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