The board of directors of Community Health Systems is trying to beat another attempt to open annual board elections to outside nominees not already on the slate of candidates approved by the board.
Connecticut State Treasure Denise Nappier has put a so-called “proxy access” proposal before CHS shareholders at next month's annual shareholder meeting.
Nappier is making the proposal on behalf of the retirement plan for Connecticut state workers, which in May of last year reported owning 31,137 CHS shares with a market value of $1,605,112.
If approved, CHS shareholders with at least a 3% stake in company stock could propose board candidates for election. Those candidates would have to be put on the proxy ballot as long as they met certain minimal qualifications. The number of such candidates would be limited to one-quarter of the total board seats, according to the proposal in this year's CHS proxy.
CHS's board has nine members, including chairman and CEO Wayne Smith. The system is the nation's second-largest investor-owned hospital company. It is based in Franklin, Tenn.
Nappier said similar proxy-access provisions have been implemented at more than 60 public companies as a way to assure shareholders greater access to company decision-making.
"We believe proxy access is a fundamental shareholder right that will make directors more accountable and enhance shareholder value,” Nappier said in the proxy, adding that a 2014 study by the non-profit CFA Institute showed those reforms could raise overall US market capitalization by up to $140.3 billion if adopted market-wide.
Nappier made a similar request last year. CHS shareholders defeated that proposal by the narrowest of margins, with 50.21% of votes rejecting adoption.
The current CHS board of directors is opposing the proposal again this year. In its response, the board said its governance and nominating committee already gives consideration to board nominees.
Moreover, having a structure that requires the company to run a competing slate to the board's slate could be costly and deter qualified board members from wanting to participate.
The board's current vetting process has yielded such qualified appointments as Dr. H. James Williams, who was appointed an independent director last year. Williams serves as president of Mount St. Joseph University in Cincinnati, Ohio, and formerly served as president of Fisk University in Nashville, Tennessee, the proxy said.
In its opposition, the board also said the proposal was too broadly worded, potentially allowing lots of small shareholders to ban together to meet the threshold for nominating candidates.
"We believe that the proposal submitted by the proponent takes a “one size fits all” approach to proxy access without considering the company's corporate governance practices, which...already provide stockholders with a meaningful opportunity to hold the board accountable in the nomination and elections of directors,” the board argued in the proxy.
This isn't the first challenge the board has faced this year. Last month, a Boston hedge fund with a track record for investor activism in healthcare announced it had accumulated a 5.8% equity stake in CHS. North Tide Capital a year ago forced board and management changes at Healthways in Nashville.