) Thomas Ryan For the same reason as Ms. Heard and Mr. Murray.
With the above room for improvement it is important to take one-step forward and make our Board more accountable by adopting an independent board chairman requirement.
It is well to remember that at Enron, WorldCom, Tyco, and other legends of mis-management and/or corruption, the Chairman also served as CEO. When a Chairman runs a company as Chairman and CEO, the information given to directors may or may not be accurate. If a CEO wants to cover up improprieties and directors disagree, with whom do they lodge complaints? The Chairman?
Independent Board Chairman
Yes on 5
Statement of CVS Board Recommending a Vote AGAINST the Steiner Proposal
CVS Board of Directors unanimously recommends that you vote against the Steiner Proposal because it is unnecessary and it is not in the best interests of CVS or its stockholders.
The Board of Directors believes that CVS and its shareholders are best served by having Thomas M. Ryan serve as Chairman of the Board, President and Chief Executive Officer, and that adopting a policy to restrict the Boards discretion in selecting the Chairman of the Board (as well as combining the positions of Chairman and CEO) would deprive the Board of the ability to select the most qualified and appropriate individual to lead the Board as Chairman. The Board believes it is important to retain its flexibility to allocate the responsibilities of Chairman of the Board and Chief Executive Officer in any way that is in the best interests of the Company at any future point in time. The Board also believes that Board independence and oversight of management are effectively maintained through the Boards current composition, committee system and policy of having regular executive sessions of non-management directors.
Furthermore, CVS practice of having one individual perform the role of Chairman and Chief Executive Officer is both consistent with the practice of many major companies and not restricted or prohibited by current laws (including the Sarbanes-Oxley Act of 2002 and recently promulgated SEC regulations). We also note that this is an approach supported or not opposed by several organizations prominent in matters of corporate governance, including the Business Roundtable and The Conference Board.
For all of these reasons, the Board does not believe that amending the Companys organizational documents to require that the Chairman of the Board is not a member of management would enhance the Boards independence or performance.
Only one of the nine members of CVS Board of Directors is currently an employee of CVS, and all of CVS Board Committees, other than the Executive Committee, are comprised solely of directors meeting the independence requirements of the New York Stock Exchange. Therefore, there are ample outside directors to offer critical review of management plans. Furthermore, in accordance with the charters of the various committees, the Management and Development Committee is responsible for evaluating the performance of the CEO and other senior executives, and the Nominating and Governance Committee is responsible for evaluating the overall performance of the Board.
Our directors, including the Chairman of the Board, are also bound by fiduciary duties under law to act in a manner that they believe to be in the best interests of CVS and its stockholders. Requiring that the
Chairman of the Board not be a member of management would not serve to augment or diminish the fiduciary duties of any director or officer of CVS and the Board does not believe that splitting the roles would enhance the Boards independence or performance.
Rather, the Board believes that Mr. Ryan, in his capacities as Chairman, President and Chief Executive Officer, serves as a bridge between the Board and management and provides critical leadership for carrying out CVS strategic initiatives and confronting its challenges. In short, the Board currently believes that a Chairman who is a member of CVS management team is better situated to execute the Companys strategy and business plans to maximize shareholder value.
For these reasons, the Board believes that the amendment of CVS organizational documents to require the election of a non-management Chairman of the Board is not appropriate and that it is in the best interests of CVS shareholders for the Board to have the flexibility to determine the selection of the Chairman of the Board, whether that director is an outside director or a member of executive management.
The Board of Directors recommends a vote AGAINST the Steiner Proposal.