The North Carolina state treasurer has implored Lexmark International to declassify its board, a move that would require all members of the company's board of directors to be voted on by stockholders annually.
The state treasurer represents the North Carolina Retirement System, which holds more than 166,000 shares of Lexmark stock. Its proposal, which Lexmark's board has urged stockholders to reject, will be voted on by stockholders as part of Lexmark's annual meeting next week. The always low-key affair will be held at 7:30 a.m. Thursday at the Embassy Suites, 1801 Newtown Pike.
In submitting its proposal, the state treasurer noted that "having directors stand for elections annually makes directors more accountable to shareholders and could thereby contribute to improving performance and increasing firm value."
The Lexmark proposal is one of 25 submitted to companies by the North Carolina officials who are working with the Harvard Law School Shareholder Rights Project, an initiative that pairs students with public pension funds to improve corporate governance.
Heather Strickland, director of communications for the North Carolina Department of Treasurer, said 14 of the 25 companies have already agreed to hold annual board elections.
"We expect that the declassification proposals going to a vote at Lexmark and 10 other companies will receive strong shareholder support," she said. "If that is the case, we hope to continue our dialogue with those companies regarding the declassification of their boards, which we believe would improve board effectiveness, accountability to shareholders and company valuation."
Lexmark's board has unanimously recommended that stockholders reject the proposal, saying in the company's proxy statement that the board is already accountable to stockholders and a classified board creates stability.
"Without a classified board structure, the replacement of all directors in a single year is possible, which could lead to a short-term disruption in the affairs of the company," the board wrote to shareholders.
The vote by the stockholders is advisory only, and the company would not be required to act.
It's the second time in recent years that the company's board has been at odds with a shareholder proposal.
In years past, stockholders approved a proposal that asked they be given the right to vote on the company's executive compensation practices annually. Shareholders approved the proposal in both 2008 and 2009 before the company's board agreed to implement it after the 2009 vote.
The vote is non-binding and merely reflects the stockholders' view of whether they approve of the company's executive compensation policies.
The company's proxy statement, issued in advance of the annual meeting, showed that the company's top leaders all saw their pay decrease in 2011 compared to 2010, when the executives received large non-stock incentive plan payouts.
Lexmark executive compensation in 2011
Position: CEO throughout 2011 and chairman since April 30
2011 salary: $800,000, up 30 percent from $615,539 in 2010.
Total: $5.02 million, down 16 percent from $6 million in 2010.
Note: Total compensation includes base salary, other incentive packages and stock-related awards.
John Gamble Jr.
Position: Chief financial officer
2011 salary: $541,539, up 9 percent from $496,904 in 2010.
Total: $1.88 million, down 42 percent from $3.21 million in 2010.
Position: Executive vice president overseeing the company's combined laser and inkjet divisions.
2011 salary: $495,769, up 7 percent from $461,250 in 2010.
Total: $1.87 million, down 40 percent from $3.12 million in 2010.
Position: Vice president of Asia Pacific and Latin America
2011 salary: $380,385, up 7 percent from $356,365 in 2010.
Total: $1.19 million, down 38 percent from $1.93 million in 2010.
Position: Vice president, general counsel and secretary
2011 salary: $363,462. Salary not required to be disclosed in 2010.
Total: $1.15 million. Total compensation not required to be disclosed in 2010.
Position: Executive chairman through April 2011, retired since that time.
2011 salary: $326,923, down 67 percent from $1,003,846 in 2010.
Total: $5.87 million, down 39 percent from $9.65 million in 2010.
Source: U.S. Securities and Exchange Commission filings