Reynolds American Inc.'s board of directors approved an about-face Thursday on how long members can serve, deciding on a declassification that permits annual re-election.
An overwhelming majority - more than 1.2 billion shares - were voted in favor of ending the practice of Reynolds' directors serving three-year terms on a staggered basis.
Shareholders also overwhelmingly approved doubling the number of authorized shares of common stock from 1.6 billion to 3.2 billion. Reynolds also has 100 million preferred shares.
With the approval, the terms of all directors will expire at the 2017 shareholder meeting, with re-election for one-year terms beginning then.
Shareholder proposals requesting a declassified board were submitted in 2009, 2010, 2011 and 2013, with the board recommending against each one. Each proposal was defeated, though each received at least 34 percent of votes cast.
Another proposal made for 2016 was withdrawn in lieu of the board's proposal.
Thomas Wajnert, Reynolds' chairman, said Thursday that the change "is in the best interests of Reynolds and its shareholders."
Previously, the board said "a staggered board allows Reynolds to attract highly qualified directors who are willing to commit the time and resources necessary to understand Reynolds and its operating companies' businesses, operations and strategies, thereby providing continuity and stability in decision-making.
"Directors who have served Reynolds for multiple years are well-positioned to take a long-term perspective and make the decisions necessary to maximize shareholder value in the long run while being sensitive to short-term needs or objectives."
In submitting the amendment, Reynolds directors said they noted that less than 10 percent of S&P 500 companies have classified boards.
"Furthermore, a classified board structure may appear to reduce director accountability to shareholders, since such a structure does not enable shareholders to express a view on each director's performance by means of an annual vote," according to the proxy.
"In addition, declassification and annual elections of directors would allow flexibility for the board composition to be modified sooner, rather than later, to expand needed skill sets on the board as new expertise needs related to the evolving nature of the businesses of Reynolds and its subsidiaries arise."
The board said that as a result of the 2-for-1 stock split in 2015, the number of shares of Reynolds common stock outstanding and entitled to vote doubled.
However, the number of shares of common stock authorized was not changed.
Shareholders voted against requiring Reynolds to agree to participate in mediation "of any specific instances of alleged human rights violations involving the company's operations" if it is offered. The proposal would not bind the company to the outcome.
Listed as potential human rights violations are freedom of association and recognition of right to collective bargaining; elimination of all forms of forced or compulsory labor; abolition of child labor; and elimination of discrimination in respect to employment and occupation.
The other defeated proposal wanted Reynolds to set a preference of conducting a share repurchase before a dividend increase, saying it offers shareholders a lower tax liability.
Reynolds American has paid a dividend every quarter since its formation in July 2004 as part of Reynolds Tobacco's purchase of Brown & Williamson Tobacco Corp.
Reynolds' policy is to return 75 percent to 80 percent of the company's current-year net income to shareholders in the form of dividends.
A company typically buys back its shares from the marketplace to reduce the number of outstanding shares. Because there are fewer outstanding shares, those remaining can become more valuable. Companies also buy back shares when they believe the shares are undervalued.
Reynolds put on hold share repurchases as part of controlling expenses following the $29.25 billion deal for Lorillard that was closed June 12.
firstname.lastname@example.org (336) 727-7376 @rcraverWSJ
© © Copyright 2016, Winston-Salem Journal, Winston-Salem, NC, source Newspapers