|
Investment
Office
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(916)
795-3400 phone
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(916)
796-2842 fax
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www.calpers.ca.gov
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March
26, 2009
Dear Shareowner of Eli Lilly &
Co.:
The Annual Meeting of Shareowners of Eli
Lilly and Company will be held on Monday, April 20, 2009.
I am writing to you on behalf of the
California Public Employees’ Retirement System (CalPERS). CalPERS is
the largest public pension system in the U.S. with approximately $172 billion in
assets. We manage retirement benefits and health insurance on behalf
of nearly 1.3 million members.
CalPERS is a significant long-term
shareowner of Eli
Lilly and Company (“Eli Lilly”) owning approximately 3.4 million
shares. We are writing to call your attention to the Annual Meeting
of Shareowners to be held on April 20, 2009 and an important proposal that urges
the Board to give shareowners the right to amend the company’s bylaws by a
simple majority vote. CalPERS
urges Eli Lilly shareowners to vote “FOR” Proposal 6.
POOR
LONG-TERM STOCK PERFORMANCE & GOVERNANCE PRACTICES
|
Time
period ending |
Lilly
(Eli) & Co |
Russell
1000 Index |
Relative
Return
Russell
1000 |
Pharmaceuticals Biotechnology
& Life |
Relative Return |
|
5
years
|
-53.3%
|
-28.1%
|
-25.2%
|
18.5%
|
-71.8%
|
|
3
years
|
-41.1%
|
-39.1%
|
-2.0%
|
-11.9%
|
-29.2%
|
|
1 year
|
-38.4%
|
-43.6%
|
5.2%
|
-17.6%
|
-20.8%
|
*Source:
Factset
CalPERS believes directors should be
accountable to shareowners. Significant long-term total stock return
underperformance and the existence of egregious corporate governance practices
at Eli Lilly suggest an appropriate level of board accountability is
lacking. For example:
|
·
|
Eli Lilly & Company’s stock
has underperformed relative to the Russell 1000 index and its industry
peer group over the 3 and 5 year time periods ending February
27,
2009.
|
|
·
|
The company does not allow
shareowners the right to amend the company’s bylaws, a right that is
granted at approximately 96% of companies in the S&P
500.
|
|
·
|
In addition, shareowners do not
have the right to call special meetings, remove directors without cause,
fill board vacancies, or act by written
consent.
|
|
·
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In 2007 and 2008 a management
proposal to declassify the board of directors failed to attain the 80%
supermajority requirement receiving support of 75% and 77% of the
outstanding shares voted respectively. Despite
intensifying support, the classified board remains in
place.
|
CalPERS
Public Employees’ Retirement System Shareowner Alert
LACK OF
ACCOUNTABILITY - NEED FOR IMPROVED GOVERNANCE PRACTICES
|
·
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Eli Lilly has been named to the
CalPERS Focus List in the last 2 out of 3 years for long-term stock price
underperformance and significant governance issues at the
company. We also remain concerned about the company’s continued
lack of meaningful response to investor wishes regarding past shareowner
proposals. On February 17, 2009, CalPERS was one of 24 investor
signatories to the Council of Institutional Investors (the Council) letter
urging the company to address a simple majority vote standard proposal
which received majority support in 2007 and 2008 [letter
attached].
|
YOU CAN HELP
– VOTE FOR PROPOSAL #6
|
·
|
Send a powerful message by voting
FOR proposal # 6 on Eli Lilly’s proxy
card.
|
|
·
|
Ensure every account, no matter
how many or how few shares, supports this
proposal.
|
|
·
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Furthermore, we ask our fellow
investors – to publicize their vote when cast. We believe this
will further unite and encourage investors to both support – and benefit
from – this campaign.
|
|
·
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Do not be misled. If
you are a large holder and find yourself under pressure from Eli Lilly
management to vote against our proposal, ask yourself why defeating this
initiative – which is intended to improve board accountability, shareowner
rights, and shareowner value – is so important to
them.
|
Please refer to the company’s proxy
statement for more information. If you have any questions or need
assistance in voting your shares, call BNY Mellon Shareowner Services, who is
assisting us with this effort, at 201-680-5235.
Sincerely,
Eric Baggesen
Senior Investment Officer – CalPERS
Global Equity
PLEASE
NOTE: The cost of this
solicitation is being borne entirely by CalPERS and is being done through the
use of one or more of the following forms of communication: mail, e-mail, and/or
telephone communication. CalPERS is not asking for your proxy
card. Please
do not send us your proxy card but return it to the proxy-voting agent in the
envelope that was provided to you.
CalPERS
Public Employees’ Retirement System Shareowner
Alert
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COUNCIL OF INSTITUTIONAL INVESTORS
|
|
Suite 500 • 888 17th Street, NW • Washington, DC 20006 •
(202) 822-0800 •
Fax (202) 822-0801 •
www.cii.org
|
February 17, 2009
John C. Lechleiter
Chair, President and
CEO
Eli Lilly & Co.
c/o Corporate
Secretary
Lilly Corporate
Center
Indianapolis, IN 46285
Dear Mr. Lechleiter:
On behalf of the Council of
Institutional Investors and the undersigned member funds, I am writing to urge
the Eli Lilly board to adopt the recommendations in a shareowner proposal that
received majority support at the company’s 2007 and 2008 annual
meetings.
The Council is a not-for-profit
association of 140 public, corporate and union pension funds with total assets
that exceed $3 trillion. This is the Council’s fourth letter to you about this
matter. We are disappointed that we have not received a response to our last
letter dated August 27, 2008 and that a review of Eli Lilly’s filings with the
Securities and Exchange Commission and other reports suggests that the company
has not acted on the proposal.
As you are aware, the proposal asking
Eli Lilly to eliminate its supermajority voting provision won a majority of the
votes cast for and against for the past two consecutive years. The Council’s
calculations exclude abstentions and broker non-votes. Moreover, Eli Lilly’s
shareowners continue to show strong support for this measure, evident through
shareowner sponsorship of a similar proposal that will come to a vote at the
company’s April 20, 2009 annual meeting.
As fiduciaries of pension plans, Council
members are concerned about corporate performance and believe that boards should
respond to majority-vote-winning shareowner proposals by adopting the
recommended actions.
The Council and concerned members below
urge the board to conduct a thoughtful and balanced analysis of the issues
raised by the majority-vote-winning shareowner resolution. A committee of
independent directors should perform the initial review. Senior management
should not be involved. Council members encourage the board or committee to seek
expert advice on the pros and cons of the measure.
February 17, 2009
Page 2 of 4
Please share this letter with the full
board. We look forward to your response, which will be posted on the Council’s
Web site (www.cii.org). Please contact Council Analyst Laurel Leitner at (202)
261-7086 with any questions.
|
Sincerely, |
|
 |
|
|
Ann Yerger |
|
|
Executive
Director |
|
|
Council of Institutional
Investors |
|
 |
 |
|
Daniel
Pedrotty |
Scott |
|
Director, Office of
Investment |
Vice President - Director of
Corporate |
|
AFL-CIO |
Governance |
|
Amalgamated
Bank |
|
 |
 |
|
David F.
Stupar |
Bill
McGrew |
|
Executive
Director |
Portfolio
Manager |
|
Bricklayers & Trowel Trades
International |
California Public Employees’
Retirement |
|
Pension
Fund |
System |
 |
 |
|
Dan Koeppel |
Meredith
Williams |
|
Executive
Director |
Executive
Director |
|
Central Laborers' Pension
Fund |
Colorado Public Employees’
Retirement |
|
Association |
|
|
February 17,
2009 |
|
|
Page 3 of 4 |
|
 |
 |
|
Heather H. Williamson,
CFA |
Michael
McCauley |
|
Senior Investment
Manager |
Senior Corporate Governance
Officer |
|
ELCA Board of
Pensions |
Florida State Board of Administration
(SBA) |
 |
 |
|
Colin
Melvin |
William R.
Atwood |
|
Chief Executive
Officer |
Executive
Director |
|
Hermes Equity Ownership Services
Ltd. |
Illinois State Board of
Investment |
 |
 |
|
Warren Mart |
Michael Lostutter, CEBS,
RPA |
|
General
Secretary-Treasurer |
Executive
Director |
|
International Association of
Machinists and |
IUE-CWA Pension
Fund |
|
Aerospace Workers
and |
|
|
Co-Chairman of the Board of
Trustees |
|
|
IAM National Pension
Fund |
|
 |
 |
|
Michael A.
Perez |
Lance E.
Lindblom |
|
General
Manager |
President and
CEO |
|
Los Angeles Fire and Police
Pensions |
The Nathan Cummings
Foundation |
 |
 |
|
William G.
Clark |
Thomas P.
DiNapoli |
|
Director |
New York State
Comptroller |
|
New Jersey Division of
Investment |
New York State Common Retirement
Fund |
|
February 17,
2009 |
|
|
Page 4 of 4 |
|
 |
 |
|
Janet
Cowell |
Carol Nolan
Drake |
|
Treasurer |
Chief External Affairs
Officer |
|
North Carolina Retirement
Systems |
Ohio Public Employees Retirement
System |
 |
 |
|
Frank
Curtiss |
Denise L.
Nappier |
|
Head of Corporate
Governance |
Treasurer |
|
RAILPEN
Investments |
State of Connecticut |
 |
 |
|
Gail L.
Hanson |
R. Dean
Kenderdine |
|
Deputy Executive
Director |
Executive
Director |
|
State of Wisconsin Investment
Board |
State Retirement and Pension
System of |
|
Maryland |
|
 |
 |
|
Michael
Nehf |
Joseph A.
Dear |
|
Executive
Director |
Executive
Director |
|
State Teachers Retirement System
of Ohio |
Washington State Investment
Board |