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Calpers criticizes Lilly corporate governance

March 15, 2007
Eli Lilly and Co. is among 11 companies singled out by the mammoth California Public Employee Retirement System for “dismal stock performance” and poor corporate governance, according to Bloomberg.

Lilly landed on Calpers’ annual “Focus List” for not allowing shareholders to amend company bylaws and by having tiers of board members that prevent the board from being replaced en masse. Calpers faulted other companies for not allowing shareholders to roll back excessive executive pay.

Lilly spokesman Phil Belt told Bloomberg that the Indianapolis company’s board is supporting a proposal at this year’s annual meeting that would allow annual elections of all board members.

As for shareholder-initiated bylaw changes, however, Belt said that would “expose shareholders to the risk that a few shareholders who don’t have any fiduciary responsibility to the other shareholders could use the bylaws to advance whatever their own short term interests might be.”

The companies on Calpers’ list not only are behind the times in corporate governance, but their stock performance has lagged too, pension fund officials claimed. Calpers said it would talk to each company to try to improve its corporate governance, or else file motions at shareholder meetings to try to force changes.

“The long-term performance of these companies is at least 20 percent behind their peers, and they have resisted appeals to change corporate practices that make their boards unresponsive to shareowner interests,” Calpers board President Rob Feckner told reporters on a conference call.

Lilly shares, which traded this afternoon at about $52, have fallen about 6 percent in the past year.

Other corporations on this year’s list are Marsh & McLennan Cos., Sara Lee Corp., Tribune Co., International Paper Co., Corinthian Colleges Inc., Tenet Healthcare Corp., EMC Corp., Dollar Tree Stores Inc., Kellwood Co. and Sanmina-SCI Corp.
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