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Stockholder engagement

Dialogue with HP investors

 

Fiscal 2018 Engagement

In fiscal 2018, we conducted two outreach programs: the first in early 2018, as part of our annual investor outreach cycle, and the second in September and October 2018, as part of our outreach regarding our governance profile and the 2018 written consent proposal, described below. Through these two programs, we met or spoke with institutional investors representing more than 50% of our outstanding stock during fiscal 2018 as well as with proxy advisor firms.

Outreach on Written Consent

HP values input from stockholders throughout the year. We currently afford stockholders the opportunity to act between annual meetings through the combination of a special meeting right as well as a robust stockholder outreach program that demonstrates our openness to direct stockholder engagement. At our 2018 Annual Meeting, holders of 37.5% of our outstanding shares expressed support for an advisory proposal to provide stockholders with the ability to act by written consent without a meeting of stockholders. Of the votes cast, 50.4% supported the proposal while 49.2% voted against it, with 0.3% abstaining.

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During these interactions, we discussed HP’s record of strong governance practices and responsiveness to stockholder concerns. We specifically focused on the 2018 written consent proposal with our stockholders, explaining the Board’s reasons for opposing the proposal and asking the stockholders to provide their perspectives on the rationale underlying their particular vote decisions and on potential next steps for HP. Our stockholders were pleased to be consulted and overall expressed their appreciation of our current corporate governance profile, long record of engagement with and responsiveness to stockholders, commitment to transparency, and openness to addressing stockholders’ desires through a more accessible opportunity to act between annual meetings. Not one of the stockholders with whom we spoke raised any concerns or issues with the approach we took with respect to seeking additional feedback and conducting further engagement rather than unilaterally acting without the benefit of such additional outreach.

Stockholder Outreach 

We believe that effective corporate governance should include regular, constructive conversations with our stockholders. Over the past year, the Board has continued to engage with stockholders, including seeking and encouraging feedback from stockholders about our corporate governance practices by conducting stockholder outreach and engagement throughout the year. Our annual corporate governance investor outreach cycle, in which the Chair of the Board, Chair of the HRC and other Directors typically participate, is outlined below.

Our Investor Outreach Calendar

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  • Event attended by member(s) of the HP Board.

In fiscal 2018, we conducted two outreach programs: the first in early 2018, as part of our annual investor outreach cycle, and the second in September and October 2018, as part of our outreach regarding our governance profile and the 2018 written consent proposal, described below. Through these two programs, we met or spoke with institutional investors representing more than 50% of our outstanding stock during fiscal 2018 as well as with proxy advisor firms.

Response to 2018 Written Consent Proposal

HP values input from stockholders throughout the year. We currently afford stockholders the opportunity to act between annual meetings through the combination of a special meeting right as well as a robust stockholder outreach program that demonstrates our openness to direct stockholder engagement. At our 2018 Annual Meeting, holders of 37.5% of our outstanding shares expressed support for an advisory proposal to provide stockholders with the ability to act by written consent without a meeting of stockholders. Of the votes cast, 50.4% supported the proposal while 49.2% voted against it, with 0.3% abstaining.

In 2018, the Board recommended voting against this proposal for the following key reasons:

  • HP’s commitment to good corporate governance;
  • the existing right of HP stockholders to call a special meeting of stockholders; and
  • the Board’s belief that the proposal would circumvent the protections, procedural safeguards and advantages provided to all stockholders by stockholder meetings.

The Board remains concerned about the disruptive effect a stockholder written consent solicitation could have on the Board’s and stockholders’ ability to thoroughly consider significant corporate actions and possible alternatives. The Board also is mindful of the closeness of the written consent proposal vote at the 2018 Annual Meeting and the significant lack of consensus reflected in the vote, as well as the importance of respecting the perspectives expressed by all stockholders. The Board determined that, in light of these and other concerns raised regarding written consent, the appropriate approach would be to conduct further engagement with our stockholders to better understand the vote results and incorporate stockholder feedback into any actions we might take.

We view our relationships with stockholders and other stakeholders as fundamental to good corporate governance practices, and we have a strong record of stockholder engagement and responsiveness to stockholder concerns. We believe that effective corporate governance should include regular, constructive conversations with our stockholders. The Board and management have continued to seek out and encourage feedback from stockholders about our corporate governance practices by conducting annual stockholder outreach and engagement in January 2019. In addition, consistent with our commitment to soliciting and considering feedback from stockholders, during September and October 2018, and again in January 2019, we solicited specific feedback from our stockholders related to the written consent proposal to better understand how stockholders think about responsiveness in light of the closeness of the vote for the proposal. We also sought to assess from stockholders whether support for the proposal in fact represents a desire for written consent or was intended to convey other preferences or priorities (for example, a view that our original 25% threshold for calling a special meeting was higher than that particular stockholder preferred).

On this particular issue, HP representatives engaged with our 75 largest stockholders in September and October of 2018 and again in January of 2019, representing over 68% of our outstanding shares as of September 2018. We received feedback from stockholders that represented over 50% of our outstanding shares. Of those that provided feedback, approximately 60% (representing almost 30% of our outstanding shares at the time) voted against the proposal and almost 40% (representing over 20% of our outstanding shares at the time) voted for the proposal. Senior management and three members of the Board, including the Chair of the Board and the Chair of the HRC and a member of the NGSRC, then invited our top 20 stockholders, representing an aggregate of over 46% of our outstanding shares at the time, to engage in further discussions during our annual stockholder outreach program in January 2019.

During these interactions, we discussed HP’s record of strong governance practices and responsiveness to stockholder concerns. We specifically focused on the 2018 written consent proposal with our stockholders, explaining the Board’s reasons for opposing the proposal and asking the stockholders to provide their perspectives on the rationale underlying their particular vote decisions and on potential next steps for HP. Our stockholders were pleased to be consulted and overall expressed their appreciation of our current corporate governance profile, long record of engagement with and responsiveness to stockholders, commitment to transparency, and openness to addressing stockholders’ desires through a more accessible opportunity to act between annual meetings. Not one of the stockholders with whom we spoke raised any concerns or issues with the approach we took with respect to seeking additional feedback and conducting further engagement rather than unilaterally acting without the benefit of such additional outreach.

We heard the following key perspectives from our stockholders. First, a large majority of the stockholders we consulted prefer the right to call a special meeting over the right to act by written consent, expressing the views that the former is more protective of stockholders, accessible and inclusive, among other reasons. Nearly 76% of the stockholders we conversed with during our engagement (representing over 38% of our outstanding shares at the time) preferred that we consider lowering our special meeting threshold instead of implementing written consent. Many of those with whom we spoke volunteered that they had voted against the written consent proposal specifically because HP already afforded stockholders the right to call a special meeting. Many of these stockholders further noted they prefer the right to call a special meeting over the right to act by written consent because, while both provide stockholders an avenue to be heard outside the annual meeting cycle, special meetings better facilitate participation of all stockholders to discuss the topic under consideration through an orderly process.

Regardless of their views on the right to act by written consent, stockholders believed it was important that the Board appropriately respond to the various views expressed in the vote outcome regarding the written consent proposal, including through engagement. Before taking action, however, the Board wanted to understand how our stockholders would view the Board unilaterally amending our Bylaws to lower the special meeting threshold in lieu of adopting written consent, and whether they would consider this approach responsive to the close vote outcome on the written consent proposal.

In addition to stockholder feedback, the Board considered the following factors when considering implementation of the proposal:

  • the slim margin by which the proposal passed (50.4% of the votes cast, representing 37.5% of the outstanding shares), and the significant number of stockholders that opposed the proposal (49.2% of the votes cast);
  • the lack of consensus among our stockholders regarding whether written consent would in fact be a desirable feature if included in our governance profile;
  • a nearly identical written consent stockholder proposal having failed at our 2015 Annual Meeting, with support of only 43.3% of votes cast;
  • our special meeting threshold of 25% was appropriate at the time Hewlett-Packard Company adopted the right in 2007, and it continues to be the median threshold for stockholders to call a special meeting among S&P 500 companies;
  • evolving voting policies and guidelines of investors and third-party advisory firms regarding the ability to act in between annual meetings;
  • the rights we already provide our stockholders, which include the right to call a special meeting and nominate Directors to the Board through proxy access; and
  • our current stockholder base and the relatively constant presence of at least one stockholder that has owned or controlled the vote of more than ten percent of our outstanding shares over the past few years, which led the Board to believe a 15% threshold was appropriate for the right to call a special meeting.

During our engagement, all stockholders we conversed with approved of or did not express an adverse view on the Board’s process in responding to the stockholder proposal and thoughtful approach to gathering feedback. Many stockholders even expressed the view that HP’s then-current governance regime, including the right for stockholders to call a special meeting at a 25% threshold, provides appropriate stockholder rights and that the Board did not need to take any action to provide additional stockholder rights. The Board and management, however, are mindful of some stockholders’ desires for accessible rights, and therefore concluded that non-action would not be necessarily responsive to stockholders’ concerns in our particular circumstances.

Accordingly, the Board determined it would be consistent with the wishes of the broadest group of our stockholders and responsive to the vote on the written consent proposal to facilitate the ability of stockholders to act in between annual meetings. Specifically, the Board determined, taking into account the feedback received from stockholders among other factors, to amend the existing stockholder right to call special meetings in our Bylaws to lower the threshold requirement to call a special meeting from 25% to 15% of our outstanding shares in lieu of adopting the right to act by written consent. This amendment was made effective as of February 7, 2019. We will continue to welcome stockholder feedback on these and other matters of importance to our investors and will incorporate such feedback appropriately into our decision-making actions and approach to engagement and governance.

Recent Corporate Governance Updates

HP’s corporate governance policies and practices are continuously evolving – from our time as Hewlett-Packard Company to our new identity as HP Inc., we’ve always led by example, adopting changes in line with our commitment to the highest standards of governance. Stockholder input has been key to our progression and as we continue to evolve our corporate governance policies and practices, we will continue to solicit feedback from our stockholders regarding our governance profile. The following examples highlight some of the key features of our corporate governance policies and practices, including updates we have recently made to strengthen our policies and practices:

  • Our Board continues to believe that it is in the current best interests of our stockholders and the Company to have an independent Chairman. Accordingly, Chip Bergh has served as our independent Chairman since July 2017.
  • We continue to engage in a robust and ongoing stockholder engagement program. In fiscal 2018, in addition to our CEO and independent Chairman, the Chair of our HRC Committee also met with stockholders during our stockholder engagement program. In particular, as described in detail above, we also conducted robust outreach to stockholders in the fall of 2018 focused specifically on our governance profile and engaged in substantive discussions regarding desired responses to the 2018 stockholder proposal on stockholder action by written consent.
  • Since 2016, our NGSR Committee has reviewed and discussed our environmental, sustainability, diversity and social impact strategy at every regular meeting of the Committee, providing valuable advice and insights. As a result, in 2018 HP was awarded the highest possible score during ISS’s first-ever Environmental & Social (E&S) Disclosure QualityScore review process. For more information on our efforts in this space including our Sustainable Impact Report please visit https://www8.hp.com/us/en/hp-information/global-citizenship/index.html.
  • As described above, effective as of January 22, 2019, we have amended the stockholder right to call special meetings in our Bylaws to lower the threshold requirement to call such a meeting from 25% to 15% of our outstanding shares. We decided to amend this right after extensive outreach to our top 75 stockholders regarding their desired response to the 2018 stockholder proposal on stockholder action by written consent.
  • As part of our commitment to the highest standards of governance, in 2018 we became a signatory to the Commonsense Principles of Corporate Governance 2.0, a set of corporate governance principles we and the other signatories believe serve the best interests of U.S. corporations and financial markets.
  • We have evaluated our governance practices against the Corporate Governance Principles for U.S. Listed Companies published by the Investor Stewardship Group (“ISG”), a collective of some of the largest U.S.-based institutional investors and global asset managers, and we believe that our governance policies and practices are consistent with the ISG principles. The following table shows how certain of our key governance practices align with the ISG principles:
ISG Principle HP Governance Policy or Practice
Principle 1: Boards are accountable to stockholders.
  • Annual election of each Director, for a one-year term
  • Proxy access that allows stockholder to nominate Directors
  • Each Director has agreed to tender his or her resignation if they fail to receive a majority of votes cast
  • Annual stockholder outreach program that typically includes the Chair of the Board, the Chair of the HRC and other Directors
  • No poison pill
  • Extensive disclosure of our corporate governance and Board practices
Principle 2: Stockholders should be entitled to voting rights in proportion to their economic interest.
  • One share, one vote
Principle 3: Boards should be responsive to stockholders and be proactive in order to understand their perspectives.
  • Directors participate in our stockholder outreach programs, including in our outreach regarding the 2018 written consent proposal
  • Directors are available for stockholder engagement outside our engagement programs
  • Many Directors participate in and attend our annual meeting, at which management and those Directors present respond to each stockholder question
Principle 4: Boards should have a strong, independent leadership structure.
  • Independent Chair of the Board, with clearly defined responsibilities
  • Structure for a Lead Independent Director if the Chair is not independent
  • Robust independent key committees and other structures for facilitating contribution of independent Directors
Principle 5: Boards should adopt structures and practices that enhance their effectiveness.
  • Ten of our eleven Director nominees are independent, with our Director nominees representing diverse backgrounds, skills and experiences
  • Each Board committee is fully independent
  • Track record of open dialogue between the Board and management
  • Robust annual self-evaluation program
Principle 6: Boards should develop management incentive structures that are aligned with the long-term strategy of the company.
  • Performance-oriented LTI mix with metrics that support our long-term strategy
  • Combination of short- and long-term performance goals
  • Executive and Director share ownership requirements