Shareholder Access: The View from the Top

Transcription

1 Shareholder Access: The View from the Top Richard H. Anderson Richard K. Davis Richard B. Hirst Lee R. Mitau Bryn R. Vaaler Delta Air Lines, Inc. Chief Executive Officer U.S. Bancorp Chairman, President and Chief Executive Officer Delta Air Lines, Inc. Senior Vice President and General Counsel U.S. Bancorp Executive Vice President, General Counsel and Corporate Secretary Dorsey & Whitney LLP (612) Contents 1. PowerPoint 2. Vaaler, Bryn R. and Brehm, Andrew E., DGCL Amendments Authorize Proxy Access and Expense Reimbursement Bylaws, Reverse Schoon v. Troy Corp., Dorsey & Whitney LLP, April 16, Vaaler, Bryn R., An Excess of Access, Dorsey & Whitney LLP, May Vaaler, Bryn R., SEC Approves NYSE Rule 452 Amendment To Prevent Broker Discretionary Voting in Uncontested Director Elections, Dorsey & Whitney LLP, July 1, Mitau, Lee R., U.S. Bancorp, Comment Letter to U.S. Securities and Exchange Commission regarding Facilitating Shareholder Director Nominations (SEC Release Nos , , IC-28765; File No. S ), dated August 17, 2009

2 Shareholder Access: The View from the Top Richard H. Anderson Chief Executive Officer, Delta Air Lines, Inc. Richard K. Davis Chairman, President and Chief Executive Officer, U.S. Bancorp Richard B. Hirst Senior Vice President and General Counsel, Delta Air Lines, Inc. Lee R. Mitau Executive Vice President, General Counsel and Corporate Secretary, U.S. Bancorp Bryn R. Vaaler Dorsey & Whitney LLP

3 SEC proposes amendments to proxy rules requiring shareholder access SEC Release No (June 10, 2009) (3-to-2 vote) 1. Mandatory access (Rule 14a-11) applicable to all public companies subject to proxy rules (including registered investment companies), but not FPIs Nominating shareholder or group must own (for one year) at least 1% of LAF, 3% of AF and 5% of NonAF No triggering events (as in 2003 proposal) May nominate greater of one director or 25% of board (must certify no intent to change control) First-come, first served if multiple nominating shareholders Disclosure requirements Timing requirements

4 SEC proposes amendments to proxy rules requiring shareholder access 2. Amendment to Rule 14a-8(i)(8) exclusion to permit proposals to amend governing documents regarding nomination procedures or disclosures relating to nominations, so long as no conflict with Rule 14a-11 Also codifies staff interpretations allowing exclusion of proposals disqualifying nominee, removing director, questioning competence or business judgment or character of nominee or director, nominating specific individual or otherwise affecting outcome of upcoming director election 3. Ancillary provisions aimed at facilitating nominations (e.g., Rule 144, Reg 13D-G & 16)

5 Opposition to mandatory approach Commissioner Paredes recommends amendments to Rule 14a-8(i)(8) only Let shareholders and issuers address access through private ordering Precedent: majority-election movement In April, David Hirschmann, President of U.S. Chamber of Commerce, wrote to SEC Chairman Shapiro threatening litigation regarding SEC s authority if mandatory approach taken

6 Proposed legislation giving SEC clearer authority to require access Senators Charles Schumer (D-NY) and Maria Cantwell (D-Wash) have introduced Shareholder Bill of Rights Act (S.1074): Annual say-on-pay advisory vote Confirm SEC s authority to require shareholder access Eliminate classified boards and require majority-election of directors Required separation of CEO and Chairman positions Required risk management committee of board Representative Gary Peters (D-Mich) has introduced Shareholder Empowerment Act of 2009 (H.R. 2861) Contains similar measures

7 SEC delaying final action It is my hope to finalize the rules early in the new year. I am committed to bringing final rules before the [Commissioners] regarding the ability of shareholders to nominate directors. SEC Chairman Mary Schapiro, October 2, 2009

8 Premise: Unresponsive boards "This crisis has led many to raise serious concerns about the accountability and responsiveness of some companies and boards of directors to the interests of shareholders. Paragraph 1, SEC Release No (June 10, 2009) Congress finds that: Among the central causes of the financial and economic crises that the United states faces today has been a widespread failure of corporate governance; A key contributing factor to such failure was the lack of accountability of boards to their ultimate owners, the shareholders; Section 2, Shareholder Bill of Rights (S.1074)

9 Arguments in opposition to access Increased out-of-pocket costs to company Deter qualified independent directors from serving Distract and disrupt functioning of board Single-issue directors; Balkanized board Conflicts of interest No requirement that nominee be independent of nominating shareholder Nominating shareholder not bound by fiduciary duty to other shareholders Hijack election process

10 Responses by proponents of access Shareholder nominees would not be elected to board unless majority of shareholders vote for them Once elected, shareholder nominees owe fiduciary duties to all shareholders Without shareholder access, shareholder right to nominate directors is essentially meaningless in context of public company Effectiveness of Hybrid Boards (Proxy Governance, Inc. and IRRC Institute for Corporate Responsibility) (May 2009) study of 120 companies with hybrid boards resulting from proxy contest shows above-market return for such companies, primarily attributable to jump in share price during contest

11 Short-termism Beltratti & Stulz, Why Did Some Banks Perform Better During the Credit Crisis? A Cross-Country Study of the Impact of Governance and Regulation (July 2009) Study of 98 banks in economic crisis Banks with highest returns in 2006 had worst returns in crisis No evidence that banks with better CGQ score performed better during crisis. In fact, banks with more pro-shareholder boards performed worse during crisis Banks pushed by their boards to maximize shareholder wealth before crisis took risks that ended up being costly ex post because of outcomes not expected when risks were taken

12 Short-termism If corporate law or other public policy mechanisms grant investors additional rights, we believe it is vital that all institutional investors and related intermediaries be properly incentivized to focus on the interest of promoting sustainable, long-term growth. Aspen Institute, Overcoming Short-termism: A Call for a More Responsible Approach to Investment and Business Management (September 9, 2009)

13 Short-termism Shareholders, boards and executives... and those involved in legislative and regulatory reform initiatives should give special consideration to the long-term nature of corporate wealth-generating activity and strive to avoid undue short-term focus and pressures that may impede the capacity of the corporation for long-term investments and decisions necessary for sustainable wealth creation. Task Force of ABA Section of Business Law Corporate Governance Committee, Report on Delineation of Governance Roles & Responsibilities (August 1, 2009) [Gregory Report]

14 Short-termism A shareholder-based, agency model of the corporation sends management a simple instruction: in all circumstances, manage to maximize the market price of the stock. If the financial crisis teaches us anything, it is that managing to the market is the problem that needs to be addressed immediately. That calls for recalibration of compensation mechanisms, not legislative change to increase shareholder power. Bratton & Wachter, The Case Against Shareholder Empowerment, Institute for Law & Economics, University of Pennsylvania Law School (2009)

15 Private ordering CA v AFSCME Employee Pension Plan, 953 A.2d 227 (Del 2008) Demarcation-DGCL 141(a) & 109 Shareholder-adopted bylaw governing process and procedural matters relating to director election generally valid under DGCL, if there is explicit fiduciary out Covers proxy reimbursement; almost as clearly covers proxy access 2009 DGCL amendments add explicit authority for bylaws requiring proxy reimbursement (new 113) and proxy access (new 112) Non-exclusive list of possible conditions or limitations No explicit fiduciary out requirement as in CA v AFSCME Similar provisions in the works for Model Business Corporation Act

16 Federal versus state

17 Proxy reimbursement bylaws HealthSouth Corp. announced on October 26 that board had approved adoption of proxy reimbursement bylaw Reimburse expenses for successful dissident nominee Partially reimburse expenses for unsuccessful dissident nominee if gaining at least 40% of votes cast Charles Elson, Center for Corporate Governance, University of Delaware, promoted bylaw as chair of governance committee AFSCME proposals at Office Depot and Dell received 39% and 35% of votes cast in 2009 proxy season AFSCME plans six similar bylaw proposals in 2010

18 Specific problems with Rule 14a-11 Adoption too soon Lack of opt-out % ownership levels too low One-year holding period too short Nominee should be independent of nominating shareholder Nominee should meet subjective independence standards with respect to company Nominee should meet other qualification standards (e.g., financial literacy, industry knowledge) of company 25% of board is too high a limit First-come, first-served should not be priority rule Should be limits on nominator s ability to resubmit failed nominees Insufficient disclosures (e.g., derivatives) Timing of notice Should be able to vote for management nominees as group Blank card should count as vote for management nominees as group Should be no new proxy rule exemption for nominating group

19 NYSE Rule 452 amended Approved by SEC on July 1 (3-to-2 vote along party lines) For proxy voting at meetings held on or after January 1, 2010, brokers may not vote street name shares in uncontested director elections without customer voting instructions Effects Institutional voting and RiskMetrics to have greater impact as retail shares in street name not voted Vote no and withhold campaigns not offset by discretionary block Harder to elect directors if company has majority-voting May reduce use of notice-and-access e-proxy Reliance on other routine matter (i.e., auditor ratification) for quorum Watch for further SEC reforms regarding proxy plumbing NOBO-OBO rules Over and empty voting issues

20 Influence of proxy advisory firms We recommend that shareholders: Act on an informed basis with respect to their governancerelated rights in the corporation and form company-specific judgments regarding such matters while taking into account their own investment goals. Apply company-specific judgment when considering the use of voting rights and contested elections to change board composition. Consider the long-term strategy of the corporation as communicated by the board in determining whether to initiate or support shareholder proposals. Task Force of ABA Section of Business Law Corporate Governance Committee, Report on Delineation of Governance Roles & Responsibilities (August 1, 2009) [Gregory Report]

21 Questions?

22 Dorsey & Whitney LLP Resources DGCL Amendments Authorize Proxy Access and Expense... Page 1 of 3 11/3/2009 April 16, 2009 DGCL Amendments Authorize Proxy Access and Expense Reimbursement Bylaws, Reverse Schoon v. Troy Corp. Bryn R. Vaaler Professional Services Partner (612) Delaware has enacted important amendments to the Delaware General Corporation Law. The amendments, which will go into effect on August 1, 2009, include a number of changes responsive to significant recent case law developments in the Delaware courts. Highlights of the 2009 amendments include: Proxy Access and Expense Reimbursement Bylaws Andrew E. Brehm Associate (612) In 2008, the Delaware Supreme Court held that stockholder-adopted bylaws governing procedures and process related to director elections were generally valid under the DGCL. CA, Inc. v. AFSCME Employees Pension Plan, 953 A.2d 227 (Del. 2008). Specifically, that case held valid a stockholder bylaw proposal requiring the corporation to reimburse expenses incurred by a stockholder in solicitation of proxies in support of a short-slate of dissident director nominees (so long as at least one dissident was elected) if the bylaw explicitly included flexibility not to reimburse if contrary to the board s fiduciary duties. In response to CA v. AFSCME, the 2009 DGCL amendments add a new 113 providing explicit statutory authority for a bylaw requiring a Delaware corporation to reimburse proxy solicitation expenses incurred by a stockholder nominating the stockholder s own director(s). New 113 also identifies a nonexclusive list of conditions that the bylaws may impose on such a right to reimbursement, including: conditioning eligibility on the number or proportion of persons nominated or whether the stockholder previously sought reimbursement for similar expenses; limitations on the amount of reimbursement based on the proportion of votes cast in favor of the nominee(s) of the stockholder seeking reimbursement, or upon the amount spent by the corporation in soliciting proxies in connection with the election; and limitations concerning elections of directors by cumulative voting. The nonexclusive list of conditions in 113 does not include the explicit fiduciary out required by the Delaware Supreme Court in CA v. AFSCME. The 2009 DGCL amendments also add a new 112 providing explicit statutory authority for a bylaw requiring a Delaware corporation to include stockholderproposed nominees for director in the corporation s proxy materials under certain prescribed circumstances. Access to the corporation s proxy materials for nomination of dissident directors has become one of the most important recurring demands among activist stockholders, and new 112 eliminates any doubt remaining after CA v. AFSCME regarding the validity under the DGCL of bylaws requiring such access.

23 Dorsey & Whitney LLP Resources DGCL Amendments Authorize Proxy Access and Expense... Page 2 of 3 11/3/2009 New 112 also includes a nonexclusive list of permissible procedures that may be put in place in the bylaws to limit stockholder access, including: a minimum level of record or beneficial stock ownership by the nominating stockholder. In establishing such a minimum, the bylaws may define beneficial ownership to take account of options or other derivative rights; requiring specified information about the nominating stockholder and the nominee(s); conditioning eligibility on the number or proportion of directors nominated (e.g., limiting access to short-slates) or whether the stockholder previously sought to require such inclusion; limiting the right of access if nominations are related to an acquisition of a significant percentage of the corporation s stock; and requiring that the nominating stockholder indemnify the corporation for any loss arising from false or misleading information or statements submitted by the nominator. Although the 2009 DGCL amendments resolve the state-law validity of bylaws requiring stockholder access for Delaware corporations, stockholder proposals to adopt such bylaws may still be excluded from management s proxy materials under SEC Rule 14a-8(i)(8). Newly appointed SEC Chairwoman Mary Schapiro has indicated that the Commission will revisit the question of stockholder access under federal proxy rules in the next few months. Most observers expect that the federal proxy rules will be amended to facilitate stockholder access proposals yet this year. Indemnification and Advancement The 2009 changes amend DGCL 145(f) to state that a right to indemnification or advancement of expenses under a provision of the certificate of incorporation or the bylaws cannot be eliminated or impaired by an amendment of the provision after the occurrence of the act or omission to which indemnification or advancement of expenses relates, unless the provision contains, at the time of the act or omission, an explicit authorization of such impairment. This amendment legislatively reverses the rule articulated in last year s controversial decision in Schoon v. Troy Corp., 948 A.2d 1157 (Del. Ch. 2008), where the Delaware Court of Chancery ruled that the board of directors could make modifications to indemnification and advancement rights even after the related act or omission had occurred (so long as a lawsuit had not yet been filed). Record Dates and Empty Voting The 2009 amendments alter DGCL 213(a) (with corresponding amendments to related sections) to permit the board of directors to separate the record date for determining the stockholders entitled to notice of a meeting of stockholders from the record date for determining the stockholders entitled to vote at the meeting. Under amended 213(a), the board may choose a date later than the notice record date (which must be not more than 60 nor less than 10 days before the date of the meeting) for determining those stockholders entitled to vote. The amendment gives the board flexibility to adopt dual-record-date strategies aimed at minimizing so-called empty voting, that is, voting by persons who no longer own the stock and no longer have the same economic stake in the

24 Dorsey & Whitney LLP Resources DGCL Amendments Authorize Proxy Access and Expense... Page 3 of 3 11/3/2009 corporation. Chancery Court Removal of Directors The 2009 changes amend DGCL 225 to grant the Delaware Court of Chancery explicit power to remove directors under certain circumstances. Under new 225(c), a Delaware corporation (or a stockholder acting derivatively) may bring an action to remove a director if the director has been convicted of a felony in connection with his or her duties or there has been a judgment on the merits by a court of competent jurisdiction that the director has committed a breach of the duty of loyalty. The Chancery Court may remove the director if it determines he or she did not act in good faith in the acts resulting in the conviction or judgment and removal is necessary to avoid irreparable harm to the corporation. Disclaimer 2009 Dorsey & Whitney LLP. This article is intended for general information purposes only and should not be construed as legal advice or legal opinions on any specific facts or circumstances. An attorneyclient relationship is not created or continued by reading this article. Members of the Dorsey & Whitney LLP group issuing this communication will be pleased to provide further information regarding the matters discussed therein.

25 A PUBLICATION OF THE CORPORATE GROUP OF DORSEY & WHITNEY LLP CORPORATE UPDATE May 2009 An Excess of Access Bryn R. Vaaler The ability of dissident shareholders to include director nominees in the company s proxy materials and put them to a vote at company expense dubbed shareholder access is the Holy Grail in the activist shareholder quest for parity in corporate governance. The rules of the Securities and Exchange Commission have, to date, prevented shareholder access, requiring shareholders to run their own independent proxy solicitations at their own expense to support dissident nominees. But, over the next year, it is almost certain shareholders will find their Holy Grail. On May 20, by a three-to-two vote, the SEC proposed a new rule that would give shareholders owning as little as 1% of the shares of a large public company the right to include in the company s proxy materials nominees for up to one quarter of the board. For smaller companies, the ownership thresholds would be 3% or 5%, depending on size. If multiple groups seek inclusion of nominees, proposed Rule 14a-11 operates on a first-come, first-served basis. The SEC also proposed changes to its existing shareholder proposal rule (Rule 14a-8) that would permit shareholders to include bylaw proposals in the company s proxy materials governing director nomination procedures and disclosures so long as they are not in conflict with the access requirements of Rule 14a-11. This is not the first time the SEC has proposed shareholder access. A similar 2003 proposal died in the face of opposition by pro-management groups, who claimed it went beyond the SEC s statutory authority, was an unwise federal incursion into the state-law domain of corporate governance and would damage board effectiveness by replacing efficient collegiality with a balkanized rabble. Disappointed activists kept pressing for access, but turned their efforts in another direction. They began a campaign to require director election by majority vote instead of the then prevailing plurality-voting system in which negative votes by dissidents had no real effect. After several years of campaigning, two-thirds of S&P 500 companies have today adopted some form of majority voting for election of directors (according to lawyer Claudia Allen s Study of Majority Voting in Director Elections). Shareholder access again came up in 2006 and 2007, when a federal appeals court ruled AIG could not exclude from its proxy materials under Rule 14a-8 an AFSCME-sponsored proposal to amend AIG s bylaws to require shareholder access. After proposing two alternative revisions of Rule 14a-8 one clearly permitting such proposals, the other clearly permitting exclusion of them the SEC (by a three-to-two vote) adopted the one permitting exclusion.

26 Once again, disappointed activists turned their efforts to another approach: if they could not include nominees in the company s proxy materials, then the company ought to reimburse them for running their own independent solicitations. In 2008, AFSCME submitted a proposed bylaw requiring proxy expense reimbursement for inclusion in the proxy materials of CA, Inc. When CA attempted to exclude the proposal, the SEC referred the question of state-law validity of proxy-reimbursement bylaws to the Delaware Supreme Court. The Court ruled that shareholder-adopted bylaws governing process and procedural matters relating to election of directors were generally valid under Delaware corporate law. In response to CA v. AFSCME, Delaware s legislature adopted amendments to its corporation statute earlier this year making it absolutely clear that bylaws requiring shareholder access or proxy reimbursement are valid under Delaware law. Similar amendments are in the works for the Model Business Corporation Act, which serves as the template for corporation statutes in most other states. The SEC s May 20 proposal on shareholder access would override development of shareholder access on the state-law level by imposing a mandatory, one-size-fits-all federal rule on all public companies. The full text of the proposed rule has not yet been published. Once published, there will be a 60-day comment period that will likely stimulate further heated debate. If the proposed mandatory rule is adopted after that, it will almost certainly be challenged in court. The U.S. Chamber of Commerce has already notified SEC Chair Mary Schapiro it will sue claiming the rule exceeds the SEC s statutory power. In the meantime, Senator Charles Schumer has announced he will introduce a Shareholder Bill of Rights Act in Congress. In addition to requiring an annual say-on-pay shareholder vote, eliminating classified boards and mandating independent board chairs and majority election of directors, Schumer s legislation would explicitly buttress the SEC s statutory authority to adopt a mandatory shareholder-access rule. And, far from the Beltway, American Railcar Inc. (majority-controlled by Carl Icahn) recently became the first U.S. public company to re-incorporate in North Dakota in order to opt into the pro-shareholder governance provisions of that state s Publicly Traded Corporation Act. The North Dakota Act requires shareholder access and proxy reimbursement in addition to an annual say-on-pay vote, independent board chairs and majority election of directors. Eleven other public companies received shareholder proposals to re-incorporate in North Dakota during the 2009 proxy season. Shareholder access is coming. The case for self-perpetuating, collegial boards made up solely of management nominees has been undermined by economic crisis, a depressed stock market, high-profile corporate scandals and excessive executive compensation. A recent study published by IRRC Institute and Proxy Governance makes the case that boards with at least one dissident member may, under certain conditions, actually produce greater shareholder value than boards made up entirely of management nominees. 2

27 Shareholder access may be inevitable, but Congress and the SEC should be wary of imposing a mandatory federal rule and overriding development of a more nuanced approach on a company-by-company basis by consensus between management and shareholders. Instead of imposing a new mandatory rule, the SEC should simply amend its rules so they are no longer an impediment to private ordering with respect to shareholder access. The SEC should amend Rule 14a-8 to permit shareholder-access bylaw proposals. Shareholders and management will then be able to work out new standards through development of shareholder-access bylaws as now clearly permitted under Delaware law. The recent experience with the majority-election movement shows how quickly and effectively this private-ordering approach can change corporate governance standards. About Dorsey & Whitney Clients have relied on Dorsey ( since 1912 as a valued, cutting-edge business partner. With over 650 lawyers in 19 locations in the United States, Canada, Europe and Asia-Pacific, Dorsey provides an integrated, proactive approach to its clients' legal and business needs. Dorsey represents a number of the world's most successful Fortune 500 companies from a variety of disciplines, including leaders in the financial services, investment banking, life sciences, securities, technology and energy sectors, as well as nonprofit and government entities Dorsey & Whitney LLP. This Corporate Update is intended for general information purposes only and should not be construed as legal advice or legal opinions on any specific facts or circumstances. An attorney-client relationship is not created or continued by sending and receiving this Corporate Update. Members of the Dorsey & Whitney LLP Corporate Group will be pleased to provide further information regarding the matters discussed in this Corporate Update. 3

28 A PUBLICATION OF THE CORPORATE GROUP OF DORSEY & WHITNEY LLP July 1, 2009 CORPORATE UPDATE SEC Approves NYSE Rule 452 Amendment To Prevent Broker Discretionary Voting in Uncontested Director Elections Bryn R. Vaaler The Securities and Exchange Commission, by a 3-to-2 vote along party lines, today approved an important amendment to NYSE Rule 452, which governs discretionary voting by brokers of shares held in street name when beneficial owners have not instructed how such shares should be voted. The amendment makes uncontested director elections (except those at registered investment companies) non-routine matters under the rule, so brokers will no longer be able to vote in favor of management s slate without instruction from customers. NYSE Rule 452 governs all brokers. Consequently, this amendment will affect all public companies that have shares held in street name, not just NYSE-listed companies. This amendment, which will apply to proxy voting for shareholder meetings held on or after January 1, 2010, may have a significant effect on director elections, especially at companies with a large percentage of retail beneficial owners of shares held in street name. Public companies with a substantial percentage of shares held in street name may no longer count on those shares routinely being voted in favor of management s slate by brokers. As a result: Vote no or withhold campaigns led by institutional investors will no longer be offset by a large block of broker discretionary votes in favor of management s slate. Voting recommendations to institutional investors by proxy advisory firms, such as RiskMetrics Group and Glass Lewis, may consequently be expected to have even greater influence once the revised rule goes into effect. Companies with majority-voting bylaws or policies may have to work much harder to ensure election of management s slate. Companies that do not currently include another routine matter in their annual proxy, such as ratification of auditors, may wish to begin doing so to help ensure a quorum at their annual meetings. Companies that have experienced lower levels of proxy voting as a result of implementing notice-and-access e-proxy distribution will closely analyze whether to return to full-set delivery to help make up for loss of broker discretionary voting. Most public companies with substantial percentages of shares held in street name will be working closely in coming months with their proxy solicitation advisers to assess the possible impact of the Rule 452 amendment and to identify and implement strategies aimed at eliciting voting instructions to brokers from more beneficial owners of street name shares. The ability of

29 companies to elicit greater levels of voting instructions from beneficial owners may depend in part on possible SEC reconsideration of the current NOBO-OBO rules, which govern broker obligations to reveal the identity of beneficial owners and thereby facilitate company communications with them. The amendment to NYSE Rule 452 is the latest in a long line of recent developments relating to election of corporate directors. In May, the SEC proposed changes to its proxy rules that would, in general, require public companies to include candidates nominated by shareholders in the company s proxy materials and put them to a vote at company expense. Final action on this proposal is expected before the end of Delaware s legislature has adopted (effective August 1) amendments to its corporation statute clarifying the validity of shareholder-adopted bylaws requiring shareholder access to the company proxy statement for inclusion of nonmanagement nominees or reimbursement by the company of expenses incurred by shareholders who run a separate proxy solicitation in support of those candidates. Similar amendments are underway for the Model Business Corporation Act, which serves as the template for corporation statutes in most other states. These changes come on top of a campaign by activist shareholders over the last several years to convince public companies to adopt majority voting for directors instead of the previously prevailing plurality-voting system (in which negative votes had no real effect). Today, two-thirds of S&P 500 companies have adopted some form of majority voting for election of directors (according to lawyer Claudia Allen s Study of Majority Voting in Director Elections). The full impact of today s NYSE Rule 452 amendment will depend on the success of strategies public companies and their proxy solicitation advisers devise to cope with it and of promised NYSE or SEC initiatives to educate retail investors about the importance of voting instructions. It will also depend on further SEC reform initiatives relating to the NOBO-OBO rules, over and empty voting and other so-called proxy plumbing problems. Given the uncertainty surrounding these reforms, it is too early to predict the full extent to which the absence of broker discretionary voting in uncontested elections will contribute to reshaping the corporate-governance balance of power with respect to director elections. About Dorsey & Whitney Clients have relied on Dorsey ( since 1912 as a valued, cutting-edge business partner. With over 650 lawyers in 19 locations in the United States, Canada, Europe and Asia-Pacific, Dorsey provides an integrated, proactive approach to its clients' legal and business needs. Dorsey represents a number of the world's most successful Fortune 500 companies from a variety of disciplines, including leaders in the financial services, investment banking, life sciences, securities, technology and energy sectors, as well as nonprofit and government entities Dorsey & Whitney LLP. This Corporate Update is intended for general information purposes only and should not be construed as legal advice or legal opinions on any specific facts or circumstances. An attorney-client relationship is not created or continued by sending and receiving this Corporate Update. Members of the Dorsey & Whitney LLP Corporate Group will be pleased to provide further information regarding the matters discussed in this Corporate Update. 2

30 [!Libancorp. Lee R. Mitau Executive Vice President and General Counsel 800 Nicollet Mall, BC-MN-H231 Minneapolis, MN fax August 17, 2009 Ms. Elizabeth M. Murphy, Secretary U.s. Securities and Exchange Commission 100 F Street, NE Washington, DC Via rule-comments@sec.gov Re: Facilitating Shareholder Director Nominations Release Nos ; ; IC File No. S (June 10, 2009) Dear Ms. Murphy: u.s. Bancorp appreciates this opportunity to provide comments on the shareholder proxy access rules proposed by the Securities and Exchange Commission (the "Commission") in the releases referenced above (the "Proposed Access Rules"). u.s. Bancorp is a Delaware corporation and the parent of u.s. Bank National Association, the sixth largest commercial bank in the United States. u.s. Bancorp has more than 1.7 billion shares of common stock outstanding, and our shares are held by more than 500,000 beneficial owners. u.s. Bancorp is one of the strongest and most successful financial services companies in the United States. Our Board of Directors and management are dedicated to exemplary corporate governance, and believe good corporate governance is vital to our continued success. As a company keenly interested in evolving corporate governance practices, u.s. Bancorp has carefully reviewed, and has strong views regarding the implementation of, the Proposed Access Rules. We do not believe the Commission should adopt a mandatory one-size-fits-all federal rule imposing proxy access on all public companies. Instead, we believe the Commission should encourage the development of a more flexible approach to proxy access that allows companies to adopt individualized approaches. In order to achieve this goal, the Commission should amend its shareholder proposal rules to permit proxy access bylaw amendment proposals. By amending Rule usbank.com

31 Ms. Elizabeth M. Murphy, Secretary August 17, 2009 Page 2 14a-8 so that it is no longer an impediment to the "private ordering" of proxy access, shareholders and management will be able to work out mutually acceptable shareholder proxy access standards through the development of appropriate bylaw provisions. In the event the Commission disagrees with our views and decides to adopt a mandatory federal proxy access rule, we believe fundamental changes should be made to Rule 14a-11 in its proposed form. Rule 14a-ll is intended to ensure that shareholders can hold the board of directors accountable for advancing the long-term interests of the company and shareholders. As discussed below, we believe Rule 14a-11 as currently proposed would undermine this very objective by facilitating the election of "specialinterest" and"single issue" directors. We Oppose the Adoption of Proposed Rule 14a-11 Under proposed Rule 14a-ll, a shareholder or shareholder group would be able to require that its nominees be included in a company's proxy materials if the nominating shareholder or group meets certain criteria (e.g., minimum ownership level, holding period, no "control" purpose and independence). As proposed, new Rule 14a-ll would establish proxy access standards that could not be modified by the company's charter documents or state law to impose more stringent requirements. We oppose a federally mandated proxy access rule. We believe proposed Rule 14a-11 could be misused by special-interest shareholders to promote private agendas that are detrimental to the interests of our other shareholders and the company as whole. Under Rule 14a-ll, a shareholder or shareholder group owning only 1% of the outstanding shares of our common stock could obtain access to our proxy statement to nominate directors. Because of our high profile as a leading financial institution, we are particularly concerned that Rule 14a-ll would be used by special-interest shareholders that do not own a meaningful percentage of our stock to advance a variety of public policy positions that may actually be detrimental to our business and the best interests of the vast majority of our shareholders. This use of Rule 14a-11 would undermine the primary goal of nominating qualified directors dedicated to increasing long-term shareholder value. In addition, proposed Rule 14a-ll undercuts one of the fundamental elements of good corporate governance by eliminating the judgments of shareholders and boards of directors in determining how to best govern the corporation. In establishing standards for proxy access, companies need flexibility because their shareholder bases, voting rights and governance practices relating to the election of directors vary considerably. If Rule 14a-11 is adopted as proposed, shareholders and boards of directors will be unable to work out their own standards for shareholder access.

32 Ms. Elizabeth M. Murphy, Secretary August 17,2009 Page 3 Shareholders and boards of directors should be permitted to develop proxy access rights that are compatible with the particular needs and circumstances of their company. For example, in the case of U.S. Bancorp, we would want to adopt proxy access rules that limit the ability of special-interest shareholders to hijack the director election process. In recent years, many public companies have made significant changes in their corporate governance practices, primarily as a result of engaging their shareholders on governance issues. The recent experience with the majority-election movement shows how quickly and effectively changes in corporate governance standards can be effected based on private ordering. In the last three years, a majority of S&P 500 companies have adopted majority voting rules for the election of directors. Similarly, due in part to shareholder proposals requesting companies to declassify their boards, the percentage of S&P 500 companies with classified boards has declined dramatically in the last 10 years. US. Bancorp specifically has made certain changes to its governing documents after dialogue with its shareholders, such as eliminating our classified board structure and terminating our shareholder rights plan. We Support the Amendment of Rule 14a-8 to Permit Proposals regarding Proxy-Access Bylaws If Rule 14a-8(i)(8) were amended to eliminate the provision allowing companies to exclude shareholder proposals relating to procedures for the nomination or election of directors, the shareholders and the board of directors could develop appropriate criteria and procedures for proxy access through the shareholder proposal process. As discussed above, we support a private ordering approach to corporate governance, and believe shareholders and companies may work together to establish shareholder access procedures that meet the particular needs of individual companies. If Rule 14a-8(i)(8) is amended to permit shareholders to have proposals regarding shareholder access included in the company's proxy materials, this well-understood mechanism for receiving shareholder input could be used to develop appropriate proxy access rules. If Proxy Access Rules Are Adopted, Proposed Rule 14a-ll Should Be Significantly Revised As discussed above, we oppose the implementation of proposed Rule 14a-ll. However, if the Commission decides to adopt a federal proxy access right, we believe that significant modifications should be made to proposed Rule 14a-ll. More than anything else, we believe Rule 14a-ll should be revised to allow a company to adopt more stringent proxy access standards than those provided for in the

33 Ms. Elizabeth M. Murphy, Secretary August 17,2009 Page 4 proposed rule. Companies should be allowed to place reasonable restrictions on proxy access to promote orderly corporate governance and prevent special-interest shareholders from misusing Rule 14a-ll. We believe that, if proposed Rule 14a-ll is adopted, companies and their shareholders should be permitted to "opt out" of the rule by adopting their own form of proxy access procedures. Accordingly, we recommend that proposed Rule 14a-ll apply only to companies that have not opted out of the rule prior to the first annual meeting of shareholders after the adoption of Rule 14a-11 by the Commission. u.s. Bancorp supports the primary objective of the Proposed Access Rules, which is to remove barriers to shareholders being able to hold boards of directors accountable for advancing the long-term best interests of the company. However, we are concerned that a number of the provisions of Rule 14a-ll as proposed will undercut this objective. Specifically, we are concerned that, if Rule 14a-ll is adopted in its present form, directors nominated by a particular shareholder may advance short-term financial gain or narrow special-interest agendas that are in conflict with the long-term best interests of the company's broader shareholder base. In order to mitigate these concerns, we believe Rule 14a-ll should be revised as follows: Share Ownership Threshold. A higher level of share ownership should be required for proxy access. u.s. Bancorp is a large accelerated filer. As a result, under proposed Rule 14a-ll, a shareholder or shareholder group owning a mere 1% of the outstanding shares of our common stock could obtain access to our proxy materials to nominate directors. The proposed ownership eligibility threshold is exceedingly low, particularly because the rule permits shareholders to aggregate their holdings to meet the threshold. Because of the significant monetary and intangible costs of proxy election contests, which are borne by all shareholders, only significant shareholders with real"skin-in-the-game" should be given proxy access. We are concerned that the proposed share ownership threshold is so low that it will encourage special-interest shareholders to nominate their own candidates or threaten to make nominations in order to extract concessions from the company. As a very large financial institution, our company receives a great deal of media attention. Financial institutions are now viewed by some as "quasi-governmental" entities, and have become targets of critics attempting to advance broad agendas aimed at the financial services industry, or even society, as a whole. We do not believe Rule 14a-ll should be adopted if it contains a provision that would allow shareholders which do not own a meaningful percentage of the company's stock to abuse the director election process by advancing these agendas, which may be inconsistent with the long-term best interests of the company and its other shareholders. We

34 Ms. Elizabeth M. Murphy, Secretary August 17, 2009 Page 5 would suggest that a 5% threshold would be a more appropriate ownership level for a shareholder, and some higher percentage for a shareholder group, to advance a director nominee and force the company to expend the significant resources required in a director election contest. Type of Share Ownership. Rule 14a-11 should be clarified to define the type of share ownership that is required to meet the share ownership threshold requirements for proxy access. Derivative securities, which often de-couple economic interests from voting rights, are common in today's equity markets. As a result, we recommend that Rule 14a-ll require a nominating shareholder to have sole voting rights and a full economic interest in the shares it holds. Specifically, Rule 14a-ll should require the nominating shareholder to have a net long beneficial ownership position in its shares during the entire requisite holding period provided for in the rule. Prioritization of Nominations. The shareholder or shareholder group that owns the most shares should be given priority in making director nominations. As proposed, Rules 14a-11 contains a "first-in-time" rule that gives priority to the shareholder that first notifies the company. We believe Rule 14a-11 should be revised to provide a selection criterion among competing nominators that has more relevance to the process than a successful race to the mailbox. More importantly, we believe that it is appropriate for the shareholders with the largest economic stake in the company to be given priority in the proxy access process. Holding Period. Under proposed Rule 14a-11, a nominating shareholder is required to have had the requisite level of share ownership for at least one year, and to certify that this ownership level will be maintained through the date of the annual meeting. Only holders of a significant long-term interest in the company should be allowed proxy access under Rule 14a-11, and we do not believe that shareholders which have held their shares for only one year meet this standard. As an alternative to the Commission's proposal, we recommend that a nominating shareholder seeking proxy access be required to have held its shares for a minimum of two years, and to agree to continue to hold the shares through the end of its nominee's first term as a director. We further recommend that the nominee be required to tender his or her resignation from the board if the requisite level of share ownership is not maintained throughout this period. Limit on Number of Nominees. The limit on the number of director candidates that can be nominated by shareholders pursuant to proposed Rule 14a-11 is too high. Under the proposed rule, a company would be

35 Ms. Elizabeth M. Murphy, Secretary August 17,2009 Page 6 required to include nominees representing up to 25% of its directors. Accordingly, a single shareholder owning only 1% of the outstanding shares of common stock of u.s. Bancorp could potentially nominate up to 25% of our directors. Obviously, the ratio of 1% economic interest to 25% nominating power is disproportionately high. U.s. Bancorp currently has 13 directors, and, under proposed Rule 14a-ll, shareholders could nominate up to three directors. In any given year, we would need to manage a director election process involving up to three director candidates nominated by shareholders. In addition, we believe that adding three new directors with no prior experience on the U.S. Bancorp board could significantly disrupt the functioning of our Board of Directors. The addition of three directors who may not share the other directors' views on managing the company would likely result in a less cohesive board that is less able to reach consensus on important issues facing the company. As an alternative to the limit on director nominees proposed in Rule 14a-ll, we recommend that no single shareholder or shareholder group should be allowed to nominate more than one director, with the total number of shareholder nominees constituting no more than 15% of the directors. Relationship between Nominee and Nominating Shareholder. Rule 14a-ll should require that any director candidate nominated by a shareholder be independent of the nominating shareholder. Without an independence requirement, there can be no assurance that a shareholder nominee will not be be unduly influenced by the nominating shareholder in a way that prevents the nominee from properly exercising his or her fiduciary duties to all shareholders. A Rule 14a-ll requirement that a director nominee be independent of the nominating shareholder would be consistent with the proxy access proposal made by the Commission in 2003, when the Commission expressed concern regarding the possibility that proxy access could result in "special-interest" or "single issue" directors. Independence and Qualifications. Proposed Rule 14a-ll requires that a shareholder nominee meet the objective criteria for independence set forth in the rules of the applicable national securities exchange. No other qualifications are required. u.s. Bancorp has invested a significant amount of time and effort to ensure that our directors meet stringent independence requirements and are highly qualified to serve on our Board. Our carefully developed independence and qualification standards are set forth in our corporate governance guidelines. We strongly believe that Rule 14a-ll should be revised to require that any shareholder nominee meet the independence and qualification requirements of a company so long as they are applicable to all directors on a non-discriminatory basis. In addition,

36 Ms. Elizabeth M. Murphy, Secretary August 17,2009 Page 7 Rule 14a-11 should include a requirement that shareholder nominees disclose any significant shareholdings in competitors of the company. Finally, we believe that director candidates nominated pursuant to Rule 14a-ll should be obligated to have an interview with the governance or nominating committee of the company's board, so that the board can develop a better-informed opinion of the candidate, and fulfill its responsibility to recommend the best-qualified candidates and ensure the most desirable overall composition of the board. Information Required. Under U.s. Bancorp's bylaws, shareholders nominating a director candidate are required to provide the company with certain important information regarding the nominating shareholder and its nominee. For example, the nominating shareholder is required to disclose any derivative positions it has with respect to our common stock. Director candidates nominated by a shareholder are required to complete a detailed questionnaire relating to the nominee's independence and qualifications to serve as a director. In addition to complying with the disclosure requirements of Schedule 14N under Rule 14a-11, we believe any shareholder seeking proxy access should be required to provide U.s. Bancorp with the same information required by our bylaws to be disclosed by any other shareholder making a director nomination. Contested Elections. We believe Rule 14a-ll should be revised to eliminate a proxy access right if a company is engaged in a proxy contest in which proxies are being solicited by a dissident shareholder pursuant to its own proxy materials. If proxy access is permitted during a traditional proxy fight, the company could be faced with shareholder-nominated directors from multiple sources. The combination of these nominations could result in a change of a majority of the company's board of directors. Because a basic premise of proposed Rule 14a-ll is that the rule should not be used to effect a change in control, we believe proxy access under Rule 14a-11 should be denied in situations where the company is already engaged in a traditional proxy fight. Resubmissions of Nominees. Frequent resubmissions of director nominations by shareholders whose candidates have not been successful in past elections would be costly and disruptive to the director election process. As a result, Rule 14a-ll should include a provision that would deny proxy access to any nominating shareholder, if the shareholder has had a nominee included in the company's proxy statement in previous years and the nominee did not receive a requisite level of votes (e.g., 25%). In these situations, the nominating shareholder has not received a level of support