A Cummins shareholder wants the Columbus-based company’s chairman of the board of directors to be independent — not, as has traditionally been the case, the company’s chief executive officer.
John Chevedden, a retiree who lives in Redondo Beach, Calif., plans to ask shareholders during the company’s May 14 annual meeting to adopt a policy that would prevent the Cummins CEO from also serving as chairman of the board to assure the board’s independence.
In Cummins’ proxy statement, released Monday, Chevedden also raised concerns about directors who serve on the board for too long and about executive compensation not being tied enough to company performance.
In the same proxy statement, which announced the agenda for the company’s annual meeting, Cummins said that its board is “truly independent” and urged shareholders to reject the proposal.
Cummins annual meeting
When: 11 a.m. May 14.
Where: Columbus Engine Plant, 500 Central Ave.
Presentation about the company’s performance in 2012 and current business conditions across the globe.
Election of board of directors.
Consideration of a shareholder proposal that aims to make the board of directors more independent.
Eligible to vote: Shareholders of Cummins’ common stock as of the close of business on March 15.
Chevedden said that when a company’s CEO serves as the board’s chairman, it might make it difficult for the board to truly monitor CEO performance. He said GMI Ratings, a New York City-based investment research firm, raised concerns about Cummins’ executive pay. GMI, according to its website, provides accounting and governance risk ratings for about 18,000 public companies worldwide.
Chevedden, who formerly worked for General Motors subsidiary Hughes Aircraft Co., told The Republic on Monday that many companies already have an independent chairman, which is the norm in the United Kingdom.
Though Chevedden acknowledged that among Fortune 500 companies it is common that the CEO serves as the chairman of the board, he said his proposal is gaining support in the U.S.
He said he has been a Cummins shareholder for at least 1.5 years. He said that last year he helped introduce similar proposals at about 10 companies and said three companies approved them, including Sempra Energy, which has 17,500 employees and generated 2012 income of $859 million. Cummins has about three times as many employees.
He said he also had made proposals for another eight companies that will consider them at their annual meetings this year.
Chevedden also said that some of Cummins’ highest-paid executives receive compensation that is not tied to company performance, as their stock options simply vest over time.
“Market-price stock options can provide rewards due to a rising market alone, regardless of an executive’s performance,” Chevedden said.
Cummins said in its response that Chevedden’s proposal is inflexible and “not in the best interests of our shareholders.”
Cummins said independent directors make up 89 percent of its board, and that CEO Tom Linebarger is the board’s sole company representative.
Further, Cummins said, the company’s corporate governance principles allow the board to choose whoever it believes can best serve the company and its shareholders, and that the current board believes Linebarger to be “best qualified to serve as our chairman.”
“The board is truly independent,” Cummins said, “and has an independent lead director (Alexis Herman) with the authority to ensure proper checks and balances.”
Cummins spokesman Jon Mills said via email that Cummins welcomes and respects shareholder ideas but does not believe Chevedden’s proposal to be necessary.
“Part of the Cummins mission is creating value for shareholders, and Cummins believes our current board structure puts us in the best position to deliver success not only for shareholders but for all stakeholders,” Mills said.