For Immediate Release
Wednesday, October 27, 2004
Public Pension Funds File Shareholder Resolution
Washington, DC —Two of the nation's largest and most influential public pension funds today announced they have jointly filed a shareholder proposal to give shareowners the right to nominate directors at Halliburton Company (NYSE: HAL).
The proposal calls for the use of the company proxy to nominate up to two directors by a group of shareowners on Halliburton's 11-member board. The proposal's sponsors are the American Federation of State, County, and Municipal Employees Pension Fund (AFSCME) and the Connecticut Retirement Plans and Trust Funds (CRPTF).
"The current situation at Halliburton represents the worst of corporate America: cooking the books, doing business with terrorist states and cutting deals of questionable legality with oppressive regimes around the world. The Halliburton board has failed to properly monitor the company, leading to a drop in the overall value of the company of more than $3 billion over five years. Proxy access would hold the board accountable and bring fresh board perspectives to help address these issues," said Gerald W. McEntee, chair of the AFSCME Employee Pension Fund.
McEntee added that shareholders will be hurt if Halliburton is convicted under the Foreign Corrupt Practices Act since government contracts make up a large portion of Halliburton's revenues, and a conviction would ban the company from bidding on federal contracts.
Investigations continue into charges that the company over-billed the Defense Department for activities in Iraq. The Department of Justice and the Securities and Exchange Commission are investigating alleged Nigerian bribes that may have violated the U.S. Foreign Corrupt Practices Act. A grand jury in Houston is investigating Halliburton's use of a Cayman Islands subsidiary to do business in Iran, which is a prohibited practice for U.S. companies.
Halliburton shareholders have seen a substantial decline in shareholder equity starting with the acquisition of Dresser Industries in 1998 for $7.7 billion, a company that was later found to have been saddled with enormous asbestos liability. Unfortunately for Halliburton shareholders, this fact was not disclosed until months after the merger was completed. Halliburton's stock closed at $46.50 the day the Dresser deal was announced; last December when Dresser filed for bankruptcy, Halliburton stock closed at $25.14 — a decline of nearly 46% over less than five years.
Earlier this year the SEC fined Halliburton $7.5 million for secretly changing its accounting procedures in 1998 with the help of its auditor, Arthur Andersen.
"With the company's reputation in shambles, proxy access is an appropriate shareholders tool. Sub-par Company performance coupled with ongoing reputation damages from company missteps make the case for shareholder input," McEntee said.
The ability for shareowners to nominate directors to corporate boards has been at the forefront of the corporate governance debate in recent months and sits before the SEC awaiting a final decision.
"The election of directors is one of the most powerful ways that shareholders can influence the strategic direction of a company," said Connecticut State Treasurer Denise L. Nappier. "We have seen too many board members at too many companies that have failed to adequately fulfill their responsibilities and have not been acting in the best interests of shareholders. Access to the company's proxy ballot is the best mechanism to change that."
Currently, shareowners are largely shut out of the system of nominating directors, with incumbent boards determining whom to nominate and shareowners left to ratify choices through their proxies. Even if shareowners wanted to bankroll their own proxy materials to advance director candidates, the expense puts the option out of reach.
The shareholder proposal filed at Halliburton is similar to one put forth by AFSCME and other public pension funds earlier this fall at Disney for the 2005 annual meeting, and last year at the Marsh & McLennan Companies, where an independent director put forth by shareholders was elected to the board following news of scandals at its Putnam subsidiary.
A copy of the shareholder proposal is attached.
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RESOLVED, that stockholders of Halliburton Company ("Halliburton") ask that Halliburton become subject to the stockholder right of access to the company proxy statement afforded in the SEC's proposed Rule 14a-11 (the "Rule"), which would (a) allow a stockholder or group that has held over 5% of Halliburton's outstanding common shares for over two years ("Nominating Stockholder") to nominate a specified number of candidates ("Nominees") who are independent from the Nominating Stockholder and Halliburton for election to Halliburton's board of directors and (b) require Halliburton to allow stockholders to vote for Nominees on Halliburton's proxy card and to make certain disclosures regarding Nominees in Halliburton's proxy statement.
In the case of Halliburton, the Rule would allow a Nominating Stockholder to nominate two Nominees, because Halliburton's board currently has 11 members. However, Halliburton's bylaws set the board size range from eight to 20 directors. In the event that Halliburton's board is expanded to 20 directors, the Rule would allow nomination of three Nominees.
SUPPORTING STATEMENT
Currently, the process for nominating and electing directors is a closed system, with incumbent boards determining whom to nominate and stockholders ratifying those choices. Although stockholders may use their own proxy materials to advance director candidacies, the expense and difficulty of doing so means that such challenges are rare outside of the hostile takeover context.
The SEC has proposed to provide stockholders with the opportunity to nominate director candidates using the company proxy statement under certain circumstances. One circumstance is when holders of a majority of shares voting approve a stockholder proposal asking that the company provide such stockholder access. The proponents of this proposal do not own 1% of Halliburton's stock, as required under the Rule to trigger access automatically. Thus, adoption of this proposal would not require Halliburton to include shareholder-nominated candidates.
We believe that Halliburton's corporate governance will benefit if stockholders are empowered to nominate director candidates and that now is an appropriate time to seek greater board accountability to stockholders. Halliburton is confronting several serious compliance challenges. Its Kellogg, Brown and Root subsidiary is facing charges that it overbilled the Defense Department in Iraq. The Department of Justice and the SEC are investigating whether payments to a consultant with ties to Nigerian officials from a Halliburton affiliate were bribes that violated the U.S. Foreign Corrupt Practices Act; a conviction under the FCPA would cause Halliburton to be barred from bidding on federal contracts. A grand jury in Houston is investigating Halliburton's use of a Cayman Islands subsidiary to do business in Iran, which U.S. companies are prohibited to do.
In addition to these problems, Halliburton's financial performance has been subpar. Halliburton's stock underperformed both the S&P 500 and an index of peer group companies over the five-year period ending on December 31, 2003, according to Halliburton's 2004 proxy statement. We believe a stockholder-nominated director would be valuable as Halliburton addresses all of these problems.
We urge stockholders to vote for this proposal.
