Baker Hughes 2010 Annual Report Download - page 52

40 B a k e r H u g h e s I n c o r p o r a t e d
PROPOSAL NO. 6
STOCKHOLDER PROPOSAL
MAJORITY VOTE STANDARD FOR DIRECTOR ELECTIONS
The following proposal was submitted to Baker Hughes
by the United Brotherhood of Carpenters Pension Fund (with
an address of 101 Constitution Avenue, N.W., Washington
D.C. 20001) who is the owner of 6,531 shares of the Com-
pany’s Common Stock, and is included in this Proxy Statement
in compliance with SEC rules and regulations. The proposed
resolution and supporting statement, for which the Board of
Directors and the Company accept no responsibility, are set
forth below.
Director Election Majority Vote Standard Proposal
Resolved: That the shareholders of Baker Hughes Corpo-
ration (“Company”) hereby request that the Board of Directors
initiate the appropriate process to amend the Company’s gov-
ernance documents (certificate of incorporation or bylaws)
to provide that director nominees shall be elected by the affir-
mative vote of the majority of votes cast at an annual meeting
of shareholders, with a plurality vote standard retained for
contested director elections, that is, when the number of
director nominees exceeds the number of board seats.
Supporting Statement: Baker Hughes’ Board of Directors
should establish a majority vote standard in director elections
in order to provide shareholders a meaningful role in these
important elections. The proposed majority vote standard
requires that a director nominee receive a majority of the votes
cast in an election in order to be formally elected. Under the
Company’s current plurality standard, a board nominee for the
board can be elected with as little as a single affirmative vote,
even if a substantial majority of the votes cast are “withheld”
from the nominee. We believe that a majority vote standard
in board elections establishes a challenging vote standard for
board nominees, enhances board accountability, and improves
the performance of boards and individual directors.
Over the past five years, a significant majority of companies
in the S&P 500 Index has adopted a majority vote standard in
company bylaws, articles of incorporation, or charter. These
companies have also adopted a director resignation policy that
establishes a board-centered post-election process to determine
the status of any director nominee that is not elected. This
dramatic move to a majority vote standard is in direct response
to strong shareholder demand for a meaningful role in director
elections. However, Baker Hughes has responded only partially
to the call for change, simply adopting a post-election director
resignation policy that sets procedures for addressing the status
of director nominees that receive more “withhold” votes than
“for” votes. The plurality vote standard remains in place.
Baker Hughes’ Board of Directors has not acted to establish
a majority vote standard, retaining its plurality vote standard,
despite the fact that many of the self-identified peer compa-
nies including Anadarko Petroleum Corporation, Apache
Corporation, Halliburton Corporation, National Oilwell Varco,
Inc., Schlumberger Limited, and Smith International, Inc. have
adopted majority voting. The Board should take this critical
first step in establishing a meaningful majority vote standard.
With a majority vote standard in place, the Board can then act
to refashion its director resignation policy to address the status
of unelected directors. A majority vote standard combined
with a post-election director resignation policy would estab-
lish a meaningful right for shareholders to elect directors at
Baker Hughes, while reserving for the Board an important
post-election role in determining the continued status of an
unelected director. We urge the Board to join the mainstream
of major U.S. companies and establish a majority vote standard.
Recommendation of the Board of Directors
The Board of Directors recommends a vote AGAINST the
approval of the stockholder proposal regarding a direc-
tor election majority vote standard for these reasons:
Opposition Statement of the Company: The Board of
Directors is committed to strong corporate governance and it
is its fiduciary duty to act in the best interests of the Company’s
stockholders. The Board has consistently and continuously
demonstrated its commitment to good governance, including
the adoption of the Director Resignation Policy described
below and taking the action necessary to declassify the Board.
The proposal at issue would not further enhance the ability
of stockholders to impact the outcome of director elections.
In addition, our stockholders decided against this proposal at
the 2010 Annual Meeting. This same proposal received 37%
support at the 2010 Annual Meeting while 55% of the votes
cast were against the proposal and 8% either abstained or
were broker non-votes.
Baker Hughes is incorporated under the laws of Delaware,
and stockholders currently elect its directors by plurality voting.
Plurality voting is the normal standard under Delaware law and
has long been the accepted standard among most public com-
panies. Consequently, the rules governing plurality voting are
well established and understood.
The Board is proactive in ensuring that it remains familiar
with corporate governance developments including those
pertaining to majority voting in the election of directors. As a
result, the Board has already addressed the concerns expressed
in the proposal at issue. In particular, during 2005 the Board
adopted a policy (Director Resignation Policy) which is set
forth in the Company’s Corporate Governance Guidelines at
www.bakerhughes.com/investor. Under the Director Resigna-
tion Policy any director nominee who receives a greater num-
ber of votes “withheld” than votes “for” such election shall
submit his or her offer of resignation. The Governance Com-
mittee will then consider all of the relevant facts and circum-
stances and recommend to the Board the action to be taken
with respect to such offer of resignation. The Board has also
amended the Company’s Bylaws to incorporate this policy.
We believe that this existing Director Resignation Policy
provides stockholders with a meaningful and significant voice
in the election of directors, while preserving the Board’s ability
to exercise its independent judgment in a way that best serves
the interests of both the Company and the stockholders. It
provides for a detailed case-by-case analysis. By allowing stock-
holders to express their preferences regarding director nominees,
the Director Resignation Policy already accomplishes the primary