(Links added to proponent response below.)
STATEMENT OF THE BOARD OF DIRECTORS RECOMMENDING A VOTE AGAINST THE STOCKHOLDER PROPOSAL
The Board of Directors recommends a vote “Against” the proposal. The Board firmly believes that the implementation of the proposal described above would not be in the best interests of the Corporation or you, our Stockholders.
The Board consists of ten Directors, seven whom are “outside directors” not otherwise employed by the Corporation and three whom are members of management. The Corporation’s Directors are experienced individuals who are familiar with the Corporation’s business and the markets in which the Corporation operates. Each Director brings his or her unique business experience to the Corporation. Each Director, working together and with management and well-qualified outside consultants, thoroughly and regularly evaluates the Corporation’s strategies for maximizing Stockholder value and makes recommendations to management, and ultimately you, our Stockholders, based upon such evaluations. The Board of Directors believes it is in the best position to make informed recommendations to the Corporation’s Stockholders in respect of matters to be voted upon. Adding1 the advice of an outside, unsupervised and possibly randomly selected2 firm (at the Corporation’s expense) would not assist the Board in furthering the Corporation’s objectives or otherwise be in the Stockholder’s best interests.
The proposal described above calls for the Corporation to hire a proxy advisory firm without screening or review of the quality of the firm3 or its work product or without any due diligence as to its general or industry-specific business experience. The Board of Directors and management, on the other hand, select the Corporation’s advisors, including its independent auditors, based on a thorough review process. The Board of Directors does not believe it is in the best interests of our Stockholders for the Corporation to spend funds to hire a proxy advisory firm without first evaluating the need for such advice4 and the quality of the firm’s work, its recommendations and the process by which such recommendations are made.
The Board of Directors is committed to providing you, our Stockholders, with useful voting recommendations and high quality information on which to base your voting decisions. The Board of Directors takes its responsibility seriously and its only agenda is furthering the interests of the Corporation and its Stockholders. The Board of Directors does not believe that the Corporation should provide an open forum in our proxy materials5 for an unknown and unsupervised proxy advisory firm at our Stockholder’s ultimate expense. The Board of Directors believes that you, our Stockholders, should allow the Board of Directors to continue to perform its duties by providing sound and well-reasoned recommendations for this Corporation’s future courses of action.6
The approval of Mr. Latham’s proposal requires the affirmative vote of a majority of the shares of Common Stock of the Corporation represented at the meeting in person or by proxy. Abstentions and broker non-votes will have the same effect as a vote cast against the proposal.7
THEREFORE, FOR ALL OF THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS URGES STOCKHOLDERS TO VOTE “AGAINST” THIS PROPOSAL.
PROPONENT'S RESPONSE TO THE ABOVE:
1. As the Board mentions here, the independent advisor's recommendation would add to, rather than replace, the Board's recommendation on which way to vote. So shareowners could benefit from both sources of advice.
2. The advisor would be selected by shareowner vote, based on the reputations of competing advisor candidates -- not a random selection process.
3. I agree with the Board's implication that the quality of the advisory firm is crucial, but not with the implication that supervision by the Board is necessary to assure that quality. Shareowners would vote to choose the advisory firm based on its reputation in their eyes. Advisors would compete to build reputations for giving advice that benefits shareowners. Those reputations would be assessed and discussed by the financial community in much the same way that personal computer makers' reputations are determined in the technology community, so that even a non-expert could make an informed choice by reading, for example, the Wall Street Journal. This reputation assessment process is a review of the quality of the advisory firm.
4. We shareowners need independent voting advice for the same reason we need to have shareowner voting at all. If it were sufficient to simply vote following the Board's recommendations then we wouldn't need to vote, but instead could just leave all decisions to the Board. The reason why we have shareowner voting is that there would be conflicts of interest inherent in leaving all decisions to the Board.
5. I agree that Schulman's proxy should not be an open forum. That is why the proposal calls for an entry fee, which can be adjusted to deter all but the serious candidates.
6. As emphasized in point 1 above, this proposal would not prevent the Board from continuing to give recommendations.
7. This is a well-placed reminder of a voting system biased against shareowners' interests and in favor of the incumbent Board's interests. My proposal would help shareowners vote more effectively, thus reducing such bias.
Response written by Mark Latham on November 13, 2002.