Verizon’s Proxy statement: Controversy Galore
Item 5 on Proxy Card: Network Neutrality
The Nathan Cummings Foundation, owner of 5,265 shares of the Company’s common stock, proposes the following:
Whereas,
Wireless communications are critical to Verizon. In 2012, wireless constituted almost two-thirds of total revenue, growing by 8.1 percent from 2011, while traditional wireline revenues declined.
A critical factor in this growth has been the open (non-discriminatory) architecture of the Internet. Non discrimination principles are commonly referred to as “network neutrality” and seek to ensure equal access and non-discriminatory treatment for all content.
We believe open Internet policies help drive the economy, encourage innovation and reward investors. Network neutrality principles may help Verizon financially by bringing new products to its platform, attracting customers and creating opportunities to share revenue with developers.
An open Internet also has particular importance for minority and economically disadvantaged communities, which rely on wireless more than other demographic groups. According to Colorofchange.org, an organization representing Black Americans, “The digital freedoms at stake are a 21st century civil rights issue.”
Verizon’s stated policies for customers who access the Internet via wireless devices are markedly different from those for customers who access the Internet via wired networks.
For example, on its web site the Company offers customers who gain Internet access via its wired network a “commitment” which includes: “We will not prevent you or other users of our service from sending and receiving the lawful content of your choice; running lawful applications and using lawful services of your choice…” and “We will disclose the types of practices that we use to manage our network…”.
Wireless customers, however, are given no such assurances. The Company tells wireless customers: “We will continue to disclose accurate and relevant information in plain language about the characteristics and capabilities of our service offerings so you and other users of our service can make informed choices.”
As investors, we are deeply concerned about this disparity in principles, policies and practices. In light of potential reputational, regulatory, and legislative risk related to Verizon’s network management practices and the issue of network neutrality, this disparity is troubling.
There may also be reputational and commercial risk in not providing customers with evidence of open Internet policies. In its 2012 annual report, the Company says it expects that, “competition will continue to intensify with traditional, non-traditional and emerging service providers seeking increased market share.”
Resolved: Shareholders request that the Board of Directors report by October 2014 (at reasonable cost and omitting proprietary and confidential information) how Verizon is responding to regulatory, competitive, legislative and public pressure to ensure that its network management policies and practices support network neutrality, an Open Internet and the social values described above.
Supporting Statement
We are not seeking a report on legal compliance or the details of network management. Rather, we seek to ensure that shareholders have sufficient information to evaluate how Verizon manages this significant policy challenge — e.g., how it takes into account that network management decisions could potentially affect future regulatory developments.
The Board of Directors recommends that you vote AGAINST this proposal for the following reasons:
The Board of Directors strongly disagrees with the proponent’s claim that Verizon has not provided its customers with evidence of Open Internet policies. Quite the opposite — Verizon has been at the forefront of innovation in the broadband ecosystem, advocating policies to create a robust, level and dynamic playing field for all participants in the Internet environment. Over the past six years Verizon has invested over $100 billion in developing its wireline and wireless broadband networks and has actively encouraged the development of a wide range of devices and applications to enable customers to access and use the Internet in the manner of their choosing. As a leader in developing an open architecture for accessing and using the Internet, Verizon’s position on all aspects of the “network neutrality” debate has been consistently and publicly conveyed in mainstream and industry-related media, through legislative and agency fact-finding processes and in applicable agency and court filings.
Verizon recently published on its website its commitment to broadband customers to support the Open Internet and to provide them with Internet access and use of the lawful online content, applications and services of their choice, regardless of their source. The Company’s commitment applies to broadband Internet access services provided over both its wireline and wireless networks and can be found on Verizon’s website at http://responsibility.verizon.com/broadband-commitment.
In view of Verizon’s stated commitment, and the extensive information that it makes available about its approach to issues associated with network management, the Internet and network neutrality, the Board believes that the report requested by the proposal would provide no additional meaningful information to shareholders and would be a waste of corporate resources.
Item 6 on Proxy Card: Lobbying Activities
Domini Social Investments, owner of 501,563 shares of the Company’s common stock, and three co-sponsors, propose the following:
Whereas, corporate lobbying exposes our company to risks that could adversely affect the company’s stated goals, objectives, and ultimately shareholder value, and
Whereas, we rely on the information provided by our company and, therefore, have a strong interest in full disclosure of our company’s lobbying to evaluate whether it is consistent with our company’s expressed goals and in the best interests of shareholders and long-term value.
Resolved, the shareholders of Verizon Communications Inc. (“Verizon”) request that the Board authorize the preparation of a report, updated annually, disclosing:
| 1. | Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications. |
| 2. | Payments by Verizon used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient. |
| 3. | Verizon’s membership in and payments to any tax-exempt organization that writes and endorses model legislation. |
| 4. | Description of the decision making process and oversight by management and the Board for making payments described in sections 2 and 3 above. |
For purposes of this proposal, a “grassroots lobbying communication” is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or regulation. “Indirect lobbying” is lobbying engaged in by a trade association or other organization of which Verizon is a member.
Both “direct and indirect lobbying” and “grassroots lobbying communications” include efforts at the local, state and federal levels.
The report shall be presented to the Audit Committee or other relevant oversight committees and posted on Verizon’s website.
Supporting Statement
As shareholders, we encourage transparency and accountability in the use of corporate funds to influence legislation and regulation, both directly and indirectly. Verizon sits on the board of the Chamber of Commerce, which is characterized as “by far the most muscular business lobby group in Washington” (“Chamber of Secrets,” Economist, April 21, 2012) and has spent over $1 billion on lobbying since 1998. Verizon does not disclose its memberships in, or payments to, trade associations, or the portions of such amounts used for lobbying. Transparent reporting would reveal whether company assets are being used for objectives contrary to Verizon’s long-term interests.
Verizon spent approximately $30.9 million in 2011 and 2012 on direct federal lobbying activities (Senate reports). Verizon also lobbies at the state level and was the fifth largest lobbying spender in New Jersey for 2012, spending $668,716 (“$58 Million Spent On Lobbying NJ Lawmakers,” WNYC.org, Oct. 7, 2013). And Verizon does not disclose its membership in, or payments to, tax-exempt organizations that write and endorse model legislation, such as Verizon’s service on the Communications and Technology Task Force of the American Legislative Exchange Council (ALEC). At least 50 companies, including Sprint Nextel and Symantec, have publicly left ALEC because their business objectives and values did not align with ALEC’s activities.
The Board of Directors recommends that you vote AGAINST this proposal for the following reasons:
Verizon engages in advocacy at the federal and state levels in order to educate officeholders and the public about the Company’s position on important public policy issues. By supporting policies that allow the Company to compete fairly in the marketplace, Verizon promotes the interests of the Company and its shareholders. The Company’s lobbying activities are already subject to an extensive framework of laws, public disclosure, and internal oversight. The additional disclosures required by the proposal would provide little or no value to shareholders while imposing significant administrative burdens on the Company.
Verizon already complies fully with all laws governing its lobbying activities, which require it to make extensive public disclosures about those activities. At the federal level, Verizon files public quarterly reports disclosing its lobbying expenditures and detailing its lobbying activities, the entities it lobbied and the subject matters upon which it lobbied. Any lobbying firms hired by Verizon file similar reports. In addition, Verizon files public semiannual reports disclosing political contributions and honorary payments made by the Company and its federal political action committee. Each of Verizon’s in-house and external lobbyists file similar reports disclosing personal contributions and payments. Finally, Verizon belongs to a number of trade associations which are registered under the Lobbying Disclosure Act, and which file their own lobbying reports. These reports disclose the trade association’s own lobbying activities, and to the extent the trade associations have members who contribute more than $5,000 per quarter to the association and who actively participate in the planning, supervision, or control of the association’s lobbying activities, those members are identified on the association’s lobbying reports. Verizon also files extensive lobbying disclosure reports as required by state law.
Verizon’s lobbying activities are subject to robust internal controls, including oversight by the Corporate Governance and Policy Committee of the Board of Directors. The Code of Conduct requires that all lobbying activities on behalf of the Company be authorized by public policy or legal personnel. In addition, corporate policy and training materials provide guidance to employees regarding legal requirements in connection with lobbying activities.
Because Verizon is already subject to extensive reporting requirements regarding its lobbying activities and has strong internal controls to ensure that any lobbying activity is conducted in accordance with the law and in furtherance of the Company’s and its shareholders’ interests, the Board does not believe that the additional requested disclosure would be valuable to shareholders.
Item 7 on Proxy Card: Severance Approval Policy
Jack K. and Ilene Cohen, owners of 692 shares of the Company’s common stock, propose the following:
Resolved: Verizon shareholders urge the Board to seek shareholder approval of any senior executive officer’s new or renewed compensation package that provides for severance or termination payments with an estimated total value exceeding 2.99 times the sum of the executive’s base salary plus target short-term bonus.
“Severance or termination payments” include any cash, equity or other compensation that is paid out or vests due to a senior executive’s termination for any reason. Such payments include those provided under employment agreements, severance plans, and change-in-control clauses in long-term equity plans. Such payments do not include life insurance, pension benefits, or other deferred compensation that is earned and vested prior to termination.
“Total value” of these payments includes: lump-sum payments; payments offsetting tax liabilities; perquisites or benefits that are not vested under a plan generally available to management employees; post-employment consulting fees or office expense; and equity awards if vesting is accelerated, or a performance condition waived, due to termination.
The Board shall retain the option to seek shareholder approval after material terms are agreed upon.
Supporting Statement
While we support generous performance-based pay, we believe that requiring shareholder ratification of “golden parachute” severance packages with a total cost exceeding 2.99 times base salary plus target bonus is prudent and better aligns compensation with shareholder interests.
According to the 2013 Proxy (page 63), if CEO McAdam is terminated without cause, whether or not there is a change in control, he could receive an estimated $34.3 million in termination payments, more than 7.5 times his 2012 base salary plus short-term bonus. He would receive a similar payout ($34.3 million) for termination due to disability or death.
Likewise, CFO Shammo and Executive Vice President Mead would receive an estimated $8.9 and $9.8 million, respectively – over 6 times their 2012 base salary plus target bonus (page 63).
These estimated terminations payments are in addition to compensation that is earned prior to termination, including pension and nonqualified deferred compensation plans, that pay out millions more.
The majority of termination payments result from the accelerated vesting of outstanding and Performance Stock Units (PSUs) and Restricted Stock Units (RSUs).
If a senior executive terminates within 12 months after a “change in control,” all outstanding PSUs immediately “vest at target level” (Proxy, page 62). Had the executive not terminated, the PSUs would not vest until the end of the performance period (up to 3 years later) – and could potentially have been worthless if performance or tenure conditions were not satisfied.
This practice effectively waives performance conditions that justify Verizon’s annual grants of “performance-based” restricted stock, in our view.
Years ago Verizon’s Board adopted a policy requiring shareholder approval of severance agreements with a “cash value” exceeding 2.99 times base salary plus bonus, but excluding equity awards.
The policy should be updated to include the full cost of termination payments, including the estimated value of accelerated vesting of RSUs and PSUs.
Please VOTE FOR this proposal.
The Board of Directors recommends that you vote AGAINST this proposal for the following reasons:
The Human Resources Committee of the Board of Directors supports reasonable and appropriate limits on severance payments. Over ten years ago, the Committee adopted a policy to obtain shareholder ratification of any new employment agreement or severance agreement with an executive officer that provides for severance benefits with a total cash value exceeding 2.99 times the sum of the executive’s base salary plus target short-term incentive opportunity. The Committee, however, fundamentally disagrees with the proponent’s characterization of the amounts payable under outstanding equity awards after a termination of employment as severance payments. In the Committee’s view, it would be inappropriate to include an estimated value of these amounts in the severance calculation because they are earned by the executives during the course of their employment.
Verizon’s executive compensation program focuses extensively on variable, performance-based compensation consistent with our objective of linking executives’ interests with shareholders’ interests. Long-term equity-based incentive awards represent more than 60% of an executive’s annual compensation opportunity. Currently, these awards consist of performance stock units (PSUs) and restricted stock units (RSUs) that are granted under Verizon’s 2009 Long-Term Incentive Plan (Plan).
The proponent’s policy is inconsistent with the terms of the Plan, which was most recently approved by shareholders in 2013 with a vote of 89% in favor. The Plan includes a “double-trigger” change in control provision, meaning that if, within twelve months of a change in control of Verizon, a participant’s employment is terminated without cause, all then-unvested RSUs will vest and be paid on the regularly scheduled payment date after the end of the applicable award cycle and all then-unvested PSUs will vest at the target level of performance and be paid on the regularly scheduled payment date after the end of the applicable award cycle. The Committee believes that this provision is in the shareholders’ best interests because it promotes stability and focus during an uncertain time by ensuring that employees do not have to worry about potentially losing a substantial amount of their compensation by supporting a transaction that is in the best interests of Verizon’s shareholders. Furthermore, outside of a change in control context, if an employee’s employment is terminated without cause, or upon the employee’s death, disability or qualifying retirement, the awards remain outstanding and become payable, if at all, on the regularly scheduled payment date. In the case of PSUs, the awards are only paid if, and only to the extent that, the applicable performance criteria are satisfied at the end of the three-year award cycle. It is important to note that the award payments are not a windfall – they are not accelerated or increased on the employee’s termination – nor, as the proponent asserts, are the performance conditions “effectively waive[d].”
Implementing the proposed change to the existing severance approval policy would, as a practical matter, require the Committee to either design the executive compensation program to significantly reduce the role of equity-based pay or provide for terms that could place the Company at a competitive disadvantage in attracting and retaining highly qualified executives, since the vast majority of large public companies provide for accelerated vesting of equity upon a change in control.
Consistent with its overall pay-for-performance philosophy and its desire to ensure that executives’ interests are aligned with those of our shareholders, the Committee believes it is important to continue to implement an executive compensation program under which the substantial majority of an executive’s annual compensation opportunity is variable, performance-based pay. The Committee also believes that otherwise changing the program in a way that is not consistent with market practice would frustrate two of the primary goals of the program – to attract and retain highly qualified executives. For these reasons, the Committee firmly believes that the Proposal is not in the best interests of Verizon and its shareholders.
Item 8 on Proxy Card: Shareholder Right to Call a Special Meeting
Kenneth Steiner, owner of at least 500 shares of the Company’s common stock, proposes the following:
Resolved, Shareowners ask our board to take the steps necessary unilaterally (to the fullest extent permitted by law) to amend our bylaws and each appropriate governing document to give holders in the aggregate of 15% of our outstanding common the power to call a special shareowner meeting.
This includes that such bylaw and/or charter text will not have any exclusionary or prohibitive language in regard to calling a special meeting that apply only to shareowners but not to management and/or the board (to the fullest extent permitted by law). This proposal does not impact our board’s current power to call a special meeting.
Special meetings allow shareowners to vote on important matters, such as electing new directors that can arise between annual meetings. Shareowner input on the timing of shareowner meetings is especially important when events unfold quickly and issues may become moot by the next annual meeting. This proposal topic won more than 70% support at Edwards Lifesciences and SunEdison in 2013
This proposal should also be more favorably evaluated due to our Company’s clearly improvable environmental, social and corporate governance performance as reported in 2013:
GMI Ratings, an independent investment research firm, rated our company D for its board and F for executive pay -$28 million for Lowell McAdam plus 29 years pension credit. Unvested equity pay would not lapse upon CEO termination. Our company had not linked environmental or social performance to its incentive pay policies.
Donald Nicolaisen was on our audit committee and was “overboarded” with seats on 4 boards. Joseph Neubauer received our highest negative votes and, with 18 years long-tenure, chaired our Executive Pay Committee. GMI said there was not one audit committee member who had substantial industry knowledge. There was not one independent member of our board who had expertise in risk management.
GMI said Verizon had come under investigation, or had been subject to fine, settlement or conviction for obstruction of justice or false statements. Our company had also come under investigation or had been subject to fine, settlement or conviction for unfair labor practices or other labor violations (direct or supply chain). Verizon had not implemented OSHAS 18001 as its occupational health and safety management system. Our company was not a UN Global Compact signatory.
GMI said Verizon was rated as having Very Aggressive Accounting & Governance Risk indicating higher accounting and governance risk than 91% of companies. Verizon also had higher shareholder class action litigation risk than 97% of all rated companies.
Returning to the core topic of this proposal from the context of our clearly improvable corporate governance, please vote to protect shareholder value:
Special Shareowner Meetings – Proposal 8
The Board of Directors recommends that you vote AGAINST this proposal for the following reasons:
Verizon’s Board of Directors has carefully considered this issue in each of the past six years. The Board continues to believe that this proposal is unnecessary because Verizon’s shareholders already have a meaningful right to call a special meeting. Under Verizon’s bylaws, any shareholder who owns at least 10%, or multiple shareholders who together own at least 25%, of Verizon’s stock may call a special meeting of shareholders. There are only limited circumstances under which a special meeting requested in accordance with the bylaws would not occur, each of which is designed to prevent a costly meeting that is unnecessary because the proposed business is not a proper subject for shareholder action under Delaware law or because shareholders have recently had or will soon have an opportunity to address the issue at a regularly scheduled meeting.
A special meeting of shareholders is an extraordinary event that is both expensive and time-consuming. The Board firmly believes that the ownership thresholds and the common sense safeguards contained in Verizon’s current bylaw provision strike an appropriate balance between the right of shareholders to call a special meeting and the interests of Verizon and its shareholders in promoting the appropriate use of company resources.
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