SHAREHOLDER PROPOSAL
(Item 4 on the proxy card)
The following proposal was submitted for inclusion in this proxy statement by the United Brotherhood of Carpenters Pension Fund, 101 Constitution Avenue,
N.W., Washington, D.C. 20001. As of the date that the proposal was submitted, the United Brotherhood of Carpenters Pension Fund owned 2,300 Common Shares.
MAJORITY VOTE REINCORPORATION PROPOSAL
Resolved:
That the shareholders of Convergys
Corporation (“Company”) hereby request that the Board of Directors take the measures necessary to change the Company’s jurisdiction of incorporation from Ohio to Delaware.
SUPPORTING STATEMENT OF THE
UNITED BROTHERHOOD OF CARPENTERS PENSION FUND
Our Company is incorporated in Ohio. Ohio law mandates a plurality vote standard for the election of directors. Specifically, the law
states that “at all elections of directors, the candidates receiving the greatest number of votes shall be elected.” (Ohio Revised Code, 1701.55(B)).
This proposal requests that the Board reincorporate the Company under Delaware state corporate law, which provides that a company’s certificate of incorporation or bylaws may specify the number of votes that
shall be necessary for the transaction of any business, including the election of directors. (DGCL, Title 8, Chapter 1, Subchapter VII, Section 216). Reincorporation would allow the Company’s board of directors and its shareholders to take
actions to establish a majority vote standard for the election of directors. Under Delaware law, the Company’s board would have the power to change the bylaws or initiate a change to the certificate of incorporation to provide that director
nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders. Likewise, shareholders on their own initiative would be able to propose and vote on a bylaw provision to establish a majority vote
standard in director elections.
Our Company’s Board and shareholders should have the flexibility to choose the election standard that
best serves the interests of the Company and its shareholders. Under the plurality vote standard, a nominee for the board can be elected with as little as a single affirmative vote, even if a substantial majority of the votes cast are
“withheld” from the nominee. A majority vote standard would require that a nominee receive a majority of the votes cast in order to be elected. The standard is particularly well-suited for the vast majority of director elections in which
only board nominated candidates are on the ballot.
We believe that a majority vote standard in board elections would establish a
challenging vote standard for board nominees and improve the performance of individual directors and the entire board. It would provide shareholders a meaningful role in the director election process, enhance director accountability, strengthen the
director nomination process, and improve the operations of our Company.
In response to strong shareholder support for a majority vote
standard in director elections, an increasing number of companies, including Intel, Dell, Motorola, Texas Instruments, Safeway, Home Depot, Gannett and Supervalue, have adopted a majority vote standard in company bylaws. We encourage our Company to
take the important first step in joining these companies by reincorporating in Delaware, so as to provide the Board and shareholders the right to adopt a majority vote standard.
We urge your support for this important director election reform.
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BOARD OF DIRECTORS’ RESPONSE
The Board of Directors unanimously recommends a vote AGAINST this
proposal for the following reasons:
The proponent is asking the Company to undertake the extremely significant step of reincorporation
solely to permit the Company to consider adoption of a majority voting standard in director elections. The proponent has not provided any other reason for reincorporation, and explicitly avoids any discussion of the disadvantages, costs and
consequences of reincorporating.
The costs and risks associated with reincorporating out of the Company’s home state of Ohio solely
to enable the Company to consider adopting a majority voting standard greatly outweigh any benefit that would result from adoption of the proposal. The detriments are certain and real; the benefits, if any, are uncertain and disputable.
Because Ohio law is often favorable to the Company, many of the Company’s contracts provide they are governed by Ohio law, and it is beneficial
to the Company that any litigation from these contracts be conducted in Ohio courts.
Reincorporation involves substantial costs and detriments to the
Company
The proponent requests that the Company change its state of incorporation to Delaware solely to enable the Company to consider
adopting a majority voting standard for the election of directors. Changing the Company’s state of incorporation would involve significant costs, risks and other considerations. The Board believes that reincorporating in Delaware would be
detrimental to the best interests of the Company and its shareholders for the following reasons:
First, the Company was incorporated in
Ohio in 1998, maintains its headquarters in Ohio, and has nearly 2,000 employees in Ohio. By virtue of being an Ohio corporation and maintaining a large corporate presence in Ohio, the Company enjoys strong support from the State of Ohio and its
governmental subdivisions, including tens of millions of dollars in tax incentives. The Ohio General Assembly has a long history of supporting the continued growth and prosperity of important Ohio corporations such as the Company, Procter &
Gamble, Goodyear and Cardinal Health. While some of the benefits of maintaining an Ohio incorporation are difficult to quantify with precision, they are substantial. Changing the Company’s state of incorporation to Delaware, where the Company
has no operations, no physical presence and no experience with state officials, could result in a loss of some of these benefits.
Second,
because the Company is both incorporated and headquartered in Ohio, it is a “citizen” of Ohio. This is important because the Company is subject to lawsuits where it is a citizen, regardless of whether the suit arose in such state. If the
Company reincorporated under Delaware law, it would become a citizen of both Delaware and Ohio, and lawsuits against the Company could be brought against the Company in both Delaware and Ohio state and federal courts, even if the matters did not
arise there. The Company has experience dealing with Ohio courts and their various procedural rules, and its in-house lawyers are licensed to practice in Ohio. Reincorporation would increase the Company’s exposure to litigation in Delaware,
potentially resulting in additional litigation costs for the Company. Further, the Company has no experience in dealing with the Delaware courts, making it more difficult to make the strategic decisions often involved in litigation.
In addition, because Ohio law is generally more favorable to the Company, almost all of the Company’s agreements, including key non-compete and
confidentiality agreements, are governed by Ohio law. If the Company remains a “citizen” of Ohio only, it is more likely that suits under these contracts would be brought in Ohio, whose courts are more experienced with and better able to
apply and interpret Ohio law consistently and predictably.
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The Company believes that the Ohio General Corporation Law provides important shareholder rights that are
not provided to shareholders of Delaware corporations. The Ohio General Assembly has a long history of taking legislative action to protect the interests of shareholders of Ohio corporations. These benefits would be lost if the Company
reincorporated to Delaware.
Third, reincorporating the Company in Delaware would involve substantial expense to the Company and would
require a substantial investment of management time that would be better spent on the Company’s business affairs. Reincorporation of the Company would require shareholder approval at a shareholders’ meeting. Shareholders who vote against
reincorporation and satisfy certain procedural requirements would be entitled to “appraisal rights” which would require the Company to purchase their shares and result in unnecessary expense to the Company. In addition, the Company would
be required to solicit and obtain consents to the reincorporation from a number of lenders and other third parties having contracts with the Company further increasing the cost and risk associated with a reincorporation.
Finally, the Company would be subject to additional state taxes if it reincorporates in Delaware, including the annual Delaware franchise tax, even
though the Company has no operations and no physical presence in Delaware. These added annual expenses would result in no additional benefit or value to the Company.
Ohio law currently requires that directors be elected by a plurality voting standard. The Ohio-mandated plurality voting standard has served the Company well, resulting in the election of highly-qualified,
well-regarded directors, and corporate governance ratings from various rating organizations that have been uniformly high compared to the Company’s peer group. Unlike what the proponent suggests, plurality voting has never resulted in the
election of directors who would not have been elected under a majority voting standard. In fact, since the Company went public in 1998, every nominee for election as director has received at least 94% of the votes cast.
Thus, the costs and detriments of reincorporation are certain and real; the asserted benefits – which relate only to majority voting and not to
reincorporation – are uncertain and disputable.
FOR ALL OF THE ABOVE REASONS, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
AGAINST THIS PROPOSAL.
A majority of the Common Shares represented at the annual meeting, in person or by proxy, and entitled to
vote on this proposal is necessary for approval. Abstentions will count as votes against the proposal. Broker non-votes do not count for voting purposes.
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SHAREHOLDER PROPOSALS
Shareholder proposals intended for inclusion in the Proxy Statement for the annual meeting of shareholders in 2008 must be received by the Company on or
before November 16, 2007 and must comply with Rule 14a-8 promulgated under the Securities Exchange Act of 1934. If a shareholder notifies the Company after January 30, 2008 of its intent to present a proposal, the Company will have the right to
exercise discretionary voting authority with respect to that proposal without including information regarding such proposal in its proxy materials. Proposals or notices should be sent to W. H. Hawkins II, Corporate Secretary, Convergys Corporation,
201 E. Fourth Street, P. O. 1638, Cincinnati, Ohio 45201-1638.
ADDITIONAL INFORMATION
Other Business
At the time this Proxy Statement was released for printing on March 8, 2007, the Company knew of no other matters which might be presented for action at the meeting. If any other matters properly come before the
meeting, it is intended that the Common Shares represented by proxies will be voted with respect thereto in accordance with the judgment of the persons voting them.
How We Solicit Proxies
In addition to this mailing, Convergys may solicit proxies personally,
electronically or by telephone. Convergys pays the costs of soliciting the proxies. We are paying Georgeson Shareholder Communications Inc. a fee of $10,500 plus expenses to help with the solicitation. We also reimburse brokers and other nominees
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