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April 03, 2002
EMC Proxy Card Leaves Shareowner Voters in the Dark
    by William Baue

EMC apparently violated SEC regulations by omitting descriptions of two shareholder resolutions on its 2002 proxy card, according to proposal filers and proxy voting experts.

On March 28, Massachusetts-based data management and storage systems manufacturer EMC Corporation (ticker: EMC) filed its definitive proxy statement for its May 8, 2002 Annual Meeting. Shareowners that opted for electronic notification have already received their proxy cards, and other shareowners will receive their ballots by mail. The proxy card lists four proposals up for vote. The first two proposals, offered by EMC's management, follow the standard protocol of briefly describing the issues involved. Proposal 3 and Proposal 4, however, do not include any identifying description; each appears simply as "Stockholder Proposal." In fact, the shareholder proposals address board independence and diversity.

"This type of exclusion is definitely not common. Frankly, I can't remember ever seeing a proxy containing this type of gross omission before," said Robert Kellogg, director of policy for Proxy Voter Services (PVS), a division of Institutional Shareholder Services (ISS). "[It] is more than unusual. It might even be unprecedented." ISS provides impartial proxy voting and corporate governance services to more than 500 institutional investors worldwide.

In order to distinguish between the two shareowner proposals, much less identify the issues involved in each, shareowners have to consult the Proxy Statement, which was not included with the electronic proxy card. Online, this requires navigation through several hyperlinks and entering EMC's website, then navigating through the Proxy Statement to locate the shareowner proposals.

Proposal 4, which asked EMC to commit to racial and gender diversity on its board, was filed by the State of Connecticut Treasurer Denise Nappier, who acts as principal fiduciary for the state's $20 billion public pension fund. Yesterday, Deputy Treasurer Howard Rifkin sent a letter to the Alan Beller, director of the Division of Corporate Finance at the U.S. Securities and Exchange Commission (SEC). He maintained that EMC's omission violated Rule 14a-4 of the Securities Exchange Act of 1934.

"Specifically, Rule 14a-4 requires the proxy card to 'identify clearly and impartially each separate matter intended to be acted upon, whether or not related to or conditioned on approval of other matters, and whether proposed by the registrant or by the security holder'," wrote Mr. Rifkin. "No indication is given [on the EMC proxy card] regarding the subject matter of either proposal, nor is the stockholder referred to the Proxy Statement for more information. This identification is neither clear nor impartial."

EMC Manager of Global Investor Relations Michael Mahoney cited the same SEC regulation to confirm the company's compliance.

"The SEC requires that each matter be 'clearly and impartially' identified on the proxy card. Our proxy card does so," Mr. Mahoney said. "There are no omissions. Each proposal is identified in our proxy card exactly as it is identified in our proxy statement. Voting stockholders should read the text of the proxy statement to obtain an understanding of the proposals and the issues addressed."

Proposal ballot

EMC's proxy card follows standard protocol for Proposal 2--offered by EMC's management--by including a one-sentence description. Proposals 3 and 4--shareowner resolutions on board diversity and independence, respectively--include no such description, which is "unprecedented," according to one expert.

Mr. Kellogg concurred with Mr. Rifkin that the proxy card seemed to violate SEC rule 14a directly. He also agreed with Mr. Rifkin's opinion that the SEC should require EMC to revise its proxy card by providing a brief summary of issues involved in the shareowner proposals.

Mr. Kellogg also placed the incident in the larger context of EMC's tarnished history of shareowner relations. For example, at EMC's 2001 annual meeting, the company shifted from the open question-and-answer format implemented by most companies, where shareowners ask questions directly from the floor, to requiring shareowners to submit questions beforehand. This policy raised concern of the potential for board and management censorship of questions. Indeed, EMC chose to exclude a question regarding diversity, the same issue excluded from this year's proxy card.

"Given EMC's lackluster governance track record, if nothing else this raises eyebrows regarding the board's and management's commitment to the ideal of full transparency," said Mr. Kellog. "This unfortunate occurrence only reinforces the legitimate concerns previously raised by many institutional investors over the company's problematic corporate governance history."


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