Eli Lilly 2009 Annual Report Download - page 155

provisions can provide benefits to the company. The provisions can make it more difficult for one or a few large
shareholders to take over or restructure the company without negotiating with the board. In the event of an
unsolicited bid to take over or restructure the company, the supermajority voting provisions encourage bidders to
negotiate with the board and increase the board’s negotiating leverage on behalf of the shareholders. They can
also give the board time to consider alternatives that might provide greater value for all shareholders.
The board also considered the potential adverse consequences of continuing to oppose elimination of the
supermajority voting requirements. While it is important to the company’s long-term success for the board to
maintain appropriate defenses against inadequate takeover bids, it is also important for the board to maintain
shareholder confidence by demonstrating that it is responsive and accountable to shareholders and committed to
strong corporate governance. This requires the board to carefully balance sometimes competing interests. In this
regard, the board gave considerable weight to the fact that for three consecutive years, a substantial majority of
shares voted have requested that the board take steps to eliminate the supermajority voting provisions. Many
shareholders believe that supermajority voting provisions impede accountability to shareholders and contribute
to board and management entrenchment. If the board were to continue to oppose eliminating the supermajority
vote, there is a risk that some shareholders would lose confidence in the company’s governance and its board,
which could threaten the company’s leadership stability and ability to carry out its long-term strategies for
growth and success.
The board also considered that even without the supermajority vote (and without the classified board, which
the board also recommends eliminating), the company has defenses that work together to discourage a would-
be acquirer from proceeding with a proposal that undervalues the company and to assist the board in responding
to such proposals. These defenses include other provisions of the company’s articles of incorporation and bylaws
(including the prohibition on shareholders calling special meetings as discussed in Item 5), as well as certain
provisions of Indiana corporation law.
Therefore, the board believes the balance of interests is best served by recommending to shareholders that
the articles of incorporation be amended to eliminate the supermajority voting provisions. By recommending
these amendments, the board is demonstrating its accountability and willingness to take steps that address
shareholder-expressed concerns.
Text of Amendments
Articles 9(c), 9(d), and 13 of the company’s amended articles of incorporation contain the provisions that will be
affected if this proposal is adopted. These articles, set forth in Appendix A to this proxy statement, show the
proposed changes with deletions indicated by strike-outs and additions indicated by underlining.
Vote Required
The affirmative vote of at least 80 percent of the outstanding common shares is needed to pass this proposal.
The board recommends that you vote FOR amending the company’s articles of incorporation to eliminate all
supermajority voting requirements.
Item 5. Shareholder Proposal on Allowing Shareholders to Call Special Meetings of Shareholders
RAM Trust Services, 45 Exchange Street, Portland, Maine 04101, on behalf of Dana Chatfield Jones, 1554 Campus
Drive, Berkeley, California 94708, beneficial owner of approximately 100 shares, has submitted the following
proposal:
Special Shareowner Meetings
RESOLVED, Shareowners ask our board to take the steps necessary to amend our bylaws and each appropriate
governing document to give holders of 10% of our outstanding common stock (or the lowest percentage allowed
by law above 10%) the power to call special shareowner meetings. This includes that such bylaw and/or charter
text will not have any exception or exclusion conditions (to the fullest extent permitted by state law) that apply
only to shareowners but not to management and/or the board.
Special meetings allow shareowners to vote on important matters, such as electing new directors, that can
arise between annual meetings. If shareowners cannot call special meetings investor returns may suffer.
Shareowners should have the ability to call a special meeting when a matter merits prompt attention. This
proposal does not impact our board in maintaining its current power to call a special meeting.
This proposal topic won more than 60% support the following companies in 2009: CVS Caremark (CVS),
Sprint Nextel (S), Safeway (SWY), Motorola (MOT) and R. R. Donnelley (RRD).
The merits of this Special Shareowner Meetings proposal should also be considered in the context of other
shareholder efforts to improve our company’s corporate governance. In 2009 the following outstanding
shareholder vote was achieved:
A 2009 shareowner proposal on the Simple Majority Vote topic won more than 63% support at our annual
meeting. This 63%-support also represented 51%-support from all shares outstanding. The Council of
Institutional Investors www.cii.org recommends that management adopt shareholder proposals upon receiving
their first majority vote (based on yes and no votes only).
57
PROXY STATEMENT