By Shira Ovide and Joann S. Lublin
Microsoft Corp. made it easier for shareholders to nominate
their own candidates to the company's board, joining a growing
cadre of corporations giving stockholders more influence over
director elections.
The company's board put in place a so-called proxy-access
measure that lets Microsoft shareholders put their preferred board
nominees--even if the company disagrees--directly on corporate
ballots distributed before annual shareholder meetings.
In principle, the change gives owners of Microsoft stock more
influence over the board's composition, and consequently the
company's strategy, by giving them a more direct path to installing
sympathetic directors.
With the policy change, Microsoft joins a wave of companies
making changes in governance that are considered more favorable to
investors. General Electric Co. and Verizon Communications Inc. are
among the other large companies that have adopted proxy-access
measures.
About 5% of companies in the S&P 500 index have adopted or
are committed to proxy access, estimated Institutional Shareholder
Services, which advises stockholders how to vote in corporate
elections. Giving investors keys to the boardroom has proved
popular at annual meetings so far this year. More than 58% of 84
proxy-access resolutions have won majority support, ISS said
earlier this week.
The rise of proxy access comes at a time when activist investors
are gaining influence in corporate boardrooms.
Nearly two years ago, Microsoft gave a board seat to a
representative of ValueAct Capital Management LP, which is among
the institutional stockholders that seek changes in strategy or
financial management at companies in which they invest.
In the change to Microsoft's bylaws, effective Friday, a
stockholder or a group of up to 20 shareholders must own at least
3% of Microsoft's shares for at least three years to be able to
nominate a director.
Microsoft's board last year opposed a proposal to institute
proxy access by one of the company's smaller shareholders.
Shareholders also submitted proxy-access proposals for a potential
vote at Microsoft's annual stockholder meeting late this year,
according to a blog post Friday by John Seethoff, a Microsoft
deputy general counsel.
A person familiar with Microsoft's position said the company's
opposition to proxy access last year was based on the particular
elements of that proposal. That measure called for shareholders to
be able to nominate their own director candidates for up to 40% of
the board positions each year. Microsoft's new rules let
shareholders nominate candidates for either two positions or up to
20% of available positions, whichever number is larger.
That unusual feature assures shareholders a chance to win at
least two Microsoft board spots irrespective of the board's
size.
Microsoft is the first U.S. company "to have a two-person
minimum" in its proxy-access policy, said Ronald O. Mueller, a
partner at corporate law firm Gibson, Dunn & Crutcher LLP.
Investors favor the provision because "it's helpful to have more
than one person" on a board representing them, he added. Activists'
proxy fights often involve multiple directorships.
Earlier this week, a powerful group of pension funds recommended
the two-person minimum for proxy access nominees in a checklist of
seven "best practices." The Council of Institutional Investors said
letting shareholders nominate at least two candidates increases the
chances for "an independent perspective into board decisions." The
council represents 118 pension funds and endowments that manage
more than $3 trillion in assets.
Microsoft officials had discussions with investors representing
about one third of its shares outstanding before the board decided
on the new proxy-access measures, said the person familiar with the
company's position.
Among the investors consulted was James McRitchie, sponsor of a
2015 proxy access proposal. In an interview, the activist investor
said he agreed to withdraw his resolution after talks with several
Microsoft attorneys. But Mr. McRitchie, who runs the corporate
governance website CorpGov.net, believes Microsoft didn't go far
enough. "We believe shareholders should not ultimately settle for
lite. We intend to file additional proposals in the future to make
proxy access at Microsoft more robust," he added in an email. His
wife Myra Young sponsored last year's proxy access proposal at
Microsoft.
Write to Shira Ovide at shira.ovide@wsj.com and Joann S. Lublin
at joann.lublin@wsj.com
Access Investor Kit for "Microsoft Corporation"
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US5949181045
Subscribe to WSJ: http://online.wsj.com?mod=djnwires