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In 1997, we objected when the French government, a major shareholder in Eramet (in which we also were an investor), planned to promote a sale of one of the company's mines at less than fair value for non-economic reasons. TIAA-CREF insisted that the mines belonged to shareholders in common, and we introduced a shareholder resolution that won support from Sociètè Gènèral, a leading French bank, and other investors. This initiative subsequently produced an agreement among all parties that led to significant positive corporate governance changes at Eramet, and increased share prices.
At Walt Disney, following the award of extraordinary pay packages to CEO Michael Eisner, we led the fight to increase board independence, a long process that now seems to be paying off with the addition of genuinely independent directors to a board that had been much too close to management. We went through a similar, initially frustrating and ultimately productive, exchange with the leadership of H.J. Heinz.
In 1999, we had important successes in efforts to get companies to roll back their dead hand poison pills. A number of companies have eliminated this pernicious provision, discussed below. TIAA-CREF shareholder resolutions on the issue at Bergen Brunswig and Lubrizol scored very substantial victories, winning the support of 74% of the shares voted at Bergen and 68% at Lubrizol.
Deal Hand Pills
TIAA-CREF has long considered the appropriate role shareholders should have in relation to mergers and acquisitions, particularly tender offers and takeover defenses. In particular, when shareholder rights plans (also know as 'poison pills') were introduced in the 1980s, TIAA-CREF mounted a shareholder resolution campaign asking that they be submitted to shareholder votes, a position we continue to advocate.
Poison pills permit shareholders other than a potential offeror certain rights to acquire new shares at extremely low prices. Such 'rights' can be redeemed by the board of directors if the board approves the acquisition; unless that occurs, the tender offer is not viable. Boards may implement pills unilaterally, without shareholder approval.
We do not necessarily disapprove of poison pills, which in some cases can lead to higher premiums for shareholders. On a number of occasions we have either voted for pills or given support to managements that have demonstrated concern for shareholders and respect for shareholder value. Generally, board independence is an important factor as to how we view the pill at particular companies. But pills can deny shareholders their basic right to sell shares at the highest price then available, and therefore shareholders should be given the prerogative to approve or disapprove the maintenance of a pill. Shareholder resolutions requesting a shareholder vote now receive average voting support in excess of 50%.
In 1999, we turned our attention to a type of poison pill that we find particularly objectionable. The 'dead hand' poison pill provides that only 'continuing directors' -essentially those directors on a board before a proxy fight, or their designated successors -may vote to redeem a poison pill.
Dead hand pills deny shareholders the right to replace the board with new directors empowered to redeem the pill. Our campaign was aided when the two Delaware courts ruled that dead hand pills are invalid as a matter of Delaware law, both on statutory and fiduciary grounds. Unfortunately, however, deal hand provisions remain in place at many non Delaware companies. Our challenge thus focused on non- Delaware companies. After the corporate community came to see the level of shareholder support for our resolution, a sea change of attitudes took place and virtually all companies abandoned the dead hand feature.