Eli Lilly 2005 Annual Report Download - page 92

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PROX Y S TATEM ENT
9090
• Our company’s takeover defenses included an “effective classified board,” which means that our company
combined a classified board election structure with certain other defensive elements in order to make hostile
takeovers (and potentially profitable takeovers) virtually impossible.
• Mr. Cook was designated a “problem director” because he chaired the director nominations committee at Dow
Chemical Company, which received a Board Composition grade of “F” by The Corporate Library.
• This was compounded by Mr. Cook being assigned to our audit and compensation committees.
A Single Yes-Vote from Our 1 Billion Shares Can Elect a Director for 3-Years. I believe our directors can be com-
placent under our present system. Our directors can be elected (and entrenched) with only one vote per director
from our 1 billion voting shares. This is under our current plurality voting.
Best for the Investor. Arthur Levitt, Chairman of the Securities and Exchange Commission, 1993-2001 said: “In
my view it’s best for the investor if the entire board is elected once a year. Without annual election of each director
shareholders have far less control over who represents them.” “Take On The Street” by Arthur Levitt.
Elect Each Director Annually
Yes on 5
Statement in Opposition to the Proposal Regarding Annual Election of Each Director
The board of directors believes that this proposal is not in the best interests of the company or its shareholders.
The company’s system for electing directors, with the board divided into three classes of directors serving stag-
gered three-year terms, was adopted by the company’s shareholders in 1985. The board believes this system
provides important benefits for the company:
• It enhances the board’s ability to negotiate the best results for the shareholders in a takeover situation. It
encourages potential acquirers to negotiate with the board since it could take more than one annual meeting
to effect a change in control of the board. Therefore, this structure can provide the board additional time to
evaluate the adequacy and fairness of any takeover proposal and to consider alternative methods of maximizing
shareholder value. It can also give the board greater leverage in negotiating a transaction that is optimal for the
shareholders and other stakeholders of the company.
• It promotes continuity and stability of the company’s business strategies. At all times a majority of directors
will have specific knowledge of the company’s business and strategy. This fosters an in-depth focus on long-
term strategy and other areas of oversight, as well as collaborative deliberations. Board continuity is especially
important for an innovation-based pharmaceutical company such as Lilly. The process of guiding a new medicine
from discovery to a marketed product typically requires many years and hundreds of millions of dollars, and the
risks of failure for any single compound are enormous. In this environment, a long-term focus is essential to
successfully planning and implementing corporate strategy.
The proponent suggests that the board is not sufficiently accountable to shareholders. On the contrary, the
board is fully accountable to shareholders and committed to increasing shareholder value. The board has insti-
tuted a comprehensive set of corporate governance guidelines that foster the independence, professionalism and
accountability of the directors. The guidelines are summarized on pages 67–70 of this proxy statement. Notably, in
December 2005 the board adopted a new policy on director voting requiring any director who receives a majority
of “withhold” votes to submit his or her resignation. This progressive policy further enhances board accountability
and keeps Lilly a leader in corporate governance.
The classified board serves the company and its shareholders well by fostering a strong, stable, independent
board of directors to guide the company in implementing its long-term strategy of growth through innovation.
Item 6. Shareholder Proposal Regarding Election of Directors by Majority Vote
The United Brotherhood of Carpenters Pension Fund, 101 Constitution Avenue, N.W., Washington, D.C. 20001,
beneficial owner of approximately 18,400 shares, has notified the company that it intends to present the following
proposal at the annual meeting.
The board recommends that you vote AGAINST this proposal.
Director Election Majority Vote Standard Proposal
Resolved: That the shareholders of Eli Lilly and Company (“Company”) hereby request that the Board of Directors