Shareholder Proposals (Item 8 on Proxy Card)
C. William Jones, 7055 Thomas Lane, Easton, Maryland 21601, owner of 120 shares of the Company’s common stock, proposes the following:
Resolution to Require Independent Board Chairman
RESOLVED: The shareholders of Verizon hereby urge our Board of Directors to adopt a policy, amending the Governance Guidelines and Bylaws if feasible, such that the Board will select its Chairman from among the independent directors who have not served as an executive officer of our Company. This policy would separate the roles of Board Chairman and CEO, but should be implemented without abrogating any employment contract.
We believe that separating the roles of Chairman and CEO is fundamental to sound corporate governance.
How can the CEO be his own boss?
The Board’s primary role is holding the CEO accountable to the company’s owners. When the CEO is Chairman of the Board, we believe that lines of accountability get blurred, compensation is less tightly aligned with shareholder returns, and the decision to replace a poorly-performing CEO can be skirted or delayed.
Multiple studies have found that shareholder returns are substantially higher on average at firms with non-executive chairmen.
A 2006 Booz Allen Hamilton study of the world’s 2,500 largest public companies concluded: “Non-chairman CEOs are now the best performers. . . . In North America over the last three years, non-chairman CEOs produced shareholder returns three times as high as those of CEO/chairmen.” (“CEO Succession 2005: The Crest of the Wave”).
The Booz Allen study showed that among both American and European companies, firms that separate the roles of chairman and CEO produced returns 5 percentage points higher on average than companies with CEO/chairmen.
A 2006 report from Moody’s concluded that “arguments against independent board leadership are outweighed by advantages offered by clarity of accountability and the strengthened ability of independent directors to respond quickly in a crisis.”
An independent chairman is particularly needed at Verizon since, in our view, the compensation of Verizon’s senior executives has been disconnected from returns to shareholders.
A study by the Corporate Library singled out Verizon for two consecutive years as one of 12 “Pay for Failure Companies” with the worst combination of excessive CEO pay and negative shareholder returns over the most recent five-year period. (“Pay for Failure II,” May 2007).
The Wall Street Journal reported that after Verizon’s stock declined 25% during 2005, in 2006 the Board decided to decouple its Chairman/CEO’s incentive compensation from stock price appreciation. “I haven’t come across any other companies who have moved . . . to a set of more subjective, strategic achievements,” Corporate Library analyst Paul Hodgson told the Journal.
The Corporate Library’s 2008 update on “Pay for Failure” companies extended its criticism of our Board’s executive compensation policies: “Verizon’s performance stock units continue to pay out for TSR performance below the median. . . . In fact, the company would have to perform below the 20th percentile [among S&P 500 and industry peers] for executives to receive nothing.”
Although Verizon’s TSR for 2007 ranked below the 50th percentile compared to the S&P 500 and industry peers, the Board used its discretion to pay Seidenberg’s Performance Stock Unit award at 104% of target.
Please vote FOR this proposal.
BOARD OF DIRECTORS’ POSITION
The Board of Directors believes that the shareholders are best served when the independent members of the Board are fully involved in the operations of the Board and its decision making. The Corporate Governance Guidelines adopted by the Board provide for this involvement by establishing an empowered independent Presiding Director and giving all of the independent Directors direct input into key areas of Board governance. This strong system of checks and balances ensures that an employee Chairman is fully accountable to the independent Directors.
The independent Directors annually elect the Presiding Director who provides independent leadership and oversight. The Presiding Director approves Board agendas, materials and schedules and has the authority to call executive sessions of the Board. The Presiding Director also chairs executive sessions of the Board, including the session evaluating the performance and compensation of the Chief Executive Officer.
The Corporate Governance Guidelines permit the Board to evaluate and consider the qualifications of all Directors in selecting its Chairperson. The independent Directors have elected the Chief Executive Officer to serve as the current Chairman. They believe that his wide-ranging, in-depth knowledge of Verizon’s business and its competitive challenges makes him the best-qualified Director for the position.
Given the safeguards it has put in place, the Board believes that shareholders are best served by allowing it to determine which Director is most qualified to lead the Board and by not limiting its discretion in selecting the best candidate.
Accordingly, the Board of Directors recommends that you vote AGAINST this proposal.