Three proxy advisors are backing a proposal by the California Public Employees' Retirement System (CalPERS) to require directors of La-Z-Boy to stand for annual elections.
Glass Lewis, Egan-Jones, and RiskMetrics endorsed Proposal 4, a binding resolution requiring two-thirds vote of shares outstanding to pass at the Monroe, Michigan household furniture company's annual shareowners' meeting on August 18.
Currently, La-Z-Boy directors serve in "classes" with staggered three-year terms on the company's board.
"In 2008, only 40 percent of U.S. companies had a classified board structure, down from approximately 60 percent of companies in 2004," Glass Lewis said in its proxy analysis. "Given the empirical evidence suggesting that classified boards reduce a firm's value and also reduce the likelihood of receiving a takeover offer, Glass Lewis believes that classified boards are not in the best interest of shareholders."
Egan-Jones said: "Staggered terms for directors increase the difficulty for shareholders of making fundamental changes to the composition and behavior of a board. We prefer that the entire board of a company be elected annually to provide appropriate responsiveness to shareholders. We recommend a vote 'for' this proposal."
The RiskMetrics analysis said: "The ability to elect directors is the single most important use of the shareholder franchise, and all directors should be accountable on an annual basis. A classified board can entrench management and effectively preclude most takeover bids or proxy contests."
A similar CalPERS proposal in 2008 received 57 percent support, short of the threshold. The company took no action.
The pension fund placed La-Z-Boy on its annual Focus List in 2008 due to a poor governance structure and stock performance. The company underperformed the Russell 3000 Index by 40.1 percentage points in the five years ending June 30, 2010.
CalPERS owned approximately 136,561 La-Z-Boy shares as of June 22, 2010. A copy of the CalPERS letter to shareowners can be found in the press room of the CalPERS website at www.calpers.ca.gov. For additional CalPERS corporate governance information, visit www.calpers-governance.org.
