(Links added to proponent response below.)
The Board of Directors opposes this shareholder proposal and recommends that you vote against the proposal for the following reasons:
As discussed in more detail below, the Board of Directors believes that the proposal would introduce an unwieldy new process to the Company’s annual proxy statement, is unnecessary to ensure that shareholders receive adequate information, and could result in the Company’s proxy statement being an open forum for a self-styled proxy advisor to provide recommendations without any restriction as to the content or quality thereof.1 The Board’s position is based on the following reasons:
• The proposal, if implemented, would impose the obligation on the Company to hire a proxy advisory firm and to disseminate its recommendations, without regard to the qualifications and experience of the proxy advisory firm or the quality of its analysis of the issues presented.2 The proposal provides no means for the Company to ensure that shareholders receive adequate information about the proxy advisory firms seeking to be selected3 or that the voting advice presented by such firms is based on informed analysis and is not false and misleading.4
• The USEC Board of Directors is composed of eight experienced individuals, six of whom are independent directors. The Board believes that it is in the best position to provide shareholders with informed recommendations with respect to matters presented for shareholder vote. The Board of Directors has a deeper understanding of the many complex issues that impact decision-making with respect to this very unique corporation than an unsupervised proxy advisory firm can be expected to have.5
• The proposal does not require any minimum qualifications or experience for a proxy advisory firm to put itself on the ballot.6 Moreover, it does not give the Company the ability to limit the number of self-styled proxy advisory firms that could elect to place themselves on the ballot.7 In the event a large number of firms place themselves on the Company’s ballot, the vote could be unwieldy, and the winning firm could receive much less than a majority vote.8 This means that the Company’s proxy statement could become an open forum for a potentially unqualified entity chosen by a minority of the Company’s shareholders.
• Shareholders have access to a wide variety of resources and opinions regarding the types of matters that are typically presented for shareholder vote. The Board believes that engaging a proxy advisory firm through the process described in the proposal is not beneficial to shareholders and is not a prudent use of corporate funds.9
For the foregoing reasons we do not believe that this proposal is in the best interests of the Company or its Shareholders.
The Board recommends voting AGAINST this proposal, which is designated as Proposal Number 5 on the enclosed proxy.
PROPONENT'S RESPONSE TO THE ABOVE:
1. Only advisors selected by USEC shareowner vote would be able to provide recommendations in the proxy, so this would not be an "open forum" -- only as open as shareowners want to make it. It is true that the Board would not be able to impose any restriction as to the content of this advice. This is to prevent pro-Board bias in the advice. Quality control would come from an advisor's need to maintain its reputation for serving shareowner interests.
2. Shareowners would vote to choose a proxy advisor with regard to its qualifications and experience and the quality of its analysis track record.
3. I agree that shareowners will need adequate information about the advisory firms seeking to be selected. There are so many potential sources for this information that the proposal does not need to specifically "provide" such means. But the proposal does provide for advisory firms to give information about themselves. Of course such information may have a self-interested bias. (Compare this with the information provided in the proxy regarding director elections.) However, the Board would also be free to include in the proxy its own recommendations and information regarding which proxy advisor to choose, providing some balance to the process. But most important, shareowners would choose proxy advisory firms with reputations for serving shareowner interests. Such brand reputations would be based on evaluation and discussion by the broad financial community. By contrast, brand reputation is not a practical mechanism for individual director quality, since there are so many directors in the USA and each one has a limited track record in terms of years and number of firms served.
4. Again, these important quality issues would be handled by shareowners based on each advisor's reputation in the financial community. Board influence on advisor selection would undermine the advisor's independence.
5. The Board's insight and advice on proxy matters are indeed valuable. Shareowners would continue to benefit from the Board's advice in addition to that of an independent proxy advisory firm.
6. See note 4 above.
7. The proposal gives the Company the ability to limit the number of proxy advisory firms on the ballot by requiring an entry fee. The amount of the fee can be adjusted to keep this number manageable. To further encourage legitimate candidates and discourage others, the fee could be refunded to any candidate receiving more than (for example) 10% of the vote.
8. I agree it is undesirable for a voting system to allow winning with only a minority of the votes. This can be prevented by using a preferential voting system where voters rank the candidates -- see www.corpmon.com/VotingReform.htm .
9. The cost of voting advice is very small compared with the amount of shareowner funds at stake in proxy voting matters. Also, some shareowners now pay for proxy voting advice, but such advice only goes to those who pay for it. Under this proposal, all shareowners would receive the advice and all would share in paying for it, thus eliminating the "free rider" problem.
Response written by Mark Latham on March 31, 2004.