Citigroup (C)

One Step Forward

I believe the above practices reinforce the reason to take one step forward and adopt simple majority vote. This will address the potential frustration of the will of the shareholder majority.

MANAGEMENT COMMENT

This proposal would remove stockholder protections that we consider important to good corporate governance.

The proposal requests that a “simple majority vote apply to each issue that can be subject to stockholder vote to the greatest extent possible.” Under Delaware law, certain actions must be voted on by a majority of the votes cast at a meeting of stockholders and others must be approved by a majority of the votes entitled to vote (the outstanding shares). There are significant differences between these requirements and the use of the requirement of a vote of the outstanding shares is limited to some of the most important decisions stockholders must make about their corporation, including the amendment of the corporation’s charter, mergers, dissolution and the sale of all or substantially all of the corporation’s assets. If the proponent means to dispense with the requirement that a majority of the outstanding shares must approve charter amendments, mergers, dissolutions and sales of all assets, then enactment of the proposal would mean that these very important protections provided to stockholders under Delaware law would be removed.

There are only three provisions in Citigroup’s governance documents that require super-majority votes, each of which, management believes, protect stockholders. In order to issue a series of preferred stock, to issue common stock or to declare dividends, Citigroup’s board must approve the action by the vote of at least 66 ²/3% of the board. Any change to this provision must be approved by a vote of 75% of the voting power of shares entitled to vote at an election of directors. Business combinations involving interested stockholders (generally, holders of 25% or more of Citigroup’s stock) must be approved in certain circumstances by 66 ²/3% of the voting power of shares entitled to vote at an election of directors (excluding the shares held by the interested stockholder). In addition, any change to that 66 ²/3% vote provision must be approved by 66 ²/3% of the shares entitled to vote at an election of directors (excluding the shares held by the interested stockholder). Citigroup’s board can amend the company’s by-laws only by a vote in favor by 66 ²/3% of the board. This provision can only be altered by 75% of the voting power of stockholders entitled to vote at an election of directors. As these provisions can afford protections to stockholders, the proposal is not in their best interests.

It is unclear whether the proposal is intended to require a majority vote in the election of directors as well. Under Delaware law, directors are elected by a plurality vote. By requesting a “simple majority vote” in all matters that stockholders vote on, the proposal could be seeking to increase the

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voting threshold for the election of directors. Majority voting for directors is unnecessary at Citigroup and is unworkable under Delaware law as well.

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.

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 stockholders. Therefore if an incumbent director did not receive a majority vote, he would, under Delaware law, hold office until he was either removed by stockholders 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.

In addition, it is important to note that Citigroup has adopted a series of corporate governance initiatives relevant to the points made in support of this proposal. Citigroup appointed the chair of its nomination and governance committee as lead director with formalized duties and powers stated in the by-laws. Citigroup’s non-management directors meet in executive session at every board meeting. Only outside members of the board participate in these executive sessions which are presided over by our lead director. At least two-thirds of Citigroup’s board members are “independent” under NYSE guidelines. The audit and risk management committee, the personnel and compensation committee, the nomination and governance committee, and the public affairs committee are each comprised solely of independent directors. Citigroup has also eliminated interlocking directorships between Citigroup executive officers and companies affiliated with Citigroup directors. The board conducts annual self-evaluations of its effectiveness and that of each of its committees.

Delaware law provides that in order to amend a company’s charter, agree to merge, dissolve the corporation or sell all or substantially all of its assets, stockholders must approve such actions by the vote of the majority of the outstanding shares, rather than a majority of the votes cast. The three super-majority vote requirements contained in Citigroup’s governance documents also protect stockholders. Majority voting for directors is unnecessary at Citigroup and unworkable under Delaware law. As removal of the protections provided by Delaware law or Citigroup’s charter would eliminate very important protections now enjoyed by Citigroup’s stockholders, Citigroup’s directors are elected by votes greatly in excess of a majority vote and majority voting is unworkable under Delaware law, this proposal is unnecessary and not in the best interests of stockholders.