Independent Board Chairman
The Board recommends a vote AGAINST this proposal
This stockholder proposal has been submitted by John Chevedden, 2215 Nelson Avenue, No. 205 Redondo Beach, CA 90278 (the beneficial owner of 200 shares of HP Common Stock). The proponent has requested we include the proposal and supporting statement in this proxy statement, and, if properly presented, the proposal will be voted on at the annual meeting.
This proposal and supporting statement are quoted verbatim below and HP is not responsible for any inaccuracies contained in them.
The HP Board recommends a vote AGAINST this proposal and its opposition statement can be found below.
Proposal 4 – Independent Board Chairman
Shareholders request our Board of Directors to adopt as policy, and amend our governing documents as necessary, to require henceforth that the Chair of the Board of Directors, whenever possible, to be an independent member of the Board. The Board would have the discretion to phase in this policy for the next Chief Executive Officer transition, implemented so it does not violate any existing agreement.
If the Board determines that a Chairman who was independent when selected is no longer independent, the Board shall select a new Chairman who satisfies the requirements of the policy within a reasonable amount of time. Compliance with this policy is waived if no independent director is available and willing to serve as Chairman. This proposal requests that all the necessary steps be taken to accomplish the above.
Supporting Statement: The current HP Inc. guidelines allow management to flip flop between an independent chairman and a non-independent chairman.
Caterpillar is an example of a company changing course and naming an independent board chairman. Caterpillar had opposed a shareholder proposal for an independent board chairman at its annual meeting. Wells Fargo also changed course and named an independent board chairman.
In the year leading up to the submittal of this proposal our stock went from $21 to $24. This mild incline may have even been due almost completely to a June 2018 announcement of additional share repurchase authorization of up to $4 Billion which is supposed to increase the price of the stock.
However stock buybacks are a sign of short-termism for executives − sometimes boosting share price without boosting the underlying value, profitability, or ingenuity of the firm. A related issue is that buybacks draw money away from investment. A dollar spent repurchasing a share is a dollar that cannot be spent on new machinery, an acquisition, entry into a new market, or anything else. However the adoption of this proposal will cost HP Inc. virtually nothing − yet it can improve board oversight of company performance.
Shareholders also gave 51% support to a 2018 shareholder proposal for a shareholder right to act by written consent. The 51% vote was an example of shareholders taking the initiative in improving the corporate governance of the company while management took a step backwards and abolished in-person annual meetings. Now our directors can be on the golf course during the annual meeting as long as they turn on their phones for a few minutes.
Investor relations can take control of the annual meeting. Investor relations can screen out the difficult questions and can spoon-feed vague answers to our CEO to any questions that are not screened out. There is no way a shareholder can ask for clarification of a vague or misleading answer on an important issue such as the $4 Billion share buyback program.
The lack of an in-person annual meeting means that a board meeting can be scheduled months after the virtual meeting − by which time any serious issues raised by shareholders under these onerous conditions will be long forgotten by the directors. Plus a virtual meeting guarantees that there will be no media coverage for the benefit of all shareholders.
Please vote to give us a shareholder right to an independent board chairman to help make up for our management abolishing in-person annual meetings:
Please vote yes:
Independent Board Chairman - Proposal 4
Statement in Opposition
The Board has considered the stockholder proposal and, for the reasons described below, believes that the proposal is unnecessary and not in the best interests of the Company and its stockholders. The Board therefore recommends a vote AGAINST this proposal.
HP currently has an independent Chairman of the Board. The Board’s existing leadership and board structures enable strong independent oversight.
Our Board is currently led by an independent Chairman and our board leadership structure and practices promote effective and independent Board oversight.
Since July 2017, our Board has been led by Mr. Charles (“Chip”) V. Bergh—an independent Chairman who is well-versed in the needs of our complex business, has provided strong leadership to our Board and advice to management, promotes the involvement of all our independent directors in decision-making and has significant authority as described below. Our Board believes that our current structure best serves the present needs of HP and our stockholders by providing a strong governance process, empowerment for our independent Directors and enhancement of the overall function of the Board.
We have established a robust, well-defined and transparent mandate for the role of our independent Chairman. Specifically, our independent Chairman has a broad set of powers and responsibilities as outlined below.
- Overseeing the planning of the annual Board calendar
- In consultation with the CEO and the other Directors, scheduling, approving and setting the agenda for meetings of the Board and chairing and leading the discussion at such meetings
- Chairing HP’s annual meeting of stockholders
- Being available in appropriate circumstances to speak on behalf of the Board and for consultation and direct communication with major stockholders upon request
- Providing guidance and oversight to management
- Helping with the formulation and implementation of HP’s strategic plan
- Serving as the Board liaison to management
- Having the authority to call meetings of the independent Directors and schedules, setting the agenda for, and presiding at executive sessions of the independent Directors
- Approving information sent to the Board
- Assisting the Chairs of the Board committees in preparing agendas for the respective committee meetings
- Working with the HRC Committee to coordinate the annual performance evaluation of the CEO
- Working with the NGSR Committee to oversee the Board and committee evaluations and recommending changes to improve the Board, the committees, and individual Director effectiveness
- Performing such other functions and responsibilities as set forth in the Corporate Governance Guidelines or as requested by the Board from time to time
While our Board’s preferred governance structure is to separate the roles of Chairman and CEO, the Board believes that it should ultimately have the flexibility to tailor its leadership structure to HP’s evolving circumstances, and not be limited by this proposal’s rigid approach.
Our Directors have a fiduciary duty to regularly evaluate and determine the most appropriate Board leadership structure for HP and our stockholders in light of HP’s specific and evolving circumstances. HP’s Corporate Governance Guidelines state that HP prefers a leadership structure which separates the Chairman and CEO roles, while also preserving the Board’s flexibility to determine the optimal leadership structure for HP, including, when and if appropriate, combining the positions of Chairman and CEO. For example, Mr. Bergh was appointed in 2017 to the position of independent Chairman when Meg Whitman, who served as our CEO from 2011-2015 and as our Chairman from 2015-2017, departed from the Board. As a non-independent Chairman with historical knowledge as well as wide-ranging business experience, Ms. Whitman’s appointment was key to HP’s immediate transition after its spin-off of Hewlett Packard Enterprise Company in 2015. Following the critical transition period, the company entered a new phase and the Board determined that Mr. Bergh’s deep experience in a variety of consumer goods businesses and his independent acumen would provide vital contributions to HP’s Board leadership in this changed landscape.
The adoption of a policy requiring that the Chairman of the Board always be an independent Director would limit the Board’s ability to choose the person best suited for the role at a particular time and deprive the Board of the ability to act in the best interests of the Company and all stockholders as circumstances warrant. Importantly, our Board continuously evaluates its leadership structure and has taken advantage of the flexibility afforded to it by the Corporate Governance Guidelines over the years in light of HP’s specific circumstances during various periods in our history as described above. Unlike the proposed inflexible mandate of the stockholder proposal, the existing preference set forth in the Corporate Governance Guidelines does not limit the Board’s discretion to act in the best interests of HP and our stockholders by selecting the best possible board leadership structure based on the relevant facts, circumstances and criteria as they exist at the time. The Board believes that this flexibility benefits HP and our stockholders because the Board is in the best position to determine our leadership structure given its knowledge of HP’s leadership team, strategic goals, opportunities and challenges.
Importantly, regardless of what leadership structure the Board may determine to adopt in the future, our Corporate Governance Guidelines provide for appointment of a Lead Independent Director in situations where the Chairman of the Board is not independent. As such, the Board prioritizes independent Board oversight at all times and believes that eliminating flexibility in the structure of Board leadership as facts and circumstances change and evolve, as the proponent requests, is unnecessarily rigid and could adversely impact the Company’s ability to respond to new challenges.
HP’s corporate governance policies and practices further promote effective, independent Board oversight.
In addition to having an independent Chairman of the Board, HP’s Board has adopted policies and practices that provide our stockholders with meaningful rights and further promote Board independence and effective oversight of management.
As mentioned above, if our Chairman is not independent in the future, the independent Directors of the Board will appoint a Lead Independent Director who will have well-defined powers and duties. We have appointed a Lead Independent Director in such circumstances in the recent past, and the Lead Independent Director was a vital and robust part of our Board leadership. If in the future the independent Directors of the Board were to appoint a Lead Independent Director, the Board would define the Lead Independent Director’s powers and duties with thought and consideration to the particular circumstances, taking into account the experience and skill sets of the Chairman and such Lead Independent Director to promote Board independence and effective oversight of management.
Our current Chairman and all members of our key Board committees are independent. We also ensure that our committees themselves have robust governance practices, and our key Board committees are integral features of our commitment to independent Board leadership. With respect to overall independence of the Board, our Corporate Governance Guidelines require that a substantial majority of the Board consist of independent Directors and that the Board include no more than three Directors who are not independent. Our Board meets regularly in executive session and the independent Directors meet in executive session without the presence of management at least three times a year.
To ensure our Board remains robust and engaged, we have ongoing Board refreshment reviews and an annual self-evaluation process to determine whether the Board and its committees are functioning effectively. Our NGSR Committee also annually evaluates each individual Director and recommends to the Board whether each Director should be nominated for election to a further one-year term. When nominated, our Directors are elected annually, with a majority voting standard for uncontested elections and a Director resignation policy.
We have demonstrated a strong commitment to diversity of background and experience among our Directors. Our Board has been significantly refreshed in recent years, with 80% of our Directors including the current independent Chairman, having joined the Board from 2015 onwards. Non-employee Directors are expected to own Company stock equal to at least five times their annual cash Board retainer within five years of joining the Board.
Stockholders have meaningful proxy access and special meeting rights which have been strengthened in the past year with the lowering of our special meeting threshold to 15%. We have no supermajority voting provisions. We believe that each stockholder’s voice and vote matter and we ensure equality of access by utilizing a virtual meeting format, allowing each and every one of our stockholders to join regardless of location or economic position.
HP and our Board continually engage with stockholders regarding our corporate governance.
As discussed under “Corporate Governance – Stockholder Outreach,” our Board engages regularly with our stockholders, both directly and indirectly, such as through our Director video interview series. Our Board also seeks feedback from stockholders about our corporate governance policies and practices by conducting additional stockholder outreach and engagement throughout the year.
In fiscal 2018, we spoke with or received responses from stockholders that hold more than 43% of our outstanding shares as well as with leading proxy advisory firms. Our Board carefully considers stockholder feedback and makes changes to our corporate governance policies and practices as appropriate. For example, as this proposal mentions, in response to the 2018 stockholder support for a stockholder right to act by written consent, after engaging with stockholders representing over 50% of our outstanding shares at the time, stockholders representing over 38% of our outstanding shares at the time supported our proposal to lower our special meeting threshold in response to last year’s stockholder vote and preferred that approach to adopting a written consent right. As a result, the Board lowered our special meeting threshold to 15%, providing a robust enhancement to the rights of our stockholders. For more information on our stockholder engagement, please visit: https://investor.hp.com.
HP’s current, flexible board leadership structure is consistent with the policies of a majority of large, publicly traded U.S. companies, and the Board will continue to periodically evaluate the effectiveness of its leadership structure and make any appropriate future decisions based upon the best interest of HP and its stockholders at that time. It is important that our Board can continue to be able to assess all relevant facts and circumstances, in fulfillment of its fiduciary duty, to determine the leadership structure that is best suited to meet the needs of HP in the particular context.
For the aforementioned reasons, the Board believes that adoption of this proposal is unnecessary and would not be in the best interests of HP or our stockholders. Accordingly, the Board recommends that you vote AGAINST this proposal.
Approval of this stockholder proposal requires the affirmative vote of a majority of the shares of HP common stock present in person or represented by proxy and entitled to vote on the proposal at the annual meeting.