Citigroup (C)

 

nominees) and theoretically vote them in whatever proportions they choose among the director nominees. Cumulative voting has the potential to create great inequities among stockholders and to magnify the impact larger holders or groups of holders with similar, highly specific goals — including goals that are inconsistent with the views of most shareholders — can have on the composition of a company’s board. Under a cumulative voting structure, such holders or groups of holders could vote most or even all of their shares to elect directors willing to advance the positions of the group responsible for their election, rather than the positions that are in the best overall interests of Citi and its stockholders. In addition, the support by directors of the special interests of the constituencies that elected them could create partisanship and divisiveness, and impair the board’s ability to operate effectively as a governing body, to the detriment of all stockholders.

 

Most importantly, the Company’s by-laws provide for majority voting in uncontested elections. This assures that a majority of stockholders can reject a candidate and thereby prevent his or her reelection to a new term. Under the Company’s majority voting by-law, a director is reelected only if the votes cast “for” his or her election exceed the votes cast “against” his or her election. Cumulative voting is fundamentally inconsistent with majority voting. In addition, it is unclear whether Delaware law allows for cumulating “against” votes. To the extent Delaware law is interpreted not to permit cumulating “against” votes, cumulative voting would, by permitting the cumulating of “for” but not “against” votes, enable a minority of stockholders to defeat an “against” campaign supported by a majority of the stockholders. And if Delaware law permitted stockholders to cumulate “against” votes, cumulative voting could allow a minority group of stockholders to block the will of the majority — frustrating the very purpose of majority voting.

 

Citi’s nomination and governance committee, which is responsible for identifying candidates for the board, and the independence criteria contained in Citi’s Corporate Governance Guidelines protect the interests of all stockholders by ensuring that Citi has an independent and effective board of directors. The membership of Citi’s board is over 70% independent and the nomination and governance committee is comprised of only independent directors. This degree of independence among board members ensures that directors will remain accountable to all stockholders, not just the constituencies that supported their elections, and provides greater protection for the interests of smaller stockholders than cumulative voting, which could drown out the voices of small stockholders.

 

Finally, Citi has adopted a series of corporate governance initiatives in addition to majority voting. In 2007, Citi adopted a by-law amendment permitting the holders of at least 25% of its outstanding common stock to call a special meeting and adopted a Political Contributions Policy under which it now compiles and publishes a list of its political contributions. In 2006, Citi, with stockholder approval, eliminated the super-majority provisions contained in its charter. In addition, Citi adopted a policy on recouping unearned compensation and adopted confidential voting. Citi has eliminated interlocking directorships between Citi’s executive officers and companies affiliated with Citi’s directors. The board is elected annually and conducts self-evaluations of its effectiveness and that of each of its committees.

 

To protect the interests of all stockholders by ensuring that directors are not beholden to particular stockholders or groups of stockholders who ensured their elections, by recognizing the uncertainties surrounding the operation of cumulative voting when combined with majority voting, and in light of the protections afforded stockholders by the great degree of independence of Citi’s board, stockholders should reject this proposal.

Because of the uncertainties regarding whether “against” votes can be cumulated and because cumulative voting could impair the effective functioning of the board by electing a board member obligated to represent the special interests of a small group of stockholders, the proposal is not in the best interests of stockholders and the board recommends that you vote against this proposal 13.