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3M 2006RESOLVED, that the stockholders of 3M Company (“3M”) urge the board of directors to take the necessary steps (excluding those steps that must be taken by stockholders) to eliminate the classification of 3M’s board and to require that all directors stand for election annually. The board declassification should be completed in a manner that does not affect the unexpired terms of directors.
SUPPORTING STATEMENTWe believe the election of directors is the most powerful way stockholders influence the strategic direction of 3M. Currently, the board is divided into three classes and each class serves staggered three-year terms. Because of this structure, stockholders may only vote on roughly one third of the directors each year. In our opinion, the classified structure of the board is not in stockholders’ best interest because it reduces accountability to stockholders. Annual election of directors gives stockholders 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 3M 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% stockholder 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 evidence that staggered boards may bring about, not merely reflect, that lower value. A 2002 study by Professor Bebchuk and two colleagues provides evidence that classified boards harm stockholders. The study, which included all hostile bids from 1996 through 2000, found that an “effective staggered board”—a classified board plus provisions that disable stockholders from changing control of the board in a single election despite the classification--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 like the one 3M has cost target stockholders $8.3 billion during that period. The classification of 3M’s board is effected in its Certificate of Incorporation. Stockholders cannot unilaterally amend the Certificate; rather, the board must recommend such an amendment and seek stockholder approval for it. Accordingly, we urge 3M’s board to approve amendments to the Certificate necessary to declassify the board and submit those changes for stockholder approval, with the board’s recommendation in favor of the amendments, at the 2007 annual meeting of stockholders. A growing number of stockholders appear to agree with our concerns. Last year stockholder proposals seeking board declassification at 42 companies were supported by an average of 61 percent of shares voted. At the same time, management submitted 49 declassification proposals to stockholder vote in 2005 (source: Institutional Shareholder Services).
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Sheila Hill
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