Citigroup 2006

     RESOLVED, that stockholders of Citigroup, Inc. (“Citigroup”) urge the board of directors (the “Board”) to amend the bylaws to provide procedures for the reimbursement of the reasonable expenses, including but not limited to legal, advertising, solicitation, printing and mailing costs (collectively, “Expenses”), incurred by a stockholder or group of stockholders (in each case, a “Nominator”) in a contested election of directors, provided that:

  1. the election of fewer than 50% of the directors to be elected is contested;
  2. the amount of the reimbursement shall not exceed the amount determined by the following formula: (i) if any candidate nominated by the Nominator is elected to the Board, 100% of the Nominator’s Expenses shall be reimbursed; (ii) if no such candidate is elected, the Reimbursable Percentage shall be determined by (A) dividing the highest number of votes received by an unelected candidate nominated by the Nominator by the lowest number of votes received by an elected candidate, and (B) multiplying the Reimbursable Percentage by the Expenses; provided, however, that if the Reimbursable Percentage is less than 30%, no Expenses shall be reimbursed.
  3. the bylaw shall not apply if stockholders are permitted to cumulate their votes for directors; and
  4. the bylaw shall apply only to contested elections commenced after the bylaw’s adoption.

 

SUPPORTING STATEMENT

 

     In our opinion, the power of stockholders to elect directors is the most important mechanism for ensuring that corporations are managed in stockholders’ interests.  Under the law of Delaware, where Citigroup is incorporated, this power is supposed to act as a safety valve that justifies giving the board substantial discretion to manage the corporation’s business and affairs. 

     The safety valve is ineffective, however, unless there is a meaningful threat of director replacement.  We do not believe such a threat currently exists at most U.S. public companies, including Citigroup.  Harvard Law School professor Lucian Bebchuk has estimated that there were only about 80 contested elections at U.S. public companies from 1996 through 2002 that did not seek to change control of the corporation.

     The unavailability of reimbursement for director election campaign expenses for so-called “short slates”—slates of director candidates that would not comprise a majority of the board, if elected—contributes to the scarcity of such contests.  (Because the board approves payment of such expenses, as a practical matter they are reimbursed only when a majority of directors have been elected in a contest.)  This proposal would provide reimbursement for reasonable expenses incurred in successful short slate efforts--but not contests aimed at ousting a majority or more of the board—with success defined as the election of at least one member of the short slate.  The proposal would also provide proportional reimbursement for contests in which no short slate candidates were elected, but only if the most successful short slate candidate received at least 30% of the vote received by the elected director with the lowest number of “for” votes.

     We urge stockholders to vote for this proposal.