This excerpt taken from the C DEF 14A filed Mar 15, 2005.
Director Election Majority Vote Standard Proposal
Resolved: That the shareholders of Citigroup, Inc. (Company) hereby request that the Board of Directors initiate the appropriate process to amend the Companys governance documents (certificate of incorporation or bylaws) to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders.
Supporting Statement: Our Company is incorporated in Delaware. Among other issues, Delaware corporate law addresses the issue of the level of voting support necessary for a specific action, such as the election of corporate directors.
Delaware law provides that a companys certificate of incorporation or bylaws may specify the number of votes that shall be necessary for the transaction of any business, including the election of directors. (DGCL, Title 8, Chapter 1, Subchapter VII, Section 216). Further, the law provides that if the level of voting support necessary for a specific action is not specified in the certificate of incorporation or bylaws of the corporation, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.
Our Company presently uses the plurality vote standard for the election of directors. We feel that it is appropriate and timely for the Board to initiate a change in the Companys director election vote standard. Specifically, this shareholder proposal urges that the Board of Directors initiate a change to the director election vote standard to provide that in director elections a majority vote standard will be used in lieu of the Companys current plurality vote standard. Specifically, the new standard should provide that nominees for the board of directors must receive a majority of the vote cast in order to be elected or re-elected to the Board.
Under the Companys current plurality vote standard, a director nominee in a director election can be elected or re-elected with as little as a single affirmative vote, even while a substantial majority of the votes cast are withheld from that director nominee. So even if 99.99% of the shares withhold authority to vote for a candidate or all the candidates, a 0.01% for vote results in the candidates election or re-election to the board. The proposed majority vote standard would require that a director receive a majority of the vote cast in order to be elected to the Board.
It is our contention that the proposed majority vote standard for corporate board elections is a fair standard that will strengthen the Companys governance and the Board. Our proposal is not intended to limit the judgment of the Board in crafting the requested governance change. For instance, the Board should address the status of incumbent directors who fail to receive a majority vote when standing for re-election under a majority vote standard or whether a plurality director election standard is appropriate in contested elections.
We urge your support of this important director election reform.
This proposal is unnecessary and potentially disruptive to sound corporate governance at Citigroup. At every annual meeting following the merger that created Citigroup, no candidate for election to the Citigroup board has received less than 93% votes in favor, let alone approached being elected by a mere majority vote. Had this proposal been in effect during those years, it would have had no effect whatsoever on who was elected to our board. The proposals contention that only .01% votes in favor are required to re-elect a director is therefore completely hypothetical and indeed misleading when viewed against the reality that Citigroups directors consistently are elected with votes in favor exceeding 90% of votes cast.
Nor is the proposal needed to assure Citigroups leadership on corporate governance issues. Citigroup has long been committed to being a leader in corporate governance and its boards policies and procedures comply with, and often exceed, requirements imposed by the NYSE, SARBANES-OXLEY and the SEC. The nomination and governance committee, comprised solely of independent directors, nominates candidates for election to the board relying on the Qualifications for Director Candidates contained in the Corporate Governance Guidelines. These guidelines provide for full and appropriate consideration of possible candidates suggested by stockholders. The audit and risk management and personnel and compensation committees are also comprised solely of independent directors. Seventy percent of the full board consists of independent directors under NYSE guidelines. In 2003, Citigroup separated the roles of Chairman and CEO and appointed a lead director who actively participates in all facets of the board and nomination process. Citigroup does not have multi-year staggered terms for its board members. Rather each Citigroup director is elected for a one-year term, allowing shareholders to vote annually on whether to keep each board member.
Citigroup has long had a stock ownership commitment requiring its directors and senior
executives to hold at least 75% of the stock they own on the date they became subject to the commitment and 75% of all shares issued to them by Citigroup until they leave Citigroup. Many governance experts now view a stock ownership commitment as an important facet of good corporate governance in assuring alignment of the interests of the board and the shareholders.
Provisions of Delaware law prevent the proposal from achieving its goal, that of electing directors by a majority vote and removing those directors who do not receive a majority vote. Delaware law provides that a director is elected to serve until his or her successor is elected and qualified. Directors may only be removed by a majority vote of the shareholders. Therefore, if an incumbent director did not receive a majority vote, he would, under Delaware law, hold office until he was either removed by shareholders or until his successor was elected.
In a contested election, including an election where a shareholder nominee was being voted upon, plurality voting would dictate that whoever received the most votes would win the contested seat. However, if majority voting were the standard, even if the shareholder nominee received more votes than a board candidate, if neither candidate received a majority vote, the board candidate would remain in office in accordance with Delaware law.
Given these provisions of Delaware law, there is uncertainty as to how the proposal might ultimately work in practical terms. As a result, stockholders are at a disadvantage when deciding how to vote on the proposal. The intended goal, providing for majority voting in elections for directors and its anticipated effect, removing directors that stockholders, by a majority, vote against, may never come to fruition.
Currently there is a focus by governmental entities, scholars, corporations and stockholders on whether requiring majority voting in the election of directors is a worthy and workable goal. Citigroup will continue to monitor closely the developments in this discussion and take appropriate action to maintain its commitment to corporate governance leadership. However, as described above, given the constructs of this proposal and the current state of Delaware law, this proposal cannot achieve the intended goal of ensuring that directors are elected by a majority vote.