Dell Dodges Some Governance Bullets

Michael Dell

At Dell’s annual meeting last Friday, the board successfully argued against two shareholder proposals, which addressed significant governance issues that arose after last year’s large settlement with the SEC over accounting fraud charges.

One would have required an independent chairman, ousting CEO and founder Michael Dell from the position. The other would have allowed shareholder action by written consent outside of a shareholders’ meeting. Although the measures failed, the number of votes in favour reminded Dell that it is far from out of the governance woods with its shareholders.

The proposal for an independent chairman was put forward by the AFSCME pension plan and the UAW Retiree Medical Benefits Trust. As AFSCME representative Lisa Lindsley said during the meeting, the $100 mn settlement with the SEC and Michael Dell’s personal $4 mn penalty ‘raised serious questions about our board’s leadership’. She also noted that at last year’s annual meeting, 25 per cent of stockholders voted against Michael Dell’s reelection to the board.

The board argued in the proxy that the combined CEO/chairman role results in unified leadership, stability and consistency, and avoids inefficient duplication of effort. Furthermore, Michael Dell could ‘share his unique, in-depth knowledge of the company and its competitive challenges with the board’ and his ‘significant stockholdings in the company provide unparalleled alignment with the interests of his fellow stockholders.’

The position seemed logically flawed: there should be no duplication of effort between the CEO and chairman in a properly run organisation; consistency prevents the contrast of views that can lead to better oversight. Having a separate CEO and chairman potentially adds stability, as the incapacity of one person doesn’t empty both roles.

No doubt Michael Dell has an interest in seeing Dell the company do well, and he clearly has deep knowledge of the organisation. Then again, any strong CEO would offer insight and, presumably, have enough stock and options to align interests with other shareholders.

The independent chairman proposal did carry 28 per cent of the votes – even higher a percentage than the votes against Michael Dell’s reelection last year.

The second shareholder proposal only heightened the governance sensitivity. Put forward by an individual, it called for the ability of stockholders to vote on measures outside a shareholder meeting, including ‘issues that our board is not in favour of’. The proposal carried 33 per cent of the votes, compared with a third shareholder proposal for a declaration of dividends, which received only 2 per cent. But 68 per cent were in favour of a board-sponsored annual say-on-pay vote.

[Article by Erik Sherman, IR magazine]

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