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May 05, 2004
Avon Shareowners Withdraw Two Resolutions Before Annual Meeting
    by William Baue

Avon agreed to hold annual board of director elections and to phase out phthalates from its products, prompting shareowners to withdraw their resolutions on these two issues.


It took Avon Products (ticker: AVP) almost a year to do so, but finally, less than a week before this year's May 6 annual meeting, it decided to heed the majority vote on last year’s shareowner resolution by agreeing to implement yearly board elections. The decision prompted resolution filers to withdraw this year’s resolution. Coincidentally, filers of a different resolution that asks the company to evaluate the feasibility of removing dibutyl phthalates (DBP, toxins linked to health problems) from its products also withdrew when Avon confirmed that it is phasing out DBP as an ingredient.

At last year's annual meeting, more than four-fifths (80.5 percent) of voting shareowners supported a resolution calling on Avon to repeal its so-called classified board, which staggers elections instead of holding them annually. Corporate governance advocates consider annually-elected boards more accountable. After conducting a "diligent and comprehensive" review of the issue, Avon's Board of Directors came to a different conclusion, according to Andrea Jung, Avon's chair and CEO.

"The Board believes that the current classified structure has provided the continuity of experience and perspective to facilitate long-term planning," said Ms. Jung. "Nonetheless, in making this move, the Board acknowledges the strong sentiment in favor of declassification, and recognizes shareholders' view that this measure will enhance Board accountability."

Tim Smith, senior vice president of Walden Asset Management, the Boston-based socially responsible investment (SRI) firm that filed the resolution, provides further explanation.

"This year, as the votes continued to come in at an overwhelmingly high rate for the declassification proposal at other companies, the board changed its position last Friday," Mr. Smith told SocialFunds.com. "Also, Institutional Shareholder Services and other proxy advisory firms recommend voting against boards that ignore majority votes for shareholder proposals."

The Avon Board agreed to submit a proposal to the company's 2005 proxy statement to declassify the Board structure, leading to the annual election of directors.

The resolution on phthalates, which are associated with reduced fertility and abnormal development of the male reproduction system, was filed last year, but it did not make it to vote.

"It was about to be omitted on a [procedural] technicality, so I withdrew it," said Shelley Alpern, director of social research and advocacy at Trillium Asset Management, which filed the resolution.

Trillium successfully submitted the resolution this year, and expected it to go to vote until very recently, when Ms. Alpern discovered the resolution's request may be moot.

"I learned that Avon was essentially implementing our 'ask' while reading a write-up of the company prepared by IRRC [the Investor Responsibility Research Center, a proxy advisory firm]," Ms. Alpern told SocialFunds.com. "It's a little bit puzzling that Avon didn't contact us directly with this information."

"I contacted the company and said, 'it looks like you're doing basically what we asked you to do, so we're prepared to withdraw the resolution if you put what you're doing in writing,'" added Ms. Alpern.

Avon did so, confirming that it is reformulating its products in Europe, that it has already done so in the US, and that it is "determining the feasibility" of removing DBP from its products in non-US and European markets. Avon also agreed to Trillium's terms of providing periodic updates of how the phase-out is going.

It is a matter of speculation whether companies are increasingly implementing resolution requests, and if so, why.

"It's hard to say if it's a reflection of companies becoming more accommodating or shareholder activists choosing issues that are more ripe for accommodation," said Ms. Alpern. "There's more sophistication in the shareholder activist community, and there are more and bigger players involved."

At the annual meeting, Avon will still face a resolution that asks the company to phase out parabens, estrogen-like substances that are potentially linked to breast cancer. The resolution, filed by Domini Social Investments, received 6.18 percent support from voting shareowners last year.

In addition to this issue on the proxy ballot, Walden, Trillium, and Domini are in dialogue with Avon over transparency in the company's breast cancer fundraising. The company has been criticized for failing to disclose whether funds raised in specific communities benefit breast cancer work in those communities, and for predominantly supporting already well-funded research that avoids examining environmental causes.

"I don't think we're making much headway, although we're really trying," said Ms. Alpern.

 

 
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