Contact: John Harrington – 707.252.6166
FOR IMMEDIATE RELEASE
August 26, 2005
Napa, California
Protect the Shareholders, Not the Directors
Harrington Investments asks that the shareholders of Starbucks and Scotts be allowed to vote on whether all Directors should be elected annually.
Harrington Investments, Inc. (HII), a Napa, California-based socially responsible investment advisory firm, filed shareholder resolutions with Starbucks Corporation and The Scotts Miracle-Grow Company requesting that the companies' Board of Directors "declassify" the board, allowing shareholders to annually elect all directors.
"Starbucks and Scotts' directors should not be protected by having only one-third of the directors elected every year," said John Harrington, president and CEO of HII. "Shareholders, the legal owners of these companies, can't nominate directors and can't vote against self-nominated directors. Why should directors receive the additional cover of only having to stand for election once every three years?"
At present, the directors of both companies are divided into three "classes." These classes are elected for three year staggered terms, each class of directors being elected at a separate election. This system of electing directors is meant to discourage hostile takeovers by making it impossible to completely remove a board in a single election. Eliminating classes would mean all directors are elected annually.
HII believes that classifying directors prevents their performance from being fully accountable to shareholders. The annual election of every director would restore this accountability and return the right of shareholders to protect their interests.
Classified, or staggered, boards can also affect the value of a company. A Harvard Law School study examined the association between staggered boards and the market value of companies during 1995-2002. The resulting paper, entitled "The Cost of Entrenched Boards," found the "reduction in firm value associated with staggered boards is economically meaningful." So a staggered board not only makes the board less accountable to shareholders, it can also significantly lower a company's value.
Harrington concluded by saying, "Recently, shareholder resolutions requesting the repeal of takeover defense measures such as staggered boards have averaged the highest percentage of anti-management votes at corporate annual meetings. A similar proposal, supported by HII, asking that all directors be elected annually, was proposed by the New York City Pension Funds at Charles Schwab Corporation this year and received 58% of the shareholder vote."
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