AFL-CIO Goes After 6 Verizon Directors
Campaign Tests Shareholder Rights
By Tomoeh Murakami Tse, Staff Writer
Friday, April 20, 2007
NEW YORK, April 19 -- The AFL-CIO has launched a campaign to
unseat six members of Verizon Communications' compensation
committee, saying they rewarded chief executive Ivan G.
Seidenberg with generous pay even as the company's stock
The push to organize a "no" vote at Verizon's annual meeting May
3 is among the first efforts by activist shareholders to unseat
board members this year, and corporate governance experts say it
is a test case for how much influence shareholders could wield
in determining the composition of boards of directors at public
This year, more board members than ever before could be
vulnerable, not just because of public pressure over executive
pay but also because shareholders have pushed companies to
change how directors are elected. It is also the first year
companies are disclosing more information on how they compensate
top executives under new securities regulations.
"Directors are for the first time in memory having to earn their
place on the boards -- it's not just a gift," said Stephen M.
Davis, a fellow at Yale University's center for corporate
governance. "There's a potential for ouster."
Verizon spokesman Peter Thonis said Thursday that the company
had responded to "the desire of our shareholders last year and
adopted a majority vote standard which is in our bylaws."
"This year, we have every expectation that all of our directors
will receive an overwhelming majority of shareholder votes,"
A major proxy advisory firm recommended Thursday that the
shareholders support all nominees to the board.
The Verizon vote comes just weeks after shareholders of Toll
Brothers registered their dissatisfaction by withholding votes
for the director who chairs its compensation committee. The
luxury-home builder has yet to release vote tallies, but the
Laborers' International Union of North America, which led the
protest, said a quarter of shareholders withheld support.
Activist shareholders are also about to launch a campaign
against several directors of CVS/Caremark, according to sources
in the corporate governance community who spoke on the condition
of anonymity because the effort will not be made public until
next week. The targets, the sources said, are some of the
former members of the Caremark board. CVS and Caremark merged
last month and the board of the combined company is comprised of
designees from the two companies.
Caremark disclosed last year that it was under investigation for
possible backdating of stock options; the company later said
the options were granted properly. Caremark also came under
shareholder criticism for not considering a higher offer by a
One reason the vote at Verizon is being watched closely is that
the company is among those to agree that their directors will be
elected by a majority vote of shareholders, replacing a
plurality system long used by most U.S. companies.
In plurality elections, shareholders can only withhold votes
from directors, not vote against them. In theory, a
management-anointed nominee could win a seat even if she or he
received just one vote.
Activist shareholders in 2004 began filing proposals to require
companies to implement majority voting, which quickly won
support from investors. As of February, 28 percent of companies
in the Standard & Poor's 500-stock index had adopted majority
voting in director elections; 25 percent have changed rules to
require directors to offer their resignations if a majority of
votes are withheld, according to Claudia H. Allen, a partner at
Neal Gerber & Eisenberg in Chicago who studies majority voting.
The effort by the AFL-CIO to remove directors, however, was
dealt a blow Thursday when a major proxy advisory firm
recommended that Verizon shareholders support all nominees to
Institutional Shareholder Services of Rockville said Verizon
should "provide a more comprehensive framework around the design
of the short-term and long-term incentive programs," but that
voting against directors is not "warranted at this time." ISS
also said that Verizon's total shareholder returns outperformed
the S&P 500 over a three-year period and that Seidenberg's $21
million pay package for 2006 was not "excessively out of line
with the peer companies."
One of the AFL-CIO's chief complaints is that the company's
stock performance has lagged over five years even as its chief
executive took home millions of dollars. Verizon, in an e-mail
to employees last week, disputed the AFL-CIO's claims that
Seidenberg is overpaid and that the company's performance has
Yesterday, the AFL-CIO wrote a letter to the Securities and
Exchange Commission, requesting that it investigate whether the
e-mail was meant to sway shareholder employees and therefore
should have been filed with the agency. Thonis said it was not
a solicitation for votes. An official with the AFL-CIO said
union-sponsored pension funds hold about $283 million worth of
Verizon shares. The company has a market capitalization of $109
In addition to the campaign against the directors, Verizon faces
a resolution from shareholders who want to be allowed to cast
nonbinding votes on its corporate pay practices. That measure
is being pursued at dozens of companies this year and is the
subject of a House vote today.