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Wachovia 2006
SUPPORTING STATEMENT
We believe the election of directors is the most powerful way shareholders influence the strategic direction of our Company. Currently, the board is divided into three classes and each class serves staggered three-year terms. Because of this structure, shareholders may only vote on roughly one third of the directors each year. In our opinion, the classified structure of the board is not in shareholders’ best interest because it reduces accountability to shareholders. Annual election of directors gives shareholders the power to completely replace their board, or replace a majority of directors, if a situation arises warranting such drastic action. We do not believe destaggering the board will destabilize our Company or affect the continuity of director service. Our directors, as well as the directors of the majority of other public companies, are routinely elected with over 90% shareholder approval. A 2004 Harvard study by Lucian Bebchuk and Alma Cohen found that staggered boards are associated with a lower firm value (as measured by Tobin’s Q) and found some evidence that staggered boards may bring about, and not merely reflect, a lower firm value. A 2002 Harvard study by Bebchuk, John Coates, and Guhan Subramanian provides evidence that classified boards harm shareholders. The study, which included all hostile bids from 1996 through 2000, found that an “effective staggered board”—one that cannot be dismantled by a hostile bidder without first winning control of the board--doubles the odds that a target company will remain independent, without providing any countervailing benefit such as a higher acquisition premium. The study estimated that effective staggered boards cost target shareholders $8.3 billion during that period. The classification of Wachovia’s board is effected in its Articles of Incorporation, an amendment to which can not be initiated by shareholders under the law of North Carolina, where Wachovia is incorporated. Accordingly, we urge Wachovia’s board to approve amendments to the Articles necessary to declassify the board and submit those changes for shareholder approval, with the board’s recommendation in favor of the amendments, at the 2007 annual meeting of shareholders. A growing number of shareholders appear to agree with our concerns. Last year shareholder proposals seeking board declassification at 42 companies were supported by an average of 61 percent of shares voted. At the same time and in response to previous majority votes, management placed 49 declassification proposals to shareholder vote in 2005 (source: Institutional Shareholder Services).
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Sheila Hill
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