Proxy Advisors Support CalSTRS, CalPERS Resolutions Filed with Brocade Communications
The nation’s leading proxy advisors recommend passage of proposals against bylaws amendments and current board election practices.
Sacramento, CA – Leading proxy advisors, RiskMetrics Group, Glass Lewis & Co, and Egan-Jones Proxy Services, recommend Brocade Communications’ shareholders support resolutions by California’s two largest pensions. The proposals seek to remove the company’s supermajority vote requirement and to allow directors to be elected annually.
Proposal #6, filed by the California Public Employee’s Retirement System (CalPERS), seeks to remove Brocade Communications’ two-thirds supermajority vote requirements to change the company’s bylaws. Proposal #7, filed by the California State Teachers’ Retirement System (CalSTRS), seeks to combine three classes of directors elected once every three years into one class that is elected annually. Both proposals will be voted on at the company’s April 15, 2009 annual meeting at its headquarters in San José, CA.
The pension funds contend that both nonbinding resolutions are related since Brocade’s 67 percent supermajority vote threshold makes it extremely difficult to change the election process necessary to ensure a more responsive board of directors.
Of Proposal #6, which seeks to remove the supermajority requirement, RiskMetrics said: “Requiring a higher voting threshold could permit management to entrench itself by blocking amendments that are in shareholders’ best interests.”
“When abstentions and broker non-votes are considered, such a supermajority vote can be almost impossible to obtain,” said Egan-Jones in its analysis of Proposal #6, which also is supported by Proxy Governance, a fourth leading U.S. proxy advisor.
In the analysis of Proposal #7, which seeks to combine three classes of directors into one, RiskMetrics said: “Managements have argued staggered boards provide continuity and stability but empirical evidence has suggested that such a structure is not in the shareholders’ best interests from a financial perspective.”
As a deterrent to takeover bids, companies with staggered boards, “tend to reduce shareholder returns for targets…on the order of 8 percent to 10 percent in the nine months after a hostile bid was announced,” according to the Glass Lewis analysis.
CalSTRS, which owns approximately two million shares of the company, has a $114 billion portfolio and is the second-largest public pension fund in the United States. It administers retirement, disability and survivor benefits for California’s 833,000 public school educators and their families from the state’s 1,400 school districts, county offices of education and community college districts.
CalPERS, which is the nation’s largest public pension fund with approximately $174 billion in market assets owns approximately 974,000 Brocade shares. It provides retirement benefits to more than 1.6 million State, school, and local public employees, retirees and their families, and health benefits to nearly 1.3 million members.