Eli Lilly 2008 Annual Report Download - page 121

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PROXY STATEMENT
119119
own special interests. The board, on the other hand, has fi duciary duties to consider and balance the interests of all
shareholders when considering bylaw provisions, and is better positioned to ensure that any bylaw amendments
are prudent and are designed to protect and maximize long-term value for all shareholders.
This proposal is not necessary to foster good governance or create growth in shareholder value.
The proponent suggests this proposal is necessary to foster good governance principles and make the directors
more accountable to the shareholders. On the contrary, the board has been for many years, and intends to remain,
a leader in corporate governance. The company has adopted comprehensive corporate governance principles,
consistent with best practices, that ensure the company remains fully transparent and accountable to sharehold-
ers. Further, the board has taken signifi cant steps to demonstrate its continuing commitment to good corporate
governance and accountability to shareholders:
• In this proxy statement, the board is seeking shareholder approval to provide for annual election of all directors
(see Item 3).
• The board adopted a majority voting standard for uncontested director elections beginning this year.
• The board allowed the company’s shareholder rights plan to expire in 2008.
The proponent also suggests that adopting this proposal will enhance company performance. We certainly agree
that strong corporate governance practices benefi t shareholders, but we do not believe that this proposal will
improve the company’s corporate governance or lead to better performance. In fact, a 2004 study by Lawrence D.
Brown and Marcus L. Caylor of Georgia State University1 found that companies that permit shareholders to amend
the bylaws performed no better or worse than those which reserve that power to the directors. This is consistent
with our view that adopting this proposal would not enhance our already strong corporate governance practices
and instead would expose minority shareholders to actions detrimental to their best interests.
The board recommends that you vote AGAINST this proposal.
Item 7. Shareholder Proposal on Shareholder Ratifi cation of Executive Compensation
Gretchen Parrish, 2820 Senour Road, Indianapolis, Indiana 46239, benefi cial owner of approximately 120 shares,
has submitted the following proposal:
RESOLVED, that shareholders of Eli Lilly and Company request the board of directors to adopt a policy that pro-
vides shareholders the opportunity at each annual shareholder meeting to vote on an advisory resolution, pro-
posed by management, to ratify the compensation of the named executive offi cers (“NEOs”) set forth in the proxy
statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material
factors provided to understand the SCT (but not the Compensation Discussion and Analysis). The proposal submit-
ted to shareholders should make clear that the vote is non-binding and would not affect any compensation paid or
awarded to any NEO.
Supporting Statement: Investors are increasingly concerned about mushrooming executive compensation espe-
cially when insuffi ciently linked to performance. In 2008, shareholders fi led close to 100 “Say on Pay” resolutions.
Votes on these resolutions have averaged 43% in favor, with ten votes over 50%, demonstrating strong shareholder
support for this reform.
An Advisory Vote establishes an annual referendum process for shareholders about senior executive com-
pensation. We believe the results of this vote would provide the board and management useful information about
shareholder views on the company’s senior executive compensation.
In its 2008 proxy Afl ac submitted an Advisory Vote resulting in a 93% vote in favor, indicating strong investor
support for good disclosure and a reasonable compensation package. Daniel Amos, Chairman and CEO said, “An
advisory vote on our compensation report is a helpful avenue for our shareholders to provide feedback on our pay-
for-performance compensation philosophy and pay package.”
To date eight other companies have also agreed to an Advisory Vote, including Verizon, MBIA, H&R Block,
Ingersoll Rand, Blockbuster, and Tech Data. TIAA-CREF, the country’s largest pension fund, has successfully uti-
lized the Advisory Vote twice.
1 Brown, L.D. and M.L. Caylor. 2004. The Correlation between Corporate Governance and Company Performance. Institutional Shareholder Services White Paper.