Baker Hughes 2009 Annual Report Download - page 57

2009 Proxy Statement 47
PROPOSAL NO. 4,
STOCKHOLDER PROPOSAL NO. 1 REGARDING
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 4,728 shares of the Company’s
Common Stock, and is included in this Proxy Statement in com-
pliance 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 Incorpo-
rated (“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 affirma-
tive vote of the majority of votes cast at an annual meeting of
shareholders, with a plurality vote standard retained for con-
tested director elections, that is, when the number of director
nominees exceeds the number of board seats.
Supporting Statement: In order to provide shareholders
a meaningful role in director elections, the Company’s director
election vote standard should be changed to a majority vote
standard. A majority vote standard would require that a nomi-
nee receive a majority of the votes cast in order to be elected.
The standard is particularly well-suited for the vast majority of
director elections in which only board nominated candidates
are on the ballot. We believe that a majority vote standard in
board elections would establish a challenging vote standard
for board nominees and improve the performance of individual
directors and entire boards. Baker Hughes presently uses a
plurality vote standard in all director elections. Under the plu-
rality vote standard, a 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.
In response to strong shareholder support for a majority
vote standard in director elections, a strong majority of the
nation’s leading companies, including Intel, General Electric,
Motorola, Hewlett-Packard, Morgan Stanley, Wal-Mart, Home
Depot, Gannett, Marathon Oil, and Safeway have adopted a
majority vote standard in company bylaws or articles of incor-
poration. Additionally, these companies have adopted director
resignation policies in their bylaws or corporate governance
policies to address post-election issues related to the status
of director nominees that fail to win election. 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 nom-
inees that receive more “withhold” votes than “for” votes.
The plurality vote standard remains in place.
We believe that a post-election director resignation policy
without a majority vote standard in Company bylaws or articles
is an inadequate reform. The critical first step in establishing a
meaningful majority vote policy is the adoption of a majority
vote standard. With a majority vote standard in place, the
Board can then consider action on developing post-election
procedures to address the status of directors that fail to win
election. A majority vote standard combined with a post-
election director resignation policy would establish a meaning-
ful right for shareholders to elect directors, and reserve for
the Board an important post-election role in determining the
continued status of an unelected director. We feel that this
combination of the majority vote standard with a post-election
policy represents a true majority vote standard.
Recommendation of the Board of Directors
The Board of Directors recommends a vote AGAINST the
approval of Stockholder Proposal No. 1 regarding a Director
election majority vote standard for these reasons:
Opposition Statement of the Company: The Board of
Directors believes that adherence to sound corporate gover-
nance policies and practices is key to ensuring that the Com-
pany is governed and managed with the highest standards of
responsibility, ethics and integrity and in the best interests of
its stockholders.
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
http://www.BakerHughes.com/Investor. Under the Director
Resignation Policy any director nominee who receives a greater
number of votes “withheld” than votes “for” such election
shall submit his or her offer of resignation. The Governance
Committee will then consider all of the relevant facts and cir-
cumstances 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
stockholders to express their preferences regarding director
nominees, the Director Resignation Policy already accomplishes
the primary objective of the proposal at issue, and therefore
the adoption of a majority vote standard is unnecessary. In
addition, stockholders of other public companies have rejected
similar stockholder proposals when those companies followed
a policy similar to the Baker Hughes Director Resignation Policy.
The stockholder proposal’s characterization of our plural-
ity voting standard, particularly the statement that a director
could be elected with a single vote, is misleading as well as
highly unrealistic. As an example, in the past 10 years, the